Impact of Blockchain on Technology
Now a days, the word Bitcoin is ringing like a buzz. However people were not interested too much on bitcoin since its inception in 2009 until recently. The underline technology of bitcoin is Blockchain. Blockchain is one of the top technological trend in recent years predicted by Gartner. There is no question about the impact of blockchain on technology and human life styles. It will change the way how applications are developed and how the technology is used on daily life.
Anyway In simple words, Blockchain is a distributed ledger. Let’s consider a physical ledger book which contains the transaction information for 5 people. Now the ledger book is kept locked in a locker with 5 different keys. Each person is having a single key. So, to open the locker, 5 persons have to gather and no one alone can open the locker. So, whatever is written in the ledger book, should be written in front of everyone and everyone is aware about what is there in the ledger book and everyone agree on the state of the book.
Similarly, a Blockchain is a chain of nodes where each node is having a copy of the ledger, however everyone should agree on what would be written on the ledger.
In simple words, a blockchain is nothing but a distributed ledger spread across several nodes. The nodes are connected to a peer to peer network. Each node is having its own copy of the ledger and all the copies contain the same information. Whenever a node is trying make a transaction entry to the ledger, then all the nodes (or most of them) must agree on what would be written and what would be the state of the ledger after the transaction. Once, they agree, then only the information is written into the ledger. Moreover it is an append-only ledger, so no one can make any update to the previous data.
A block in a blockchain contains the set of transactions (like a page in a physical ledger). The number of transactions in a block vary from one network to another. In Bitcoin, a block is created in every ten minutes.
A blockchain is a chain of blocks. Each block contains cryptographic hash of the previous block. So, each block is connected like a linked list.
I think the introduction is enough to get a fare idea about blockchain. I am not going to discuss the technical details of the blockchain as enourmous information is available on the network. We will directly jump on its impact on technology and how it could change daily human life style.
Blockchain solves the below problems –
- It removes (at least reduces) the dependency of intermediaries.
Consider the below situation of Ram and Sam. Ram is an electrician and he needs to work on Sam’s house. As per their agreement, once the work is done, Sam has to pay some amount to Ram. Now it may happen that once the work is done, Sam is denying to pay the complete amount or Ram did not complete the work and trying to get the complete amount. Now to resolve this situation Ram and Sam have to go to court which will act as an intermediary and resolves the issue. Here the problem is, we need to blindly trust court!
Blockchain resolves the issue using a smart contract/chain code. The smart contract defines all the terms/conditions and automatically executes based on some conditions. Once the complete work is done, based on the quality of the work (quality may be defined as a condition in the contract), it will calculate the amount to be transferred and then transfer the amount.
We will evaluates couple of more real life scenarios later.
- It stops the double spending problem by ordering the transactions. Double spending problem arises whenever a malicious user trying to send the same amount to two different persons at the same time. However he is not having enough money to send to two different persons. As both the transactions are happening simultaneously, so it’s hard to defend this kind of attack with traditional centralized server. Bitcoin resolves this by ordering the transactions.
- It reduces the risk of hacking to the information shared with ledger significantly. Blockchain performs write operation with an append-only mode and keep tracks of the previous blocks with a hash. And more over more than 50% node should agree on the fact before new block is added to the blockchain. So, to compromise the entire network, someone needs to compromise more than 50% of nodes which is almost impossible in a network like bitcoin and ethereum considering their network size.
Different industries are having different plans with Blockchain network.
Banking sector is trying to utilize the blockchain for transferring money internationally, doing KYC regulations and anti-money laundering services. Whenever we are transferring money within a country then it’s easy, however when we are transferring money internationally, then it’s a bit difficult. Consider Ram is having an account in SBI in India. Ram puts his money in SBI because he trusts SBI. If he doesn’t trust the institution, he never put his money there. Now Ram wants to transfer some amount to Sam. Sam lives in Niger and he doesn’t aware about SBI. Ram is also not aware about the bank where Sam is having account. So, how the money transfer happens in this case. Here, we need one intermediary like VISA. Both the banks are registered with VISA. They trust VISA and VISA trusts them. Here the transfer is dependent on the exchange of both the countries also. So, considering all the situations, we understand that the transfer of money internationally is not easy and it involves couple of steps which results in longer time in settlements. Consider the same scenario, where both the persons are transferring amount using a crypto currency (bitcoin or ethereum). Here no intermediaries are required like banks, VISA and exchange. The amount will be directly transferred from Ram’s wallet to Sam’s wallet.
Several Banks are trying to create blockchain to maintain the customer records. Here the network is much like a permissioned blockchain (Hyperledger Fabric) instead of permission less blockchain like ethereum. Think every banks are doing KYC individually for every person. Now consider, if a person is having account in two banks, then he needs to submit KYC twice and also banks need to verify the same twice which results double costing. Instead of that if they can share the KYC information using blockchain, then it will lead to too much savings for bank. Similarly it helps customer also as he needs to submit the KYC only once.
Consider a different scenario with energy sectors. In several countries smart grids are there to generate electricity. The smart grid may be connected to a solar panel to generate electricity. There are people who are producing electricity as well as distributing the excess electric. They are called prosumers (producer + consumer). Consider a consumer who is taking electricity from such a prosumer. How consumer will trust the prosumer. There is no way to verify the data unless the application of IOT and Blockchain to capture and store the data. The IOT devices are required to get connected to the grid. These devices automatically keep tracks of how much electricity is distributed to the X consumer and sends the same data to cloud. From cloud, the distributed apps get the data and save to blockchain. This way we can remove the trust factor and all the problems which can arises while payment settlements.
We have explained couple of scenarios where Blockchain can significantly change the way we are using technology. We will see more Blockchain related posts in future. Happy learning!