On this page:
- What is Blockchain Technology?
- How was blockchain technology developed?
- What are the advantages of blockchain technology?
- What are the use cases for Blockchain technology?
There are many benefits to using blockchain technology as it allows for secure, inexpensive, and scalable data management. It also allows you to create smart contracts which can completely replace traditional agreements. Although blockchain was first created in 1991, it has been carefully developed until now where it has the ability to digitalize an entire government.
What is Blockchain Technology?
Blockchain can be defined as “A system in which a record of transactions made in bitcoin or another cryptocurrency is maintained across several computers that are linked in a peer-to-peer network”. To make this easier to understand, think of blockchain as a large database filled with information.
This information could contain financial records, law documents, shipping data, sensor data, market information, etc. Blockchain allows you to use this so-called database and publicly share it at the same time inside an enormous decentralized network. By being decentralized, all your activities are distributed away from a central authoritative group such as governments, banks, and other intermediaries.
Today, blockchain is used as a digital ledger that processes, verifies, and stores transactions on computers around the globe. Since a blockchain cannot be modified or interrupted, security is vastly improved as nobody can interrupt a transaction at any given time.
There are three main concepts to understand when it comes to blockchain:
A ledger can be defined as a book where transactions are recorded. Think of blocks as pages in a ledger. Several data blocks form a chain and hence the name “blockchain” is created. These blocks contain all the unvalidated transaction data created by network users.
Furthermore, all the information stored by blocks is cryptographically encrypted. The blocks are closed right after the information is validated by the network. As more transactions pile up, new blocks will be created and the process will be repeated.
Here’s some of the information stored inside a block:
- Nonce: A 32-bit whole number that was generated randomly during block creation.
- Hash: The nonce is used to generate a 256-bit number aka a hash. Both the nonce and the hash are used to identify that block as part of a particular cryptocurrency’s network.
- Transactions: A list is created to contain all the transactions stored inside a block.
The creation of blocks is done by miners who use sophisticated software that was developed specifically to solve complex math problems. A miner’s block is added to the chain when the miner can find a nonce that generates a correct hash. If a block is successfully mined, the nodes inside will accept the change and a financial reward will be given to whoever was involved in the mining process. Mining cryptocurrencies that exist on the blockchain such as Bitcoin require large amounts of time and computational power.
An interesting thing to know is that there are some blockchains known as “permissioned blockchains” which do not necessarily need miners to create blocks. This is because they are programmed in such a way that nodes can find the best block for themselves.
A blockchain network cannot function without transparency. That’s why nodes (high-spec computers, laptops, servers, etc) are used to maintain copies of the blockchain. You may think of nodes as tiny servers that store blocks of data. These nodes are inter-connected and regularly exchange information with each other so that they are constantly updated.
By storing and preserving all the data inside a blockchain, nodes can be thought of as the framework for an entire blockchain.
How was blockchain technology developed?
The invention of blockchain can be traced back to 1991 when Stuart Haber and W Scott Stornetta used a variety of technologies to develop the first-ever blockchain. One of the technologies used includes the Merkle tree which is a data structure used for verifying individual records.
Fast forward to 2008 when the famous developer known as Satoshi Nakamoto finally published his long-awaited whitepaper on the first blockchain. In 2009, Satoshi successfully mined the first Bitcoin block which brought the concept of blockchain into reality. Soon, an exchange provider by the name of “Bitcoin Market” came into the scene.
What are the advantages of blockchain technology?
• A Decentralized Blockchain offers privacy and digital security to its users
Blockchain is a permissionless/trustless environment that does not discriminate against its users. Sharing other forms of data such as sensor data, timestamps, etc can also be done in real-time without the data being transformed, manipulated, or accessed by a third party.
By not having to rely on a single source of truth, the network is safe from systemic failures, limited resources, and corruption.
Since all users have the same copy of the distributed ledger, transactions can be analyzed in full detail before, during, and after block validation.
What makes blockchain so well built is that as the number of nodes and miners increases, the security of the entire protocol also starts to improve as well.
•Blockchain technology help reduce costs
Numerous organizations have reported cutting down paid hours after implementing a blockchain-based solution. Financial institutions and law firms have begun to use distributed ledger technology in an attempt to automate the process of amending data and aggregating it at the same time.
Furthermore, technology created on the blockchain such as smart contracts has helped to create foolproof agreements between two parties. Smart contract agreements are highly effective because there is no room for mishaps and disagreements.
As a result, disputes are easily solved, there is no need to pay for legal advice in case of a contractual dispute. When institutions are able to save costs, the customer also benefits as the reduced cost is directly passed on.
•Blockchain networks offer complete traceability
Each blockchain network has a trail that details the change in ownership of a certain asset. To put it simply, any user can check the data shared by other users on the blockchain.
This is extremely useful in the supply chain wherein a vendor may require proof from a customer that a transaction was indeed sent to the blockchain network.
If a package is being sent overseas, its current location will be shared inside a blockchain so that users can keep track of their delivery. Every party can trace the transactions and ensure that fraud is not taking place.
Service providers can use this information to find flaws inside their supply chain and take the necessary steps to make transactions foolproof.
What are the use cases for Blockchain technology?
1. Blockchain in Healthcare
It is safe to say that blockchain has successfully revolutionized healthcare. Until recent times, hospitals had major issues while tracing and tracking prescription medicine.
Fatal consequences could arise especially when counterfeit products enter the supply chain and are just a few steps away from reaching the hands of a consumer.
Blockchain technology helped create the MediLedger network which allows its users to verify the provenance of a certain medicine. It can do this because it can identify manufacturers who trade medicine around the globe. As a result, each medicine can be traced back to its origin
Another reason why MediLedger has become a crucial part of the supply chain is that it can hide agreements and transactions made between parties inside the supply chain. Privacy and secrecy are vital to business operations and blockchain plays a vital role in that regard.
Since MediLedger wishes to create a permissioned blockchain network, many players in the pharma industry are more than willing to welcome blockchain technology to create an interoperable system for the supply chain.
2. Blockchain in Cross-border payments/financial Services
Overseas transactions are infamous for costing users high fees, long processing times, and risk to network disruptions. Plus, most of these payments cannot be tracked as transparency is not a priority for a number of financial service providers.
Thanks to blockchain, IT takes very little time for network nodes to process the blocks in which your transaction is being held. As soon as your block is approved, it will get added to the chain and your transaction will be marked as completed after it enters the ledger.
However, there are a high number of users who are not heavily concerned with the effectiveness of blockchain as a cross-border payment service.
The only reason these parties prefer the blockchain is because there are no intermediaries that can possibly interrupt the transaction. Because the verification of a block is not dependent upon third parties such as banks, users feel more safe using the digital alternative.
In fact, some banks have begun to take notice of this newfound reliance on blockchain networks. As of this moment, many banks inside Japan and Korea have already begun to use blockchain as a payment service.
3. Blockchain in Government and the Public Sector
Managing legacy data for millions of people seems to be an issue most governments face. Simply upgrading existing technology is challenging on its own, but it’s a completely different story when there is a need to invest in large servers, high spec computers, and data centers.
If a government chooses to become digitalized using blockchain-based technology, there are a number of advantages:
• More effective data management: Legacy data management systems are prone to systemic failure and file corruption thanks to a slow and inefficient client-server model. By leveraging distributed ledgers, citizens can access government services anytime with full transparency. Some areas where this can be seen are voting, central banking, digital identity, and regulation.
• Improved security: Data stored on the blockchain is cryptographically encrypted and can be made hidden from the public. Permissioned blockchain systems allow governments a strong sense of consensus and security. The public sector also benefits as a result of the transparency in each operation being conducted on the blockchain.
• Systems are fast and scalable: A blockchain network such as Solana can process up to 65,000 transactions per second and the only limit to scalability is hardware. The benefit to the government of using a permissioned blockchain is very low latency which requires considerably less energy than traditional systems.
4. Blockchain for Electronic Voting System
Organizing a vote requires manpower, time, and a venue. Organizational costs are a deterrent as well thanks to ballot papers and machines. However, with electronic voting systems, all you need is an internet connection and you are good to go.
Blockchain is also useful in this regard because of its ability to verify each vote. By using a smart contract (a computer program designed to run on the blockchain), a user can create a list of conditions for the voters to meet. If the conditions are met, the vote will be registered as valid. This is important because historically many ballots have identified votes that belong to deceased individuals.
Data protection mechanisms can easily disallow illegal votes to be registered by the system. One such mechanism is that multiple nodes store a copy of the blockchain. If a malicious individual wishes to hack and modify the stored data, then it will be necessary to hack into every single node as well.
Furthermore, third parties can not manipulate the votes on their behalf because the blockchain is decentralized and trustless.
5. Blockchains in Supply Chain Management
Monitoring data is a longstanding challenge faced by all parties inside the supply chain. Many metrics have to be measured to assure transparency to a consumer. Here are a few of them:
• Arrival dates
• Certification of providers
• Quality of products
• Price changes
• Other relevant industry-specific information
Without the availability of such information, there is a lack of traceability and transparency, and in a world plagued with counterfeit products and illegal activities, there is all the more need to switch to a blockchain-based supply chain management system.
Furthermore, digitally distributed ledgers ensure the data stored is immutable (unchangeable). The benefit of having immutability allows permissioned blockchains to verify transactions with ease and improve security as a result. Numerous supply providers can connect for the purpose of trading goods and sharing sensitive data.
As of recent, multiple businesses have moved to the blockchain to automate their services using a smart contract.
6. Blockchain and IoT
Internet of Things (IoT) and blockchain go hand in hand. Thanks to IoT, devices across the Internet can easily connect to a blockchain for the purpose of sending data that should be private and immutable. Although the data added to the block is immutable, users are still allowed to add to that data if the need arises.
In this way, blockchain-based solutions are upgradable and scalable at the same time. In areas such as freight transportation, IoT is necessary for blockchains so that data can be monitored. Some metrics that require monitoring are temperature changes, arrival times, and the status of the shipping container itself.
Moreover, each party involved needs to be assured that the data is safe from being manipulated as well. This makes it easy for the government to verify the legitimacy and compliance of the data once it is sent to them via the blockchain. The best part is interacting with the blockchain costs very little to operate.
7. Blockchain and Smart Contracts
Smart contracts are programs that execute by themselves when predetermined conditions are met. An example would be: “release funds if the user has sufficient funds inside a wallet”. Currently, smart contracts are widespread in the world of automation where all participants can expect the same result.
As more conditions get added to the smart contract, many interesting things can be done on the blockchain. Smart contracts are also very popular because they don’t leave much room for a hacker to take action. The reason is, ledger records are encrypted using cryptographic functions such as SHA256. Plus, each entry on the ledger is linked to the preceding entries so a hacker will have to change the entire chain if a record is to be changed
Companies like Home Depot regularly use smart contracts to solve disputes with service providers. This is made possible because blockchain offers complete visibility into the operations conducted in the supply chain. By improving trust, parties can build stronger relationships with suppliers. Moreover, smart contracts allow parties to save funds as there is no requirement to hire an intermediary.
8. Blockchain in Media and Entertainment
Similar to governments, the music industry has also seen its fair share of problems thanks to legacy systems that rely on music in the form of hard-copy format. Since these playbacks are not released on the internet, it is difficult to digitalize the music industry.
Royalty payments can be streamlined seamlessly on a blockchain-based platform using smart contracts that are programmed to release the royalty if a set number of conditions are met. These conditions could relate to the number of streams, purchases, subscriptions, etc.
As a result, artists can upload, manage, and organize their own work without having to worry. And, for consumers who do not wish to purchase an entire subscription just to listen to a few songs, blockchain-powered micropayments can offer a pay-per-use model.
This model would be automated and is cost-effective for consumers.
9. Blockchain in the Legal Industry
Digitalization is a high priority for the legal industry as lawyers wish to cut down on labor-intensive work. Legal agreements contain highly sensitive data and because of that storing it inside the blockchain would be a good option for lawyers concerned about encryption, immutability, and cost savings.
Storing legal documents on a decentralized, distributed ledger is necessary to prevent tampering and to preserve data integrity. Even if a malicious individual attempted to tamper with the data, it would not be successful as the hash value would not match.
The best part about smart contracts is that they have baked-in compliance and are free from misunderstandings and surprises. In addition, smart contracts can save lots of time when managing law documents. A recent study showed that lawyers spend 48% of their time doing administrative work.
However, the use of pre-fabricated smart contracts allows lawyers to automate non-billable tasks.
Cutting down and accelerating these types of tasks will reduce costs (legal fees) for the customer as well.