By Amit Ahuja, L&T MHPS Boilers
Blockchain, which began to emerge as a real-world tech option in 2016 and 2017, is poised to change IT in much the same way open-source software did a quarter century ago. And in the same way Linux took more than a decade to become a cornerstone in modern application development, Blockchain will likely take years to become a lower cost, more efficient way to share information and data between open and private business networks.
What Is Blockchain and How Its Work
Based on a distributed, peer-to-peer (P2P) topology, Blockchain or distributed ledger technology (DLT) allows data to be stored globally on thousands of servers – while letting anyone on the network see everyone else’s entries in real-time. That makes it difficult for one user to gain control of, or game, the network.
First and foremost, Blockchain is a public electronic ledger built around a P2P system that can be openly shared among disparate users to create an unchangeable record of transactions, each time-stamped and linked to the previous one. Every time a set of transactions is added, that data becomes another block in the chain (hence, the name).
Blockchain can only be updated by consensus between participants in the system, and once new data is entered it can never be erased. It is a write-once, append-many technology, making it a verifiable and auditable record of each and every transaction.
While it has great potential, Blockchain technology development is still early days; CIOs and their business counterparts should expect setbacks in deploying the technology, including the real possibility of serious bugs in the software used atop Blockchain. And as some companies have already discovered, it’s not the be-all solution to many tech problems.
Blockchain standards organizations, universities and start-ups have proposed newer consensus protocols and methods for spreading out the computational and data storage workload to enable greater transactional throughput and overall scalability – a persistent problem for Blockchain. And the Linux Foundation’s hyper ledger Project has created modular tools for building out Blockchain collaboration networks.
While some industry groups are working toward standardizing versions of Blockchain software, there are also hundreds of start-ups working on their own versions of the distributed ledger technology.
The Blockchain is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or an exchange that was not done with the consent of the parties involved.
The most critical area where Blockchain helps is to guarantee the validity of a transaction by recording it not only on the main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.
Blockchain technology can find applications in the following areas in future:
- Smart contracts – Any industry heavily reliant on contracts, such as insurance, financial institutions, real estate, construction, entertainment, and law, would benefit from blockchain’s indisputable way to update, manage, track and secure contracts. Smart contracts, those that are embedded with if/then statements and be executed without the involvement of an intermediary, also use Blockchain technology.
- Supply chain management – Whenever value changes hands or the status of asset changes, Blockchain is ideally suited for managing the process.
- Asset protection – Whether you’re a musician who wants to ensure you get royalties when your music gets played or a property owner, Blockchain technology can help you protect your assets by creating an indisputable record of real-time ownership.
- Personal Identification – Governments manage vast amounts of personal data from birth and death records to marriage certificates, passports and census data. Blockchain technology offers a streamlined solution for managing all of it securely.
- Payment processing – Blockchain has the potential to be highly transformative to any company that processes payments. It can eliminate the need for intermediaries that are common in payment processing today.
- Crowdfunding – As with traditional crowdfunding, a Blockchain powered crowdfunding campaign seeks to secure investment for a new project from an interested community. But in this instance, funding is most likely to come in the form of bitcoin or other cryptocurrencies.
Opportunities and advantages
- The Blockchain allows our smart devices to speak to each other better and faster.
- Blockchain solves the problem of manipulation. It brings everyone to the highest degree of accountability.
- Online identity and reputation will be decentralized. We will own the data that belongs to us.
- Cryptocurrencies take the power away from governments to control the value of currencies and hand it to people.
- The potential is great for people in the informal economy to exploit the blockchain’s middleman-free way to exchange asset.
- Blockchain technology can more equitably address issues related to freedom, jurisdiction, censorship, and regulation, perhaps in ways that nation-state models and international diplomacy efforts regarding human rights cannot.
- Blockchain-based systems allow for the removal of intermediaries involved in the record keeping and transfer of assets. The removal of intermediaries and settlement on distributed ledgers allows for dramatically increased transaction speeds compared to a wide range of existing systems.
- Data entered on the Blockchain is immutable, preventing against fraud through manipulating transactions and the history of data. Transactions entered on the Blockchain provide a clear trail to the very start of the Blockchain allowing any transaction to be easily investigated and audited.
Criticisms and Challenges
- Huge power required: As Computing power required to verify transactions? Those computers need electricity. Bitcoin is a poster child of the problematic escalation in power demanded from a large Blockchain network. That’s not appealing given today’s concerns about climate change, the availability of power in developing countries, and reliability of power in developed nations.
- Security about the private key: The private key must remain secret at all times because revealing it to third parties is equivalent to giving them control over the bitcoins secured by that key. The private key must also be backed up and protected from accidental loss, because if it’s lost it cannot be recovered and the funds secured by it are forever lost, too.
- Transaction speed: Transaction speed is also an issue. As we noted above, blocks in a chain must be verified by the distributed network, and that can take time.