Blockchain technology, also known as distributed ledger technology (DLT) started to attract attention in 2009 when it became the underlying technology of the cryptocurrency Bitcoin. It is believed that the technology has the potential to change the course of digital transformation and transactions and thus changing the way in which business is done. According to Harvard Business Review, Blockchain is the next great disruptor, and probably change the course of next decade of business than big data or artificial intelligence (AI).
What is blockchain technology?
Bitcoin, a cryptocurrency created by an anonymous publisher named Satoshi Nakamoto in 2009, brought with it the blockchain technology. Blockchain is a distributed ledger – a method of keeping track of accounting records. It is a way to structure data. Bitcoin is just one of the applications of blockchain technology.
How does it work?
Blockchain technology updates and maintains an account of each transaction that takes place across every network. It is not stored in a place but distributed over thousands of computers all over the world with peer-to-peer networks. It is secured by cryptography – the storage, transmission, and record of data in coded form. Because of this, it is incorruptible. Blockchain-enabled ledgers have a public key spread over the worldwide network. So, hacking a code requires hacking of many systems, which is almost impossible. The information is stored in the form of blocks. After each transaction, a new block is added. Thus the chain keeps on growing.
The recently added blocks to the blockchain are synchronized and made available by a large number of computers worldwide. Each individual computer is called a ‘node’, and the nodes work together in a peer-to-peer network to ensure the security and to keep it updated.
Application in businesses
Cloud storage services are centralized i.e. controlled by and stored in one central platform. Cloud storage with blockchain network will be decentralized and thus will improve security and efficiency. Many have concerns that the cloud will not be secure or large enough to handle the influx of information created by the Internet of Things (IoT). Blockchain will create a much better highly secure venue for information sharing.
Consumers often want to know if the claims companies’ make about their products is real. Blockchain technology provides an easy way to certify that the things we buy are genuine. Transparency comes with time stamping of a date and location that corresponds to a particular product number. Once a product is time stamped, it cannot be meddled with. This is the key difference of blockchain with database. In database, data can be meddled with leaving no trail behind.
As blocks on the blockchain could be independently verified and audited, it would be easier to reduce risk in the system by fighting counterfeit and fraud. Using the blockchain technology, a voter can check if her/his vote was successfully submitted while remaining anonymous. In 2014, a political party in Denmark, Liberal Alliance, became the first organization to use blockchain for voting purposes. The technology reduces the risk of manipulation of votes by hackers because of encryption.
Digital security, a major problem in the world, will be virtually solved. Blockchain technologies make digital identities both secure and efficient
Major problems in the music industry include ownership rights and royalty distribution. The blockchain and smart contracts technology can solve this by creating a decentralized database of music rights. The ledger would provide a transparent conduction of artist royalties and real-time distributions to all involved.
Due to the internet, digital information can be infinitely reproduced and distributed. However, copyright holders are losing control over their intellectual property and suffering financially. Smart contracts can protect copyright and eliminate the risk of file copying and redistribution.
AML and KYC
Anti-money laundering (AML) and know your customer (KYC) practices can be adapted to the blockchain which will reduce costs and at the same time increase monitoring and analysis effectiveness.
The potential for added efficiency makes a strong case for blockchains in stock trading. When executed peer-to-peer, trade confirmations and communications become almost instantaneous. Intermediaries such as the clearinghouse, auditors, and custodians get removed from the process.
How it Influences Business sectors
The existing financial system is very complex and risky. A new decentralized financial system made possible with cryptocurrencies could be much efficient, secure and simpler by eliminating intermediaries.
From national security to citizenship authentication, identity authentication is a necessary process. Blockchain technology can verify and secure almost anything. From passport authentication to government processes, blockchain can serve as a secure process to validate almost anything of value. So, there will be less need for government procedures and services.
Personal medical records could be encrypted and stored on the blockchain with a private key which would enable access only to specific individuals. Thus decreasing costs and making the system more efficient.
By providing a decentralized system, intermediaries of this sector will be eliminated.
In developing countries like India, Micropayments can be made digitally. Banking can be made accessible to millions of poor people, helping them to save, borrow and plan for their future. Blockchain can also increase entrepreneurship by breaking down barriers built from embedded corruption and bureaucracy.
The technology is still in the nascent stage of its expected maturity where developers are still understanding how to program a blockchain. Blockchain is about trust, truth and transparency. For the technology to work, the peer-to-peer network must work under ethical standards. Then only, blockchain could become a powerful tool. If properly harnessed, the technology can change the course of digital transaction and identification and bring transparency in the whole system.