This Article aims to summarise the emergence of the Blockchain technology, its meaning, and uses of such technology.
Emergence of Blockchain
The concept of block-chain was introduced in the year 2008 by one Satoshi Nakamoto, in his (or her) whitepaper entitled, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’[1] (White Paper). The White Paper proposed a peer-to-peer transactional currency that would eliminate the need for any intermediary institution (e.g., Banks), thereby rendering most of current financial institutions obsolete. However, on the other hand this paper argues that existing financial systems be preserved without sacrificing Nakamoto’s exceptional transparency solution, basically advocating the construction of a middle ground between the two.
[1] Satoshi Nakamoto, Bitcoin : A Peer-to-Peer Electronic Cash System (Bitcoin Whitepaper, 2008) <https : //bitcoin.org/bitcoin.pdf>.
Architecture behind the Blockchain
When one hears Blockchain they should imagine tiny cubes attached to one another in a chain formation. Each block is dependent on and linked with its previous block. Each block consists of three elements:
- Transaction information: Information about transactions is stored in blocks. When one peer transacts with another, the time, date, and transaction amount of such transaction are stored.
- Identity of participants in the transaction: In addition, the blocks hold information about the users who took part in the transaction. The information about peers is maintained using digital signatures, which operate as usernames without revealing the users’ genuine identities.
- Distinguished transactional information: The block also maintains data to ensure that each transaction/piece of data is distinct from the others and the transactions are distinguishable.
The chain of blocks i.e., a Blockchain is a public and distributed ledger. Various peers/connections (meaning Computers/servers) are connected to each other through the network of Blockchain and they record every transaction in the Blockchain. When a transaction is recorded by one connection, details of the transaction such as price, asset, and ownership, are recorded, verified, and settled within seconds across all connections.
So, let us understand this technology with a simple example; Person A buys a mobile phone from person B for INR 10,000 and makes the payment by swiping his debit card at the POS at B’s shop. In this case when A will swipe his debit card a message will be sent to the bank which has A’s savings account to verify whether A has enough balance to process the payment of not. If A has sufficient balance, the bank will approve the transaction and record a debit entry of such transaction in its ledger. In the same way B’s bank will record a credit entry in B’s savings account and in its ledger. Thus, Blockchain works in similar way except that it does not require a third party like a bank to maintain the records of transactions.
Let us take the same example but this time the consideration for mobile phone will be 1000 crypto coins. In this case when B will make a request to A for payment of 1000 crypto coins, this request will be recorded in a new block in the existing Blockchain. The request so recorded will then be verified in all the blocks of that Blockchain as to whether A has a credit balance of at least 1000 crypto coins in its name. If affirmative, then the new block will record the debit entry of 1000 crypto coins in the name of A and a credit entry of 1000 crypto coins in the name of B.
Permanent record and unalterable platform
Blockchain as a platform maintains the records permanently and is unalterable. Since each block is dependent on and linked to its previous block, to alter information in one block all the previous blocks on which such block is dependent and the subsequent blocks which are dependent on such block, need to be altered at the same time. It is this dependency which makes the records in a Blockchain permanent and prevents the alteration of the records.
Types of Blockchain architecture
- Public Blockchain Architecture
In a public Blockchain architecture, anyone can participate in the network. The transaction’s public info is available to everyone. However, this doesn’t mean that the private data of a transaction are available anymore. Examples of public Blockchain architecture include Bitcoin, Litecoin, and Ethereum.
- Private Blockchain Architecture
When it comes to private Blockchain architecture, not everyone can access the Blockchain. The administrator determines who can join the network.
Uses of Blockchain
The goal of a Blockchain is to allow recording of information, its distribution to every participant without it being ever edited. Blockchain architecture’ this state of fixity makes it the best available alternative to regular record keeping. It can be used in for the following purposes:
- Counting votes in an election.
- Keeping product inventories.
- Maintaining audit trail of transactions privately by companies.
- Transactions in crypto currencies and other digital assets etc.
A long road ahead
Blockchain is a game-changing technology. It is still in its infancy, and cryptocurrencies are only its first use case. Blockchain technology will transform how we transact, as well as how we record and verify transactions, beyond cryptocurrencies. Contracts will be revolutionised, and asset trade friction will be reduced. Blockchain technology will seep through our businesses and institutions over the coming few decades, altering how we transact with one another.
By Deval Pandya