Blockchain 101: Do We Really Need Blockchain?
Change and the ability to adapt to change have always been at the heart of our evolution as a species. There are almost infinite factors that determine the change in our modern world. Regardless of we want to accept it or not, technology is a key element towards achieving this change.
Nowadays, concepts such as AI and IoT are on most people’s lips. Not only that, but there’s a good chance everyone has at least one device in their vicinity that makes use of one, if not both, these technologies.
Over the past couple of years, there are two new runner-ups that captured part of the spotlight. These are cryptocurrency and blockchain technology. Some argue that cryptocurrency (Bitcoin specifically) is the century’s most important invention.
However, if cryptocurrencies were to magically vanquish tomorrow, there is something that will remain behind them, and that something is the blockchain. The blockchain is such an incredible technology that it has been actively changing our traditional business models and has impacted a lot of aspects most of us are still unaware of.
In simple terms, a blockchain is a virtual, public ledger that records every information securely and transparently. It’s the blockchain that allows cryptocurrencies to be decentralized. The data is held in an interlinked, complex network of computers scattered all around the world, owned and run by no other than the users themselves. The blockchain puts the power back in the users’ hands.
A case for why we really need blockchain
One of the blockchain’s most important advantages is that it facilitates consensus within a trustless environment. Through a smart incentive system, a series of actors who have no reason to trust each other can reach an agreement over something that can be regarded as the truth before it is added to the chain.
The ledger itself is replicated across the network of validators using cryptography tech. This means that even though in theory a hack would be possible, in practice, it’s almost impossible. Blockchain greatly improves over our existing database technology as it’s more efficient, more cost-effective, and more secure. Of course, it has to be said that traditional databases have clear advantages over the blockchain in terms of performance. However, their biggest drawback is the fact that they are centralized, with the management of data placed in the hands of just a few entities.
There are four types of blockchain: permissionless blockchains, permissioned blockchains, public permissioned blockchains, and private permissioned blockchains. Ethereum and Bitcoin both are permissionless blockchains, meaning that anyone can operate as full nodes and start mining. In the case of the permissioned blockchain, only a limited number of users are authorized to join. Public permissioned blockchains are basically permissioned blockchains, but the data is available for public view. Conversely, data is restricted from public view in the case of private permissioned blockchains.
Smart contracts – probably the most important aspects of blockchains, alongside the Ethereum platform are responsible for most of the blockchain adoption as of late. A smart contract is an agreement written in code that predefines how a certain transactions will play out. If the conditions are met, the agreement will self-execute. Smart contracts do a very important thing: they remove human input from the equation. Smart contracts are constantly influencing multiple industries.
Main practical benefits of the blockchain
Thanks to its unique nature, blockchain provides businesses with greater transparency, enhanced security, improved traceability, increase efficiency and speed, as well as reduced costs.
Because the blockchain is a distributed ledger, all network participants share the same view and data. That shared version of the data can be updated through a consensus which means that everyone must agree on it. Data on a blockchain is more accurate, consistent, and transparent. It’s also available to all network participants.
Following the same idea, transactions must be agreed upon before they are recorded. After a transaction is approved, it is encrypted and linked to the previous transaction. That’s what makes the blockchain perfect for industries such as financial services, government data management, and even healthcare.
Trading is made a lot less time-consuming since it doesn’t require third-party mediation. Clearing settlements can occur much quicker on the blockchain. The fact that blockchains do not require intermediaries is also the primary reason they help businesses save money.
Industries disrupted by the blockchain
We all know that the blockchain is perfectly designed to enhance and disrupt the financial industry. However, its uses-cases surpass that of any other technology of this sort. For supply chain management, blockchain technology offers traceability and cost-effectiveness. Thanks to its unique traits, blockchains can easily track the movement of goods, their origin, and a bunch of other aspects.
Quality assurance is another industry that may very well be revolutionized by blockchains. For example, if an irregularity is detected somewhere along the supply chain, it’s easy to see how a blockchain can be used to accurately determine the point of origin.
Accounting is one industry that is very susceptible to human error. With the help of blockchains, recording transactions would virtually eliminate this problem. In addition, blockchains also guarantee a high accuracy for the records and provides a highly traceable audit trail.
As mentioned before, one of the most interesting aspects of blockchains is how they allow consensus to be reached. When it comes to voting, it all comes down to trust. In the future, we might very well see blockchain technology powering local or national elections. Blockchain has the potential to significantly diminish electoral fraud.
Blockchain 101: Conclusion
It’s quite clear that blockchain has a lot of use-cases, a lot more than we were able to present in this article. There’s still a lot of development to be done until the technology achieves maturity and it will change the way we live our lives.