Blockchain is a trending topic around the globe, yet an understanding of the technology eludes many. This article attempts to unravel the complexities surrounding blockchain and simplifies the concept.
Blockchain is a form of distributed ledger or decentralized database that keeps records of digital transactions. A distributed ledger has a network of replicated databases, synchronized through the internet and visible to all within the network. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.
When a digital transaction is executed, it is gathered in a cryptographically protected block with other transactions that have occurred in the last ten minutes and sent out to the entire network. Members in the network with high levels of computing power (miners) validate the transactions by solving complex coded problems.
The validated block of transactions is then timestamped and included to a chain. New blocks of validated transactions are chronologically linked to older blocks, making a linear chain of blocks. The entire chain is continually updated so that every ledger in the network is the same.
How is it disrupting traditional online financial remittance: disintermediation
In a traditional environment, trusted third parties act as intermediaries for financial transactions. Money transferred online passes through an intermediary (usually a bank) who charges a fee for its services, which includes authentication & record keeping. And after three to four days the transfer is completed.
Blockchain’s decentralized, open-source technology and cryptography builds trust in the network, subsequently leading to peer to peer transactions, without an intermediary. The intermediary is replaced by the collective verification of the ecosystem offering a huge degree of record, security and speed.
Blockchain brings unique security benefits as it makes hacking impossible. This is because, a hacker would not only need to break into that specific block but also the preceding blocks along the entire history of that blockchain. And this will need to be done simultaneously on every million of the ledger in the network.
In a public blockchain, there are multiple versions of nodes on a network acting simultaneously as executors of transactions and miners. Transactions are collected into blocks before being added to the blockchain.
Importance of blockchain technology
- It can be public or private. In private mode the nodes are simply points in a private network and the blockchain acts similarly to a distributed ledger. Financial institutions are implementing blockchain towards compliance and at reduced costs.
- Its application will grow given its versatility in any multistep transaction where audit and visibility is required. Supply chain is one such use case where blockchain can be used to manage and sign contracts and trace product origin.
- Its disruptive growth to an ecosystem where firms, customers, and suppliers can collaborate will emerge at the juncture of public and private blockchains.
Impact on SMB and Startups
Blockchain has the potential to expand the global financial system and render it accessible to all. It will give Startups and SMBs, with limited exposure to the global economy, better access to financial and payment systems. So, more entrepreneurs will engage in cross-border trade frequently and efficiently. As it renders financial intermediaries’ obsolete, blockchain also provides an inexpensive protection against fraud, corruption, and exploitation.
Blockchain is driving a fundamental shift, through consensus and complex computer code, from the Internet of information – instant view, exchange, and communication of information – to the Internet of value – instant exchange of assets.