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What Is Blockchain Technology? Here’s Everything You Need To Know

Welcome back wonderful readers! This is the second blog of my miniseries on emerging technologies. In this blog I’m gonna talk about another auspicious emerging technology called “Blockchain Technology”. So, let’s begin without any wait!

I am tired of my banks that are working as middlemen and taking a portion from my hard-earned money. Are you tired of your banks and financial services companies as well? I wish there must be a solution to this, whereby I can securely & visibly perform and monitor my transactions without depending on middlemen. Do you think likewise for yourself? The solution lies with one of the most sensational emerging technologies called the blockchain technology. Blockchain technology is no less than a revolution in the digital world.

What Is Blockchain Technology?

How can we define blockchain technology? Well, blockchain is actually a digital decentralized ledger encompassing all transactions across a peer-to-peer network. By using blockchain technology, users can confirm transactions without the need for a centralized authority/middleman. Let me give you a simple example to further explain blockchain. Assume you’re at a dinner party with your friends. Everyone has brought something from his/her home and the food dishes are being passed around for sharing among the friends. You suddenly notice that some friends are taking higher portion of food, while others are getting a smaller portion. Hence, you feel that the distribution of food is not taking place in an equitable fashion. The question is how can you ensure equitable distribution of food because it’s nearly impossible to track who is consuming how much.

Now, here comes the concept of blockchain technology. Blockchain technology can help you with equitable distribution but, how? So, what you need to do is that you can create a digital ledger and everyone has to make an entry in the ledger whenever they take the food, while everyone else endorsing it through digital signatures. So, now you’ll have the record/tracking of who is taking how much food. What if a foodie friend of yours tries to delete/edit/manipulate the records in the digital ledger? No problem it can’t be deleted/edited/manipulated! Since the digital ledger is decentralized therefore, every individual in the dinner party has a copy of the digital ledger mentioning who consumed how much food.

The potential of blockchain technology for enhanced security, efficiency, and transparency is massive. Like AI, blockchain is here knocking at our doors to transform many facets of our daily lives. But fundamentally, blockchain technology is not disruptive in nature, in fact blockchain is a foundational technology i.e. it has the ability & strength to create new foundations for economic, political, and social systems.

So sit tight and get ready to indulge with me in the exciting world of blockchain technology!

What Is The Role Of Blockchain In Contracts, Transactions And Their Records?

In any legal & political system and civilized society the social & legal contracts, transactions, and their records along with their implementation are most critical and provide a robust foundation in order to protect assets, people, businesses, state interests, institutions, and society at large. The interactions among the people, organizations, communities, government and other institutions are governed through these social & legal contracts. If the social & legal contracts are broken or violated persistently then the society and its institutions tumble.

Now in this digital era, the significance of all these things has substantially increased because without implementing technology and becoming savvy with it, the society would lag behind. So, digital transformation of the whole system and economy is of utmost importance, and the way these are governed has to change.

Since I have highlighted the significance of social & legal contracts, transactions, and their records along with their implementation, now imagine a world in which all sorts of contracts are entrenched in a digital code. They are stored in a transparent manner in shared databases, where they are protected from obliteration, any sort of tampering, and revision. To do this, the concept of blockchain technology comes into play! In the world of blockchain every contract, process, task, activity, transaction, and payment would have a digital record and signature that could be recognized, authenticated, stored, and shared.

Envisage a world where blockchain technology will be such a powerful technology that intermediaries like lawyers, brokers, agents, banks, and financial services companies might no longer be required because individuals, businesses, machines, and algorithms would be able to easily perform transactions, while interacting with each other with diminutive friction. Sounds hypnotic right? Just conceive how powerful the blockchain technology is. With the pace at which the blockchain technology is progressing, it is clear to me, beyond any doubt, that the world is transforming very fast. The ways in which our past and present-day dealings, transactions, and interactions have been taking place, will be totally different from the ways in which our dealings, transactions, and interactions would take place in future. And I am sure it’s not far in fact it’s in the offing.

What Are The Applications Of Blockchain?

Until now, it seems that blockchain is gonna transform businesses & societies and redefine organizations & economies. But, there are concerns as well regarding the hype of blockchain’s potential. In order to undergo a true blockchain revolution, daunting challenges such as security issues, technological bottlenecks, governance concerns, organizational issues, ethical issues, and societal concerns need to be addressed. Otherwise it can turn out to be counterproductive. Now let’s look at some real-life applications of blockchain technology for better understanding and getting hold of things.

Use of Blockchain For Creation Of Cryptocurrencies

Blockchain technology is at the heart of creating cryptocurrencies such as Bitcoin, Ethereum, etc. In 2009, post global financial crises, an inventor by the nickname Satoshi Nakamoto created digital financial currency called the Bitcoin to enable simple financial transactions between its participants, without the need of middlemen i.e. banks/financial institutions. Effectively the tasks which the middlemen perform such as logs, registration or amendment are supposed to be done by the transaction system itself. Since we have comprehended that blockchain is essentially a decentralized digital ledger eliminating the need of a middleman, so now let’s grasp how it works in case of Bitcoin?

On a blockchain network, the verified transactions are arranged in the form of data sets called the blocks that use cryptographic authentication to link themselves to one another. So, each block is chained with the previous block using the hash function. This way an unbreakable chain is created. Each block verifies its direct predecessor, the lengthy chain is continuous & permanent, and transactions which have already been recorded in blocks cannot be amended, disguised or deleted. Any attempt to do so would break the cryptographic chain and would be immediately noticeable to all participants. So effectively, blockchain digital ledger is protected from changes with built-in authentication.

Moreover, the archive is not kept at one place instead, it is disseminated and exists on several computers at the same time and anyone can obtain a live copy of it. Let me give you an example here as well. Let’s say you need to send money abroad. What will you do? Obviously you’ll need the services of a bank or financial services company but, if you analyze the concept of digital currency created through blockchain, you can send money from one jurisdiction to another without the need of a bank or financial services company. Both sender and recipient can automatically be authenticated by their encrypted digital signatures, and the money can be transferred from one wallet to another with the details of transaction registered on the blockchain within few seconds. With all this, you don’t need to go through any long process and verifications which are normally performed by the bank or financial services company. Obviously costs can also be reduced by cutting the bank or financial services company (middlemen), while enhancing the transparency and efficiency.

Use of Blockchain In Supply Chains

Blockchain technology is a pivotal enabler in fortifying and strengthening supply chains of businesses. In supply chain, as products or raw materials change hands, records can be created, inspections & deliveries can be digitally recorded, and payments can be automated. And all these transactions/activities can automatically be documented and encrypted. Again there’s no need for a middleman such as a bank or regulatory body or financial institution, to verify these transactions/activities.

Using blockchain technology the parties involved can have impeccable visibility into the end-to-end supply chain processes thereby enhancing confidence, trust, efficiency, and safety in supply chain. There are many areas of supply chain in which blockchain’s enormous potential can reap humongous benefits. One such area is public and investor scrutiny of an organization regarding its environmental, social, and governance (ESG) claims. ESG concerns are generally increasing on the corporate agenda and gaining significant attention from investors, public, regulators, and governments. Therefore organizations might be required to validate their ESG claims. Here, blockchain technology can help by enabling organizations to confirm their ESG claims such as about the green/ethical sourcing of their raw materials or products.

One such example is of Haikure which is an eco-friendly Italian denim brand. This brand specializes in sustainable denim and uses fabrics made from recycled plastic bottles. It actually uses lyocell fibre (a semi-synthetic fibre) extracted from eucalyptus pulp and organic cotton. This fiber is a must-have for green wardrobe. Haikure has deployed blockchain technology, to entrench “proof points”, into its B2B platform to support its claims of sustainable water usage and raw materials.

Where Else Blockchain Technology Can Be Used?

The list of above mentioned applications of blockchain technology is not exhaustive and there are numerous other areas e.g. healthcare, finance, etc. where blockchain technology can be used for optimization.

Final Thoughts

As per PricewaterhouseCoopers’s (PwC) “Time for trust” report, blockchain has the potential to add $1.76 trillion to the global economy by 2030, while enhancing 40 million jobs globally by 2030. These numbers are sufficient to explain the potential and significance of blockchain technology. However, with all its benefits and potential, blockchain technology is still not a magical solution as it has its own confinements and challenges. One such challenge is the high energy consumption of blockchain networks, which has raised concerns about the environmental impact of blockchain technology. Moreover, blockchain technology is still nascent therefore more research and development is required to address questions like its scalability, interoperability, and standardization.

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