A blockchain, originally block chain, is a growing list of
records, called blocks, which are linked using cryptography. Each block
contains a cryptographic hash of the previous block, a timestamp, and
transaction data. By design, a blockchain is resistant to modification of the
data.
The blockchain is an undeniably ingenious invention – the brainchild of a
person or group of people known by the pseudonym, Satoshi Nakamoto. But since
then, it has evolved into something greater, and the main question every single
person is asking is: What is Blockchain?
Blockchain technology enables distributed public ledgers that hold immutable
data in a secure and encrypted way and ensure that transactions can never be
altered. While Bitcoin and other crypt currencies are the most popular
examples of blockchain usage, this “distributed ledger technology” (DLT) is
finding a broad range of uses. Data storage, financial transactions, real
estate, asset management and many more uses are being explored.
By allowing digital information to be distributed but not copied, blockchain
technology created the backbone of a new type of internet. Originally devised
for the digital or crypto currency, Bitcoin "The 1st digital currency on
the Blockchain".
A blockchain is, in the simplest of terms, a time-stamped series of immutable
record of data that is managed by cluster of computers not owned by any single
entity. Each of these blocks of data (i.e.block) are secured and bound to each
other using cryptographic principles (i.e. chain).
The blockchain network has no central authority — it is the very definition of
a democratized system. Since it is a shared and immutable ledger, the
information in it is open for anyone and everyone to see. Hence, anything that
is built on the blockchain is by its very nature transparent and everyone
involved is accountable for their actions.
Explaining
the Blockchain
blockchain carries no transaction cost. (An infrastructure cost
yes, but no transaction cost.) The blockchain is a simple yet ingenious way of
passing information from A to B in a fully automated and safe manner. One party
to a transaction initiates the process by creating a block.
This block is verified by thousands, perhaps millions of computers
distributed around the net. The verified block is added to a chain, which is
stored across the net, creating not just a unique record, but a unique record
with a unique history. Falsifying a single record would mean falsifying the
entire chain in millions of instances.
That is virtually impossible. Bitcoin uses this model for monetary
transactions, but it can be deployed in many others ways.
Think
of a Railway Company
We buy the railway tickets on a mobile app or their website. The
credit card company takes a cut for processing the transaction.
With blockchain, not only can the railway operator save on credit
card processing fees, it can move the entire ticketing process to the
blockchain.
The two parties in the transaction are the railway company and the
passenger. The ticket is a block, which will be added to a ticket blockchain.
Just as a monetary transaction on blockchain is a unique, independently
verifiable and unfalsifiable record (like Bitcoin), so can your ticket be.
Incidentally, the final ticket blockchain is also a record of all transactions
for, say, a certain train route, or even the entire train network, comprising
every ticket ever sold, every journey ever taken.
But the key here is this: It’s totally Free!
Not only can the blockchain transfer and store money, but it can
also replace all processes and business models which rely on charging a small
fee for a transaction. Or any other transaction between two parties.
Here is another example. The gig economy hub "Fiverr"
charges 0.5 dollars on a $5 transaction between individuals that are buying and
selling services to each others. Using blockchain technology the transaction is
free. Ergo, Fiverr will cease to exist. So will auction houses and any other
business entity based on the market-maker principle.
Even recent entrants like Uber, Careem and AirBnB are threatened
by blockchain technology. All you need to do is encode the transactional
information for a car ride or an overnight stay, and again you have a perfectly
safe way that disrupts the business model of the companies which have just
begun to challenge the traditional economy. We are not just cutting out the
processing fee of middle party, we are also eliminating the need for the
match-making platform and the charge back issues.
Because blockchain transactions are free, you can charge minuscule
amounts, say $0.01 for watching a video view or reading an article. Why should
I pay The Economist or National Geographic an annual subscription fee if I can
pay per article on Facebook or on my favorite chat app. Again, remember that
blockchain transactions carry no transaction cost. You can charge for anything
in any amount without worrying about third parties cutting into your profits.
Blockchain may make selling recorded music profitable again for
artists by cutting out music companies and distributors like Apple or Specify.
The music you buy could even be encoded in the blockchain itself, making it a
cloud archive for any song purchased. Because the amounts charged can be so
small, subscription and streaming services will become irrelevant.
It goes further. EBooks could be fitted with blockchain code.
Instead of Amazon taking a cut, and the credit card company earning money on
the sale, the books would circulate in encoded form and a successful blockchain
transaction would transfer money to the author and unlock the book. Transfer
ALL the money to the author, not just meager royalties. You could do this on a
book review website like Good reads, or on your own website. The marketplace
Amazon, Ebay, Souq, ..etc are then unnecessary. Successful iterations could
even include reviews and other third-party information about the book.
In the financial world the applications are more obvious and the
revolutionary changes more imminent. Blockchains will change the way stock
exchanges work, loans are bundled, and insurances contracted. They will
eliminate bank accounts and practically all services offered by banks. Almost
every financial institution will go bankrupt or be forced to change
fundamentally, once the advantages of a safe ledger without transaction fees is
widely understood and implemented. After all, the financial system is built on
taking a small cut of your money for the privilege of facilitating a
transaction. Bankers will become mere advisers, not gatekeepers of money.
Stockbrokers will no longer be able to earn commissions and the buy/sell spread
will disappear.
How
Does the Blockchain Work?
Capture a spreadsheet that is duplicated thousands of times across
a network of computers. Then imagine that this network is designed to regularly
update this spreadsheet and you have a basic understanding of the blockchain.
Information held on a blockchain exists as a shared — and
continually reconciled — database. This is a way of using the network that has
obvious benefits. The blockchain database isn’t stored in any single location,
meaning the records it keeps are truly public and easily verifiable. No
centralized version of this information exists for a hacker to corrupt. Hosted
by millions of computers simultaneously, its data is accessible to anyone on
the internet.
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