Behind the Buzz word of Blockchain
Blockchain fever is high today. We can hear “Blockchain” everywhere. But, what is blockchain really about? How does it work? Why is it turning to a big hype? What problems can it solve?
Let’s get to know the answers to these questions here :
What is Blockchain?
Blockchain is a decentralized, distributed, trustless and incorruptible digital ledge of transactions ( financial like payment or anything of value like a simple order) working in the shape of a Peer to Peer (P2P)network. Let’s make it easier to understand, it is just a chain of blocks. Each block contains mainly three different digital information of the details of the transaction made (date, time and amount), digital signature of the participant in transaction and a hash which is like a distinguishing unique name for each block.
Now this block has to be added to the chain of block.
How does it work?
So when a transaction is done, now it’s time for it to be verified by a network of computers (nodes) which might consist thousands or millions of computers to make sure the transaction is done exactly like how it is claimed. Once the verification is done and the transaction is given the pass stamp, transaction data and parties’ digital signatures are stored in a block and the block is given a hash and added to the chain.
Distributed consensus in blockchain is achieved through different mechanisms wwhcih two of them are Proof of Work ( PoW) or Proof of Stake ( PoS). Proof of work is a mechanism mainly used in Bitcoin where there are miners, who can be any of the nodes, mining, meaning to solve puzzle or mathematical equations. The one who manages to solve the questions first will be rewarded with a new block. PoW mechanism consumes a lot of electrical power and energy. The miner with better mining equipment can have more share in a chain or even team up with other miners to shape a mining pool and eventually rather turn it to a centrally controlled network.
However, PoS doesn’t let everyone mine for the blocks and so it consume considerably less energy. It instead has few validators who have deposited some amount of stake like a security deposit to be able to mint new blocks and not mine it. The bigger the amount of deposit, the higher chances the node has to be the validator. The node here only receives a transaction fee as a reward and if they make a mistake to validate a wrong transaction, they will be punished. Therefore, every node will try it’s best to make sure it is validating the right transaction to be able to make some money.
Why is everyone talking about Blockchain?
As it is a decentralized technology, therefore it cannot be controlled by a single authority which means less corruption and manipulation. It also makes it more transparent, accurate and secured with higher chances of validity.
It is cost and time efficient as the validation and verification of transactions are done immediately rather than going through a long and expensive processes of getting checked by authorities.
Where can it be helpful?
Due to its characteristic and advantages the primary beneficiary of blockchain technology has been the finance industry to provide a more transparent and time and cost efficient transaction especially when it comes to international remittances.
However, blockchain never end in finance industry and can be a great aid in developing more efficient governance, auditing, data storage, identity management, election land registration, data management and generally speaking anywhere and in any industry that needs transparency and efficiency.
Blockchain can also be a great approach to address challenges in developing countries such as weak institution, financial inclusion and empowerment.
Today, blockchain technology is widely adopted in banking, medical, manufacturing, logistic and transportation, cyber security and legal industry.
As the world is moving towards globalization there will be bigger and bigger amount of international transactions of any type of value which increases the demand in transparency and security and so the need for technologies like blockchain. The buzz has already started to settle and the real work has started.