Why is Blockchain So Popular?

What is blockchain technology?

Blockchain is a method of recording information that makes it impossible or difficult for the system to be changed, hacked or manipulated. A blockchain uses distributed ledger technology (DLT) that duplicates and distributes transactions across the network of computers participating in the blockchain.

Blockchain technology is essentially a structure that stores transactional records, also known as the 'block', of the public in several databases, known as the 'chain', in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘digital ledger.’

The owner's digital signature authorizes every transaction in this ledger, which authenticates the transaction and safeguards it from tampering, making it highly secure.

Basically, the digital ledger is like a Google spreadsheet shared among numerous computers in a network, in which, the transactional records are stored based on actual purchases. The fascinating angle is that anybody can see the data, but they can’t corrupt it.

blockchain

What are the benefits of blockchain technology?

Here's a list of key benefits you can expect to enjoy when adopting blockchain technology into your business:

• Highly secure:

  It uses a digital signature feature to conduct freaud-free transactions, making it impossible to corrupt or change the data without a specificndigital signature.

• Decentralized system

  Typically, you need the approval of regulatory authorities like a government or bank for transactions. However, with blockchain technology, transactions are facilitated by the mutual consensus of users, resulting in smoother, safer and faster transactions.

• Automation capability

  It is programmable and can generate systematic actions, events and payments automatically when the criteria of the trigger are met.

How will blockchain disrupt industries?

Several industries like Unilever, Walmart, Visa, etc. use blockchain technology and have gained benefits in transparency, security and traceability. Considering the benefits blockchain offers, it could potentially revolutionize and redefine many sectors.

Here are the top five prominent industries that will be disrupted by blockchain technology in the near future:

Banking 🏦

Before blockchain

Banking has transfer fees, which can be both expensive and time-consuming for people. Also, sending money overseas becomes even more difficult due to the exchange rate and other hidden costs.

After blockchain

Blockchain eliminates the need for a middleman. Blockchain is disrupting the banking system by providing a peer-to-peer payment system with the highest security and low fees.

• Blockchain technology provides instant and borderless payments across the globe

• Cryptocurrencies (like Ethereum, bitcoin) remove the requirement for a third party to perform transactions.

• Blockchains record all the transactions in a public ledger which is globally accessible by its users.

Let’s consider an example of Abra:

• Abra is a financial cryptocurrency application that helps in performing peer-to-peer money transfers.

• With this application, cryptocurrency users can save, send and receive their digital money on their electronic devices.

Cyber security 🔐

Before blockchain

Earlier, cyberattacks were a significant threat to the public. Several organizations were developing an effective solution to secure the data against unauthorized access and tampering.

After blockchain

• Blockchain quickly identifies malicious attack due to the peer-to-peer connections where data cannot be tampered with.

• Every single piece of data stored on the blockchain network is verified and encrypted using a cryptographic algorithm.

• By eliminating the centralized system, blockchain provides a transparent and secure way of recording transactions (without disclosing your private information to anyone).

For example, a software security company called Guardtime offers blockchain-based products and services. Rather than following the centralized system, the company utilizes blockchain technology and distributes data to its nodes.

Supply chain management 🚝

Before blockchain

Due to the lack of transparency, supply chain management often had its challenges like service redundancy, lack of coordination between various departments and lack of reliability.

After blockchain

You can track a product with blockchain technology by facilitating traceability across the entire supply chain.

Blockchain verifies and audits transactions by multiple supply chain partners involved in the supply chain management system.

• Blockchain records transactions (history, timestamp, date, etc.) of a product in a decentralized distributed ledger.

• Each transaction is recorded into a block.

• With blockchain, anyone can verify the authenticity or status of a product being delivered.

Let’s consider an example of the Pacific Tuna project:

Here, blockchain supply chain management provides a step-by-step verification process to track tuna fish. The process results in preventing illegal fishing.

Healthcare 🫶

Before blockchain

In the healthcare system, patients can connect to other hospitals and collect their medical data immediately. Apart from the delay, there are high data corruption chances since the information is stored in a physical memory system.

After blockchain

• Blockchain removes the need for a central authority, which results in instant access to data.

• Here, each block is linked to another block and distributed across the computer node. This becomes difficult for a hacker to corrupt the data.

For example, United Healthcare is an American healthcare company that uses blockchain technology to enhance its privacy, security and medical record interoperability.

Government 🏢

Before blockchain

Rigged voting is an illegal activity that occurs in most traditional voting systems. Also, citizens who want to vote to wait a little longer in a queue and cast their votes to a local authority, which is a very time-consuming process.

After blockchain

• Voters are allowed to vote without the need of disclosing their identity in public.

• The votes are counted with high accuracy by the officials knowing that each ID can be attributed to just one vote.

• As soon the vote is added to the public ledger, the information can never be erased.

Consider an example of MiVote:

• MiVote is a token-based blockchain platform that is similar to a digital ballot box.

• Using MiVote, through a smartphone, voters can cast their votes, where the records are securely stored in the blockchain.

The good and bad

Pros

Enhanced security

Your data is sensitive and crucial, and blockchain can significantly change how your critical information is viewed. By creating a record that can’t be altered and is encrypted end-to-end, blockchain helps prevent fraud and unauthorized activity. Privacy issues can also be addressed on blockchain by anonymizing personal data and using permissions to prevent access. Information is stored across a network of computers rather than a single server, making it difficult for hackers to view data.

Greater transparency

Without blockchain, each organization has to keep a separate database. Because blockchain uses a distributed ledger, transactions and data are recorded identically in multiple locations. All network participants see the same information at the same time, providing full transparency. All transactions are immutably recorded at the exact time in which they occurred. This enables members to view the entire history of a transaction and virtually eliminates any opportunity for fraud.

Instant traceability

Blockchain creates an audit trail that documents the provenance of an asset at every step on its journey. In industries where consumers are concerned about environmental or human rights issues surrounding a product — or an industry troubled by counterfeiting and fraud — blockchain helps provide the proof. With blockchain, it is possible to share data about provenance directly with customers. Traceability data can also expose weaknesses in any supply chain — where goods might sit on a loading dock awaiting transit.

Increased efficiency and speed

Traditional paper-heavy processes are time-consuming, prone to human error and often require third-party mediation. By streamlining these processes with blockchain, transactions can be completed faster and more efficiently. Documentation can be stored on the blockchain along with transaction details, eliminating the need to exchange paper. There’s no need to reconcile multiple ledgers, so clearing and settlement can be much faster.

Automation

Transactions can even be automated with 'smart contracts', which increase your efficiency and speed up the process even further. Once pre-specified conditions are met, the next step in transaction or process is automatically triggered. Smart contracts reduce the friction in human processes as well as reliance on third parties to verify that terms of a contract have been met. In insurance, for example, once a customer has provided all necessary documentation to file a claim, the claim can automatically be settled and paid.

Cons

Technology cost

Although blockchain can save users money on transaction fees, the technology is far from free. For example, the PoW system which the Bitcoin network uses to validate transactions, consumes vast amounts of computational power. In the real world, the power consumed by the millions of computers on the Bitcoin network is close to what Norway and Ukraine consume annually.

Despite the costs of mining bitcoin, users continue to drive up their electricity bills to validate transactions on the blockchain. That’s because when miners add a block to the Bitcoin blockchain, they are rewarded with enough bitcoin to make their time and energy worthwhile. When it comes to blockchains that do not use cryptocurrency, however, miners will need to be paid or otherwise incentivized to validate transactions.

Some solutions to these issues are beginning to arise. For example, bitcoin-mining farms have been set up to use solar power, power from wind farms or even excess natural gas from fracking sites.

Speed and data inefficiency

Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s PoW system takes about 10 minutes to add a new block to the blockchain. At that rate, it’s estimated that the blockchain network can only manage about seven transactions per second (TPS). Although other cryptocurrencies such as Ethereum perform better than bitcoin, they are still limited by blockchain. Legacy brand Visa, for context, can process up to 24,000 TPS.

Solutions to this issue have been in development for years. There are currently blockchains that are boasting more than 30,000 TPS.

The other issue is that each block can only hold so much data. The block size debate has been, and continues to be, one of the most pressing issues for the scalability of blockchains.

Illegal activity

While confidentiality on the blockchain network protects users from hacks and preserves privacy, it also allows for illegal trading and activity on the blockchain network. The most cited example of blockchain being used for illicit transactions is probably the Silk Road, an online dark web illegal-drug and money laundering marketplace operating from February 2011 until October 2013, when it was shut down by the FBI.

The dark web allows users to buy and sell illegal goods without being tracked by using the Tor Browser and make illegal purchases in Bitcoin or other cryptocurrencies. Current U.S. regulations require financial service providers to obtain information about their customers when they open an account, verify the identity of each customer and confirm that customers do not appear on any list of known or suspected terrorist organizations.

This system can be seen as both a pro and a con. It gives anyone access to financial accounts but also allows criminals to more easily transact. Many have argued that the good uses of crypto, like banking the unbanked world, outweigh the bad uses of crypto, especially when most illegal activity is still conducted with untraceable cash.

While Bitcoin had been used early on for such purposes, its transparent nature and maturity as a financial asset has actually seen illegal activity migrate to other cryptocurrencies such as Monero and Dash. Today, illegal activity accounts for only a very small fraction of all Bitcoin transactions.

Regulation

Many in the crypto space have expressed concerns about government regulation over cryptocurrencies. While it is getting increasingly difficult and near impossible to end something like Bitcoin as its decentralized network grows, governments could theoretically make it illegal to own cryptocurrencies or participate in their networks.

This concern has grown smaller over time as large companies like PayPal begin to allow the ownership and use of cryptocurrencies on its platform.

Source

Simplilearn

Investopedia

IBM