Blockchain technology is a system where people can record and store information without, supposedly, the fear of the data being tampered with, getting hacked, or being cheated by the system. It was created by an unknown person or people behind the online cash currency Bitcoin, under the pseudonym of Satoshi Nakamoto.
Essentially, a blockchain serves as a digital ledger of transactions, which is duplicated and distributed across an entire network of computer systems. Transactions are recorded in each block with a cryptographic signature called a hash. In each block, there are several transactions recorded. Every time a new transaction is made, a record of that is automatically copied to every participant’s ledger.
Despite the technology having existed for over a decade, it only garnered attention and hype back in 2017. Blockchain completely changed the landscape in the technology and financial sectors. Today, the market of blockchain technology is worth 3 billion USD, while the financial assets are worth approximately 250 billion USD in cryptocurrencies.
Imagine a spreadsheet that has been duplicated many times over a network of computer systems. Now, this network is designed to update the spreadsheet regularly. Any changes made to the spreadsheet will automatically notify the participants within the network.
This is the same for blockchain. As a type of Distributed Ledger Technology, the blockchain database is shared across a network. Because information is not stored in a single location, the database can be proven to be genuinely public and verifiable.
Primarily, there are two types of blockchains: Private and Public blockchains. However, there are also several variations like the Consortium and Hybrid blockchains. All of these types are similar in function and general use. They all consist of a cluster of nodes that function on a peer-to-peer network system, and these networks have nodes that include a copy of the shared ledger, which gets regularly updated.
A public blockchain is a non-restrictive distribution ledger system that does not need any type of permission for access. Anyone who has access to the internet can sign in on a blockchain platform. They can either simply view the information within it or become part of the network.
This type is a restrictive blockchain that needs permission before anyone within a closed network can access it. Private blockchains are usually only used within enterprises, where select members who have permission can access them. The controlling organization can control the level of security, accessibility, clearances, and authorizations.
The consortium is a semi-decentralized type of blockchain, where several organizations manage the network. This differs from the private blockchain; wherein only one organization was in control of the network. In this type, multiple organizations can act as a node, do mining, or exchange information. Government organizations and banks usually use this type of consortium.
The hybrid blockchain is a combination of public and private blockchains. This lets users control who gets access to which data that is stored within the network. Only a selected section of records from the blockchain can be made public, while the rest is kept confidential in the private networks.
Blockchain is generally used for more secure financial transactions, specifically in storing and exchanging cryptocurrencies. However, users can also apply the technology in other types of transactions. Some of these include the following:
By using blockchain technology, paper-based trails are eliminated. Businesses would be able to pinpoint inefficiencies within their supply chain better and quickly. They should also locate items in real-time and view how the products performed from a quality-control perspective.
Blockchain could be used as a marketplace to share or sell unused data, as demonstrated by Cryptocurrency IOTA. In the organization’s beta version of the Data Marketplace, it is shown that most organization data goes unused, which could be stored and moved freely within the blockchain. This information can be used to improve several industries.
Microsoft is spearheading this effort with its Authenticator app. It is currently used by millions of people worldwide as a way to control their digital identities. The app is designed to enable people of impoverished regions to get better access to financial services or launch their businesses. However, this effort is still in its early stages.
Although the medical sector has been moving away from paper-based recordkeeping, blockchain offers an even more streamlined and safer solution. Aside from storing patient records, the patient would be given control of who gains access to their data.
The blockchain network comes with its advantages and disadvantages for business enterprises and people who simply wish to participate in the network. Before deciding to get involved in the technology, here are some of the pros and cons brought by the technology:
Typically, consumers have to pay a bank to verify a transaction or a notary to sign a document. By using blockchain, people would not need to use third-party verification for any transaction. Business owners would also be able to gain control of their finances and save a little more with the blockchain’s central authority and limited transaction fees.
Most blockchain networks are entirely built on open-source software, enabling everyone to view its code. This transparency gives auditors the capability to review cryptocurrencies for security.
Transactions that occur in blockchain are approved by a network of computer systems. This method removes almost all human involvement in the verification process, which results in an accurate record of information and less human error. Even if the computer makes an error, this mistake would only be made to one copy of the blockchain.
Although many blockchain networks operate as public databases, users cannot simply access confidential information such as identifying who is making certain transactions. Recording data in the blockchain also allows the network to verify its authenticity and ensure that no discrepancies occur across the network.
This is perhaps the most profound facet of blockchain technology— its ability for anyone to use it. According to the world bank, almost two billion adults do not have bank accounts or any way to store their money. By using blockchain, their wealth is saved in a place that is easily accessible without being subject to unnecessary violence.
Many people in the crypto space have repeatedly expressed concerns about government regulation over cryptocurrencies. The concern comes as it continuously gets more difficult and near impossible to end blockchain networks as the decentralization network grows. However, complaints about the matter have lessened as large companies such as PayPal begin to allow the ownership and use of cryptocurrencies on their platform.
Although blockchain’s primary goal is to save users money on transaction fees, the technology itself does not come for free. The system itself consumes a large amount of computational power. In the real world, that power will come from millions of computers on the network. Not only will users have to think about increased electricity costs, but they would also have to worry about mining costs and hardware expenses.
Blockchain has an unfortunate history of allowing illicit trading and activities despite its confidentiality aiming to protect users from hacks and invasion of privacy. The most cited example is the Silk Road, an online dark web drug marketplace that operated from February 2011 until October 2013 until the FBI shut it down.
A perfect case study for blockchain’s speed inefficiency is Bitcoin. Bitcoin’s “proof of work” system would take about 10 minutes to add a new block to the network. It is also estimated that the whole network can only manage roughly seven transactions per second. Although other cryptocurrencies, such as Ethereum, perform better than Bitcoin, these are still limited by blockchain.
On the surface, blockchain technology seems to be a solid and transparent system. Unfortunately, it can be hacked. Although it was formerly touted as “unhackable,” hackers nowadays have found ways to get into the chains of information—mainly to gain control of a network’s computing power and rewrite transaction histories.
Thievery methods vary, but a technique that points to a theoretical weakness in the blockchain is now known as the “51% Attack.” This means that a hacker can gain access to a blockchain network by gaining control of over half of its computing power. There are some reports wherein hackers have stolen roughly $2 billion worth of cryptocurrency since 2017.
If the hacker has over 50% control of the processing power, they would have access over the longest transactional history. This means that their fraudulent blocks will be valid ones. If trust is lost in a network, the currency might crash.
Blockchain technology has come a long way, seeing an increase in blockchain start-ups and new infrastructure projects. However, it is still looking towards further maturity in usage and efficiency. Although it is already 27 years in use, it still has yet to reach its full potential. This issue comes mainly from the fact that blockchain is suited for complex, critical, collaborative, and multi-party applications.
Gartner, a global research and advisory company, predicts that blockchain will be fully scalable by 2023. Enterprise software company R3 is working with a network of over 200 entities to develop Corda, a completely new blockchain platform. This is made for businesses to deliver two fully compatible and interoperable distribution platforms that address issues including, but not limited to: data privacy, scalability limitations, and transactional certainty.
On the other hand, the World Economic Forum believes blockchain technology will benefit all countries affected by COVID-19 due to its capability to provide an efficient approach to reduce trade costs on a global scale.
Another possible future of blockchain is being able to provide decentralized digital identities. This feature would enable a business or person to have complete control over their data in the network. It would also give users full transparency of who can access specific information and commercialize these. An example would be World Economic Forum and Accenture’s prototype “Known Traveller Digital Identity.” This prototype aims to provide users with a more seamless and secure identity authentication for travel with the use of biometrics and the blockchain network.
Blockchain technology has really taken the world by storm. Not only does it aim to improve data transparency and security, but it also aims to transform and streamline data storing and sharing. As a digital ledger, it is designed to provide consumers with ease in recording transactions and being able to freely control who gets access to their data.
Although hackers still exploit the technology’s weaknesses to commit illicit activities, industry experts could see a future wherein blockchain would play a bigger, more widespread role. In addition to being widely used in the technology and financial industries, experts are seeing the technology to further grow in data privacy, the food and medical industries, as well as the trading industry.