Why is Blockchain Technology so important?
There are "Yes" and "No" for the adoption of Blockchain Technology (BCT). However the "No" is more on the Cryptocurrency recognition than on the Business or Manufacturing Segment. By 2024, the Global business using Blockchain Technology is expected to be at $20 Billion. As of now, 69% of banks are experimenting with their business with Blockchain Technology. Of this 33 % of Banks are expected to adopt BCT by the year 2020. On the adoption of BCT, reported savings to Banks is estimated to be $10Billion. Once this happens, the customer satisfaction will drive the rest of the competitors to follow. In the manufacturing segment, the Internet of Things (IoT) has revolutionized Industry 4.0. Now IoT + BCT + AI is supporting Industry 4.0+ to be a case.
Definitions of Blockchain
There are many definitions available, from each one lookout, as this is not Physics. However, the simplest in layman's term is:
Blockchain is a distributed ledger available as replicated copies with the members of the Peer to Peer Network. The ledger entries are immutable, tamperproof, secured, transparent and auditable. The ledger entries are chained according to timestamp; can be accessed by anyone who has appropriate permissions
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, a car, cash, land) or intangible (intellectual property, patents, copyrights, branding).
The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.
Blockchain characteristics are classified into functional characteristics and emergent characteristics. Functional characteristics are those which are mandatory for functioning, without which the system may not exist or function properly. Functional Characteristics of Blockchain are Decentralized network, Distributed Ledger, Consensus, Immutable (Finality) and Security.
Emergent characteristics are derived are emerged as a result of functional characteristics. In the case of Blockchain, the emergent characteristics are Trust, Auditability (Provenance), Transparency, Tamper-proof, and Anonymity.
Decentralized Network: The underlying network for Blockchain Technology is a decentralized Peer to Peer Network. All the nodes are considered as Peer. The nodes have assigned permission and role as decided by the application. Decentralization eliminates the necessity of a Central Authority (Server) for authentication. A decentralized network eliminates the Single Point Failure bottleneck of the Centralized System.
Distributed Shared Ledger: A Ledger is a record of all relevant transactions. A Distributed shared Ledger is a replicated ledger, maintained by the participating nodes as a record of transactions. In this case, Blockchain is the data structure of the ledger. A shared ledger allows the authorized participants to access monitor and analyze the state of a transaction in its lifecycle.
Consensus: Consensus by members is required for a transaction to change its state from one to another. The "Consensus" is a kind of validation. It is the mechanism by which members agree upon the transaction being done. Consensus obtained blocks alone get added to the main chain; if consensus is not achieved, then that transaction stays away from the main chain as an orphaned block. It is this process that not only eliminates the central authority but also moves the trust component of the transaction to its members. The Consensus Protocol followed depends on the Blockchain application architecture. Proof-of-Stake (PoS), Proof-of-Work (PoW), Delegated PoS, Proof-of-Authority (PoA), etc., are few of the popular Consensus algorithms.
Immutable: Once a data is encrypted into the block and added to the Blockchain, it cannot be altered or tampered with. This is the immutable property. The block is written only after obtaining the consensus of the participants. Thus it is finality.
After the Blockchain is created let us say with 10 blocks. If someone tries to tamper with block 6, the hash function gets altered. Thus it affects the hash of the subsequent blocks and hence accessing those blocks is not possible. Remember the hash created is a pointer to the next block. (Refer to figure 2.4. for better understanding). Moreover, a consensus is required for writing; hence any attempt to alter gets alerted to peers.
Security - SHA – 256 cryptography algorithm is used for hashing. Further fixed-length has output value is generated irrespective of the input data length. This makes it difficult to hack. Also, the components that go into block generation increases the difficulty level for hacking. Immutability is another factor adding to securing information. Thus the systemic aspect of BCT inherently provides security.
Trust - Trust is the contention for which BCT architecture is proposed. In conventional transaction management systems, approval authorities like a central bank, NSDL play a role indirectly as a trusted third party in facilitating transactions. To eliminate the third party, BCT fabric is peer to peer architecture, where all the stakeholders become a member and on consensus basis transaction is approved. It is to be noted that not only A and B but also the approval or sanctioning authorities become a peer in the network to make a clean and instantaneous transaction. The trust is moved away from the central authority and is distributed as a responsibility to the peers in the network.
Auditability (Provenance) - The chain acts as a trail of the transactions. Timestamp helps in proving the sequence. The Blockchain acts as an archive. The blocks are read-only for their lifetime. Therefore the system facilitates Auditability and Provenance any time.
Transparency - The structure of Peer to Peer network facilitates equality amongst the nodes. Even if the structure becomes slightly altered, the members can look into the state of any transaction, while it is in process. Therefore a consensus is given by anode with full awareness. Further, the peers have replicated shared ledger. Therefore any activity or transaction in a Blockchain is facilitated with full transparency.
Tamper-proof – Tamper-proof is an emergent property from the characteristics like immutable, secure and transparent.
Anonymity – As there is no Central server Anonymity is there to a limited extent. The extent depends on the type of BC application architecture.
The benefits like Time savings, cost-effectiveness, trustworthy and secured transactions of BCT encourages more and more enterprises to look up to the BCT framework for their business. BCT acts as an IT enabler. BCT removes market friction and speeds up the way a trustworthy business is carried out. BCT accelerates the flow of capital which is very important for enterprises.
- Cost-effective, Secure and Reliable for Financial transactions.
- Digital Identity Claims like Authorship, certificates, publications, Inventions, Copyrights, etc., on digital assets is simple without hassles.
- Cryptocurrencies, if legalized can be a very fast and secure system for money exchange.
- Healthcare can become patient-friendly with historical records; this will devoid the need for carrying past physical reports.
- Supply Chain and Logistics Tracking can be genuine. Use IoT along with BCT can make it smart tracking.
- In manufacturing, let us say a Bike, the history can be created starting from the parts details that go into making the bike to ownership after-sales for a lifetime.
- Version management on Apps Development and ownership claims can be sealed.
- Any asset described digital can be traded in a trustworthy way.