The Rise Of Blockchain
Imagine hiring a taxi online without uber, searching on the internet without google, transacting money without banks and purchasing electricity without intermediary electricity boards! If I tell you that in another half of the decade this all might be possible, together? This is the power and potential of the blockchain. The world started with mutual consents and considerations and then intermediaries started to take authority for better distribution of resources. Blockchain brings an opportunity for that long lost essential of human civilization, let us see how!
In the simplest form, a bank ledger used to track records of money transfers can be thought of how blockchain works. This ledger is immutable, each transaction is recorded and updated in every ledger in between. In between? Will tell you how. Suppose from the USA you want to send money to your parents in India. You don’t actually parcel the money, what you do is update the debt in your ledger and your parents update the credit. But the problem here is the involvement of various banks and money transfer agencies. Imagine having a big big common ledger at the world level where any parties can transact directly, peer to peer. The elimination of middlemen will reduce the friction introduced enhancing efficiency in both time and cost. To understand it thoroughly, let us see what blockchain actually is.
Technically, Blockchain is just a data structure and data structures are ways to store and organize data. Starting from the fundamental of the blockchain — The Block. These blocks, when joined together in a linear fashion, form a chain, hence the name — Blockchain. The block contains some Data, its own Hashcode and Hashcode of the previous block.
Data — The data can be of any form. It may consist of texts, audio, video, and even some smaller blockchains. The data is the most essential requirement of a block which will be stored in the blockchain.
Hash — The hash is an encrypted string of characters generated on the basis of data of the blockchain. If the data changes, it’s hash does too. It identifies every block uniquely in a blockchain.
Previous Hash — Having the hash of the previous block allows users to traverse or move through the blocks of the blockchain. The first block(Genesis Block) in the blockchain doesn’t have this component.
That’s a bit of technical analysis of the anatomy of the blockchain. Moving on to the functioning we should understand 3 points to have a clear understanding of the blockchain -
- The blockchain is not a part of the internet, it itself is a fundamental technology where other applications can be built upon.
- Bitcoin is not the blockchain, it is just an implementation of the blockchain. Comparing Bitcoin to blockchain is similar to comparing email to the internet.
- The blockchain is in its nascent stages and has the ability to revolutionize the world.
There is no rocket science when it comes to the understanding of the blockchain, it just works on distribute trust enforced via technology. How? Let us see.
Consider that we have a blockchain where n number of nodes or users are participating. Then all those nodes will have a copy of the blockchain which is basically the decentralization property of blockchain. The copy of the blockchain enables users to verify so that no manipulations could be made, hence enhancing security.
We already know that Blockchain contains blocks and when we perform any operation like sending data — a block is created and added to the blockchain. This is called the transaction. For each and every transaction verification is required. Since blockchain is a decentralized network which means that there is no authority to verify, so the verification is done by all the nodes/users present. If more than half of the nodes confirms then on the base on consensus the transaction is identified as a valid one and a new block is added. This verifying is called mining. Mining required power for which the nodes who verify transactions are often rewarded with cryptocurrencies. Now you would be able to relate the reward given to validate transactions on bitcoin blockchain is bitcoin itself.
Based on this distributed trust there are a number of fields where the blockchain can eliminate authoritarianism and give power to the people. Consider an energy grid where each node is a house and it is having a solar panel to generate electricity. Now there might be some who need more and some might have more than enough. What if they can transact energy for money? In this sort of energy distribution scenario, we can implement blockchain. The users can request or offer energy and they will collectively verify each transaction as well. This way without even knowing the other person you can virtually transact with them. And as you already read it not only reduces the cost but saves time as well. The blockchain is a new way to bring humans closer without them even realizing.
Another property blockchain offer is immutability. The inability for any hacker to tamper with the previously entered data is what immutability is all about. It is another security feature of the blockchain which ensures the credibility of the data presented. This unique property offered by blockchain can be used in places where credibility and availability of records are critical. Land Registry is the most desired field to use the immutability of the blockchain. While dealing with the boundaries of one’s physical property, a clear definition is required. Blockchain provides the exact untampered record clearly defining the land coordinates. Not only this, but it also provides the history of ownership which enhances the credibility as well. In countries prone to natural calamities say Sri Lanka often face the problem of their records being destroyed. This creates an ambiguity which can be handled by digitally storing the records and that too on a technology which is most secure and immutable — The Blockchain.
The most famous blockchain is the one used by Bitcoin. Bitcoin is the cryptocurrency rewarded to mine or verify transactions on the blockchain. Bitcoin doesn’t do anything apart from being a currency based on the trust of people. It is often called Blockchain 1.0.
Blockchain 2.0 can be called to a chain which gives the ability to explicitly program and use blockchain for any real-life solution. Ethereum is such blockchain which provides access to anyone who wishes to use it. The developers have to give logic or methods to be performed. These are called — Smart Contracts. Smart Contracts have all the rules which when met enables the user to transact. This creates a platform where blockchain is no longer an imagination and total decentralization can be achieved without having your own blockchain, instead of using the blockchain called Ethereum. The cryptocurrency provided as a reward to mine blocks of Ethereum is called Ether. We currently are at the 2.0 version of the blockchain.
The blockchain is definitely powerful and can do wonders but like every other technology, it comes with limitations.
Scalability is one such Challenge. As we already discussed, Blockchain required verification which is done through mining. Each verification needs to solve complex problems and as the blockchain grows these problems grow as well. The time taken to solve grows even faster. Today a bitcoin transaction takes about 10 minutes which is much much slower than other modes of transaction.
Space required to save the data in the blockchain is enormous. The immutability of the blockchain makes every data stored on the blockchain since its creation. Just to save a blockchain such as Bitcoin you might need lots of TBs free.
Verification of transactions depends on nodes which is consensus-based. It is an avoidable security flaw which arises when a large number of nodes belonging to a single party which can manipulate the verification/mining system of the blockchain.
These limitations may be solved in the coming future but today there is still a challenge lying which restricts the growth of the blockchain. One can also see new concepts of blockchain coming up such as Cardano which is also called Blockchain 3.0. It addresses the problems
with the existing blockchain.
All in all, we get to know that the Blockchain is — Immutable, Completely decentralized, trustworthy and secure. A lot of opportunities are yet to be unfolded and limitations are yet to be solved. The blockchain is a technology that can make those imagined problems, at the starting of this text, come to life. You might have missed the internet revolution of the 1990s but try not to miss this one!
