What is Blockchain? This is a very common question and forms part of our Frequently Asked Questions resource library that we are building.
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Blockchain is a relatively new term, only gaining prominence around 2015, as the Google Trends graph shows below. The search volumes on Google have certainly increased exponentially from 2015 onward.
It’s pointless re-inventing the wheel, when there are so many great resources that have already answered the question “What is Blockchain?”.
Here are 3 really great videos that answers the question:
World Economic Forum Video
Simplified Explanation of Blockchain on Ted Talk
Blockchain Simply Explained in Context of Financial Services
To understand what Blockchain is, lets examine some of its characteristics:
- Blockchain is decentralised or distributed. This means that there is no central authority or body controlling it. Its a network of nodes that are synchronised. Each node is a computer that saves a copy of the entire blockchain. A node relays a transaction on the blockchain and also validates it. So nodes (or people controlling the nodes) take on the responsibility that traditional centralised bodies took, to identify and validate a transaction.
- The Blockchain is immutable. This simply means that it is incorruptible. Once a transaction is recorded, it can’t be changed. Millions of computers in the node checks and validate the blockchain network many times in a day. It easy to manipulate one, maybe two, or even ten computers. However, trying to manipulate millions of computers with the same records, is nearly impossible. Its of course not 100% safe, as there is a small possibility that someone could invest a super computer that could manipulate the blockchain network. However, practically, this is almost impossible – at least for now.
- Consensus is needed for a transaction to be concluded on the Blockchain. Before a transaction is concluded on the blockchain, it must be validated through consensus. So the network will validate the identity of the transacting parties – confirming who they say they are. It also seeks agreement about the terms of the transaction. Once consensus is reached, only then can the transaction be concluded. This process helps to deal weed out fraudulent or inaccurate transactions, adding a further layer of security.
- The Blockchain facilitates “smart contracts”. The characteristics (or legal terms) of a transaction are stored on the blockchain, and contracts are concluded according these rules. So everyone is forced to play by the rules. Think of a stock exchange. The exchange verifies the identity of the buyer and the seller. It then administers the contract between the buyer and the seller, ensuring that the seller delivers the right amount of shares to the buyer and that the buyer pays the agreed amount of money to the seller in exchange. On a blockchain, the transaction is automatically validated and settled using smart contracts.
It is these very characteristics that make the blockchain so interesting and revolutionary. When used in the right way, it has the potential to disrupt many industries and businesses.
Possible Uses of Blockchain
There are many large and small players, as well as governments, looking into how they can use the Blockchain. Here are some examples:
- Payment systems: Blockchain powered the Bitcoin transaction and is the best known and most proven use of this new technology. It offers huge advantages, especially in the developing world, where people don’t have access to banks or even an identity in some cases.
- Asset Registry: Physical assets such as property and diamonds, or digital assets such as movies and music, can be cryptographically registered on the blockchain network. Any transaction related to this asset can be carried out and validated on the blockchain. For example, imagine how quickly a property transaction could be concluded if all information related to that property resided accurately and truthfully on the blockchain.
- Exchanges: Banks, other organisations and people could transact with each other, without going through an exchange. For example, banks are exploring how they can trade between themselves without going through a clearing house.
- Digital Identity: Once you get your identity on the blockchain and its verified, you would never need to carry an identity card or passport ever again. The blockchain could for example store any bio metric information related to you, that would easily identify you through suitable technology. Using the blockchain, tracking and managing of digital identities can be done in a secure way. Fraud can be avoided. For example, a blockchain based identity can be used as a passport, driver’s license, birth certificate, benefits claim, etc.
- Digital Voting: The blockchain would avoid vote rigging and speed up the vote counting process, ensuring an efficient, free and fair voting process.
Let me know if you can think of more example. We’ll keep updating this post.
In conclusion, Blockchain can’t be ignored. Its a revolution akin to the internet. It will bring about many changes to the world we live in. Hopefully for the better.
Many are experimenting with possible uses of this new technology. Solutions remain in Proof of Concept (POC) at the time of writing. As we get to better understand this technology, I have no doubt that solutions will move out of POC and into mainstream business.
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