The Rise Of Blockchain: A Brief Insight

Blockchain is a system whereby several computers that are linked in a peer-to-peer network record transactions which are made through/in bitcoins or any other type of cryptocurrency.

Blockchains consist of a distributed database that keeps updating records of transactions thereof; these are known as blocks. These blocks are further linked using cryptography, particularly, a cryptographic hash of the previous block, a timestamp, and transaction data for efficient functioning.

A blockchain can, therefore, be considered a decentralized, distributed, and public digital ledger system that records transactions across several computers throughout the world in a secure manner such that the record cannot be retroactively altered, thereby ensuring the highest security.

Elements of a blockchain

To help tech newbies understand the functioning of the blockchain system, its elements have been explained in brief as follows:

Distributed ledger technology
All network participants are a part of a distributed ledger system and have access to its immutable record of transactions. These transactions are recorded just once to ensure that there is no duplicity in the record.

Immutable records
In order to minimize the chances of tampering with or changing the record or transaction, the system is secured to ensure that no participant can amend a recorded ledger. In case of an error in the transaction record, a new transaction must be added to negate the previous one.

Smart contracts
Smart contracts are a set of rules that are automatically recorded on the blockchain network to hasten the transactions and ensure that they are automatically and seamlessly executed. They usually define conditions for corporate bonds, including the terms for insurance to be paid amongst others.

How does blockchain work?

A blockchain works in a sequential manner and is automated. The following are the steps that take place with a blockchain transaction:

Each transaction is recorded as a “block” of data
Transactions record the movement of both tangible and intangible data. They can record all the information of relevance to the user, including conditions.

The block is then connected to the predecessor block
The blocks together form a chain of data as the assets move from place to place with a change in ownership. These blocks also record the exact time and sequence of transactions and are securely linked together to ensure that they are not altered, removed, or added.

Transactions are blocked together in an irreversible chain
Each additional block strengthens the verification of the previous block, making it tamper-proof, thereby making it immutable.

Advantages of blockchain

Several companies, including IBM, are increasingly resorting to the use of blockchains to record their transactions. The reasons for the increased dependence and use of blockchains, making them a product for the future, have been listed below:

Greater trust
Since a blockchain is a members-only network, the trust that the information that you are receiving is accurate and timely is much greater. Further, confidentiality is highly secured in a blockchain network. The high accuracy of the system also makes it extremely trustworthy.

Greater security
In order to alter or amend any block, a consensus is required from all network members since the network is immutable due to the records being permanent in nature. No one, including a security administrator, can delete, alter, or add a record or transaction.

Increased efficiency
Since the distributed ledger is shared amongst several members, record reconciliations are relatively smoother and more efficient. Smart contracts, on the other hand, further facilitate the recording of transactions.

Elimination of intermediaries
In the blockchain system, just the two concerned parties can confirm and complete the system of transactions without involving a third party, thereby making it time- and cost-effective.

Blockchains are being increasingly used by several corporates and in several different facets, from financial institutions to technological giants. With blockchains becoming increasingly advanced, it will be an integral part of the future.

Several hurdles yet remain to be solved in terms of the transaction limits and energy costs involved in blockchains. However, for those believing in the potential of technology, blockchain seems to be a promising option.

Blockchain: Interesting trivia