27 May 2022
With the growing hype and awareness around Cryptocurrency, NFTs, and other Digital Currencies, understanding the concept of Blockchain Technology has become extremely crucial.
A Blockchain is a digital ledger that records data, documents, and transactions. Blockchains are essentially shared databases and each participant in the Blockchain has complete access to the entire database and its history. Data is recorded on the ledger is stored on the blocks and blocks are chained together in a cryptographical sense. In simple terms, a Blockchain is a distributed digital ledger that stores data of any kind. Blockchain is a type of Distributed Ledger Technology (DLT) in which transactions are recorded. Let’s dive into some of the key features of the Blockchain technology to get a better understanding of why this technology has been getting such massive traction:
HOW DOES IT WORK?
From the definition and the key features of the Blockchain technology as discussed above, we infer that the Blockchain is the concept of digitally storing data in the most transparent, secure, and efficient way. Let us now try to understand the working of the Blockchain technology from the flowchart below:
TYPES OF BLOCKCHAINS
Now that we have discussed the concept and the working of the Blockchain, let’s delve into the major types of Blockchains:
Also known as Permissionless Blockchains, Public blockchains are open networks that allow anyone to participate in the network. A public blockchain is a decentralized network and does not have any single entity which controls the network. The data on a public blockchain is secure as it is not possible to modify the data or interfere with the same once it has been validated on the blockchain. Bitcoin and Ethereum are examples of Public Blockchains.
A private blockchain is a special type of blockchain technology in which only a single organization has authority over the network. Private blockchains, also known as authorized blockchains, are managed by the network administrator and participants must consent to join the network. In this type of blockchain, only the entity participating in the transaction is aware of the transaction being executed and no other entity can access it i.e., transactions are private.
USE CASES OF BLOCKCHAIN TECHNOLOGY
The use of Blockchain Technology has exploded via the creation and trading of various Cryptocurrencies, NFTs, and other Digital Currencies. However, there are numerous other industries for which this technology can be used. Let’s look at a few industries where the use of Blockchain technology can be extremely beneficial:
This is conceivably the most well-known use of Blockchain technology. When people exchange or spend cryptocurrency, the transactions are recorded on a blockchain, with each block representing a separate transaction that is validated by the participants in the network.
Blockchains can be used for traditional exchanges as well, in addition to cryptocurrency exchanges. Using blockchain for exchanges allows for faster and less expensive transactions. Moreover, decentralized exchanges provide better management and security because investors do not have to deposit their assets with a central authority.
Blockchain may also be used to process transactions in fiat currency such as dollars and euros to make such transfers secure, quick, and more economical. It can be extremely beneficial for processing cross-border transactions, which are often slow and expensive.
Using smart contracts on the blockchain can increase the transparency of customers and insurers. Recording all claims on the blockchain would prevent customers from making duplicate claims for the same event. In addition, smart contracts can speed up the process for applicants to receive payments.
Lenders can perform secure lending through smart contracts built on the blockchain. This will automatically trigger the payment of services, margin calls, full repayment of loans, the release of collateral, etc. on the happening of certain events. Well-coded smart legal contracts in a distributed ledger would minimize the need for external third parties to validate performance.
Real Estate transactions require an enormous amount of paperwork to confirm financial information and ownership and then transfer the certificate and ownership to the new owner. By recording real estate transactions using blockchain technology, a safer and more accessible way to identify and transfer real estate can be provided. This would speed up transactions, reduces paperwork, and saves costs.
Blockchain can be used to protect medical records, health records, and other related electronic records. Keeping medical records on the blockchain would give medical professionals accurate and up-to-date information about their patients. This would ensure that patients who see multiple doctors receive the best possible treatment.
NOT ALL IS POSITIVE ABOUT THE BLOCKCHAIN TECHNOLOGY
With the tremendously growing awareness and discussions about the benefits and efficiency of Blockchain technology, it leaves one wondering as to why aren’t mainstream industries adopting this technology at a faster pace. This is because every technology comes with its set of drawbacks. Let’s look at some of the major drawbacks of the Blockchain technology:
THE WAY FORWARD
Blockchain technology has only existed for a few years, and businesses are still looking for new ways to use it to support their operations. As the amount of digital data used in our lives grows, so does the need for the security, access, transparency, and integrity of the data that blockchain can provide. While Blockchain technology is considered one of the top innovations of recent times, the industry is yet to overcome major obstacles.
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