What Is Blockchain Technology and How It Works?

Here, I would like to define each term with a clear definition. A blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, traders can confirm transactions without a necessity of a central clearing authority. Potential applications can include fund transfers, settling trades, voting, and many other issues. This not only reduces risk but also eliminates many of the processing and transaction fees.

The record-keeping system behind the Bitcoin network for which blockchain technology was invented. A cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.

Blockchain is very promising and revolutionary technology because it helps minimize risk, stamps out fraud and brings transparency in a scalable way for infinite applications in all segments.

Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.

Blockchain Technology Key Points

Blockchain Technology Brief Understanding

Blockchain is a bit complex, and it surely can be, but its main focus is really very simple. As said, a blockchain is a type of database. To be able to understand blockchain, it helps to first understand what a database actually is.

Well, a database is a set of information that is stored digitally on a computer system. Information, or data, in databases is typically structured in table format to allow for easier searching and filtering for specific information. What is the difference between someone using a spreadsheet to store information rather than a database?

Spreadsheets are designed for one person, or a small group of people, to store and access limited amounts of information. In contrast, a database is designed to house significantly larger amounts of information that can be accessed, filtered, and manipulated quickly and easily by any number of users at once.

Large databases achieve this by housing data on servers that are made of powerful computers. These servers can sometimes be built using hundreds or thousands of computers in order to have the computational power and storage capacity necessary for many users to access the database simultaneously. While a spreadsheet or database may be accessible to any number of people, it is often owned by a business and managed by an appointed individual that has complete control over how it works and the data within it.

As per global belief, Blockchain technology was invented by Satoshi Nakamoto. As we talked earlier in this topic, blockchain is a chain of blocks that contains information. Each block consists of a number of transactions and each transaction is recorded in the form of Hash. Hash is a unique address identify to each block during its creation and any further modification in the block will lead to a change in its hash.

A block has mainly 3 parts:

1. Data/Information part- contain the information of the transaction incurred
2. Hash- Unique ID of block
3. Previous Hash- Hash of previous block

Since in a Blockchain, every block has the hash of its previous block, therefore if anyone tries to temper with the data in some block then the hash of the block will be changed.  Hence, the data in the Blockchain is temper proof and maintains its authenticity.

1. Data stored in blockchain is immutable and cannot be changed easily. Also the data is stored to the block after it is approved by everyone in the network and thus allowing secure transactions. Those who validate the transactions and add them in block are called miners.
2. Blockchain is Decentralized as well as an open ledger. Ledger is the record of the transactions done and because it is visible to everyone, therefore is called an open ledger. No individual or any organization is in-charge of the transactions. Each and every connection in the blockchain network has a same copy of the ledger.
3. Blockchain’s peer to peer network characteristic allows the transactions to involve only two parties, the sender and the receiver. Thus it removes the requirement of ‘third party authorization’ because everyone in the network is themselves able to authorize the transactions.

Blockchain Technology Key Characteristics

Do you ever think why blockchain technology is being adopted by every corner and industry around the world? There are numerous benefits behind it and we will witness soon the revolution in our global finance arena, see the key characteristics of the blockchain technology and reasons why it’s much talked.

1.  Decentralization

Traditionally, all the information is stored in local computers and devices monitored by single entities. If any of those devices shut down or employees goes unavailable, it becomes difficult to access or restore the information in real time. This is one of the core use cases of blockchain in the enterprise world.

The technology comes up as a distributed ledger database for business, which implies a single database where all the information is stored in blocks. The data is not controlled by any single node, which makes it possible for other nodes to process the information even when a single node is going down.

2.  Traceability 

In the blockchain system, all the information is stored and made accessible publicly. Everyone can view the information and even makes changes to ensure no false data is employed. However, all the processing is governed by blockchain consensus algorithms, which means that no one can make changes without the consent of other participants. Furthermore, every single action is recorded in the nodes.

This way, blockchain ensures traceability in the business communications and encourages support for better business relationships. Something that counts under the ways using blockchain for business communication is effective.

3. Faster Settlement

Traditional banking systems can be slow, as they require a lot of settlement time which usually takes days to proceed. This is one of the main reason why these banking institutes need to upgrade their banking systems. We can solve this problem by the means of Blockchain as it can settle money transfer at really fast speeds. This ultimately saves a lot of time and money from these institutions and provide convenience to the consumer also.

4.  Transparency

When discussing the importance of blockchain for business, the technology also adds the power of transparency into the business processes.

Blockchain is immutable in nature which means the content stored in the system cannot be added, altered, or removed anonymously. This improves accountability and trust between the business partners; making it possible for one to monitor everything in real-time. Evidence of which is the role of this distributed ledger technology for business establishment in healthcare, retail, supply chain, and government.

5.  Data Privacy

When talking about the application of blockchain for data privacy, especially the permissioned ones, the content is open, encrypted, and publicly accessible. However, only users approved by the owner/manager of the node can access the data.

This helps businesses to offer flexibility and transparency to approved users, along with ensuring the protection of data from those outside the ecosystem.

6.  Data Security 

With the rising data breach cases and hacking of communication across Zoom and other such platforms, it has become even more important for businesses to ensure data security.

Here again, the consideration of blockchain for business-communication networks is becoming evident.

The technology creates an environment that deploys cryptographic techniques, Merkle trees, and hash keys which makes it difficult for one to steal or revise the data of the company. This way, it ensures that the data is stored and managed securely.

7.  Smart Contracts

Smart contracts is also one of the prominent ways of considering blockchain for business communication transformation.

Being a self-automated contract, Smart contracts are programmed such that the actions are taken on their own when the associated terms of agreement are fulfilled or not. This not solely reduces the need for intermediaries but also makes the transactions cost-effective, time-efficient, and trustworthy.

8. Financial Fraud Prevention in Blockchain Technology

Blockchain can help in combating financial fraud. Various aspects can make financial transactions look more complex. Some of these tasks could be- the time needed for any settlements, collateral requirements, the difference in currency denominations, and many more. Some procedures are multi-staged and necessitate reasonable levels of human interactions for most cases. Blockchain can help in fraud detection by enabling the sharing of information in real-time and updating the ledger upon the agreement of all parties. This will not only prevent frauds but also lower the overall costs and time taken for the process too.

Blockchain Technology Applications In Industries

As previously stated, blockchain technology is being used far beyond its cryptocurrency roots – the technology is influencing practically every modern business in some way.

Blockchain is transforming healthcare, record-keeping, smart contracts, supply networks, and even voting, in addition to banking and finance. While the capabilities of such technology continue to expand, all viable blockchain applications have yet to be uncovered.

1. Payment processing and money transfers
2. Monitor supply chains
3. Retail loyalty rewards programs
4. Digital IDs
5. Data sharing
6. Copyright and royalty protection
7. Digital voting
8. Real estate, land, and auto title transfers
9. Food safety By Tracking It’s Origin
10. Immutable data backup
11. Tax regulation and compliance
12. Employee rights
13. Medical recordkeeping
14. Weapons tracking
15. Wills or inheritances
16. Equity trading
17. Managing Internet of Things networks
18. Expediting energy futures trading and compliance
19. Securing access to belongings
20. Tracking prescription in medical field