The word blockchain is a word that have become consistent but yet it’s still a word some people still overlook. In the nearest future, the blockchain technology will have an advancement that will result to the transformation of the financial services and the business industries of the world.
Basically, blockchain is a transparent and incorruptible digital ledger, a continuous growing list of records called blocks which are securely linked using cryptography.
The blockchain technology operates in a way that the devices for its storage is not in any way linked to a singular processor. This gives it the ability to maintain a growing database called blocks. Each of these blocks has a timestamp and each stamp is linked to a block just before it.
Cryptography makes it possible for users to have some rights over the parts of the blockchain they own, giving them the license to have private keys that can be used to write to the file. This private keys ensures that every owner’s copy is in synch.
Each blockchain user’s entry is a block, operating like how a medical record does. Each block has embedded in it a timestamp, the date the record was created and also the time. These records cannot be accessed by anyone except the owner and the company. These information can only get to a third party if the user shares it to someone else.
It was in 2008 that Satoshi Nakamoto introduced the blockchain concept, although it was implemented in 2009 for the first time as part of the digital blockchain currency and it has proven to be a secure design. The blockchain has served as the public ledger for all bitcoin transactions. The first digital currency to solve the double spending problem was bitcoin and this was as a result of using the blockchain system. And it was surprising that they achieved this without the use of a central server.
Blockchain has a database that is managed autonomously in a decentralized way by making use of a peer-to-peer network and also a distributed time-stamping server. This has proven blockchain to be excellent for the record of events, transactions, identity management and proving provenance.
How does blockchain really work?
Blockchain has been termed the “internet of value” and this is actually as good as it sounds.
Blockchain gives provision for anyone to distribute value to anyone irrespective of where they are in the world so long as the blockchain file can be accessed. The only criterion is that the individual must have a private, cryptographical created key to be access the blocks owned by the individually. And this exactly the way the internet functions..
When an individual gives his/her private key to a third party, the individual transfers the value stored in that section of the blockchain to the third party.
Like the case of bitcoin, we can use keys to access addresses containing units of currency that have financial value. Unlike banks where there’s a need to record transfers.
In the area of trust and identity, because blockchain cannot be edited without having access to the corresponding keys, trust and identity is not an issue. In as much as the keys also stands the risk of being stolen like in the case of physical currency, it takes little expense for a line of computer code to be kept secure
With all these that could be done with blockchain, it could be said that the major functions that banks carry out like verifying identities to prevent fraud and recording legitimate transactions can be carried out by a blockchain and it will be done faster and more accurately.
Technicality involved in blockchain
As we earlier stated that blockchain is a growing list of records called blocks. This block comprises of 3 important things; data, previous hash and hash.
Hash is like a finger print. Every block has its own finger print and it also references finger print of the previous block. The first block is called 'genesis block' and it doesn't have previous hash. This is what made blockchain cryptographically linked. See diagram below;
To clearly understand what hashes are pls refer to this article.
What are the importance of blockchain?
The internet has made it a common practice to share and receive files but in the case of transfer of value such as money, we get skeptical and digress back to how it used to be done in the past, making use of centralized financial establishments like banks. Though there are services like online payment methods like PayPal, it still has to have a link with a bank account to be useful.
- With blockchain, there will be the possibilities of elimination of banks just by filling three important roles. These roles include recording of transactions, establishing of identities and also contracts which are traditionally done by the financial service sector.
- Blockchain usage has huge implications because the financial service market boast of being the largest sector of industry by market capitalization. So a change in system will result in a huge disruption of the financial services industry but the benefit is a massive efficiency increase.
- Blockchain can also be used for establishing contracts and this is what makes it unique and useful even outside the financial service sector. Digital information of any type can be stored with the use of blockchain even computer codes.
- The blockchain is programmed in a way that whenever certain parties enter in their keys, they automatically agree to a contract and these codes could also be read from external data feeds, including stock prices, weather reports, headlines of news, and practically anything that can be accessed by a computer.
- These are known as “smart contracts,” and the possibilities for their use are practically endless.
In the use of thermostat, the thermostat has been programmed to communicate energy usage to a smart grid and when the wattage hours get to a certain limit, another blockchain automatically transfers value from your account to the electric company. This has effectively automated the meter reader and billing process.
In all, blockchain technology has much more vast potentials than what is being harnessed at this time. In the nearest future, more and more industries will access more ways to put blockchain to better use.
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