If you are into technology, #fintech or related industry, chances are you’ve heard about BlockChain recently. The whole world is talking about this disruptive technology which is going to change how we interact and transact online. Fascinated by the potential of this disruption, I tried to learn a bit about it and would like to share with others how I understand it.
In conventional money transfers, Banks are the middle-man between two parties. Here, there is no Bank or centralised party, instead the parties communicate with each other using an innovative digital solution, where a transaction is approved or authorised by computer machines spread across the internet. Let’s discuss how it works,
- A wants to send money to B
- A initiates a transaction, which is then broadcasted to a network of computers. Every node in the network receives the transaction information (A sending money xyz amount to B) and verify it to be correct.
- Once all the nodes approve it then it’s considered to be a valid block and can be accepted as a legit transaction.
- Once a block is verified, the block is added permanently to the chain, hence the name block chain. It means that any transaction happening using this technology is becoming part of the chain, which gives a transparent record of transactions.
- Transaction is finalized
The above steps are illustrated in the figure below,
In technical terms, BlockChain technology is a way to store information in online databases that are:
- Distributed across network of machines
- Decentralized, which means it’s not owned by one single individual or organization
- Protected by complex math codes called cryptography and they are almost impossible to change
- Copied on thousands of machines and hence if one machine is corrupted or hacked, they can still be available on other machines.
If we compare it with traditional databases, that are owned by individuals or organizations then those databases can be deleted, changed, or corrupted. None of these can happen to information present in BlockChain because of the characteristics explained above.
So how can we make use of this technology?
BlockChain is a technology platform that enables you to make use of it in applications that require value exchange. The most known application of blockchain is bitcoin, a form of digital currency whose movement from one person to another person is recorded in block chain, also commonly referred as digital ledger. But BlockChain can work for anything like selling of property, goods, services, contracts and even investments.
- Transparent as the block is shared among the whole network comprising of a P2P network of thousands of computers, it helps in building trust among individuals and businesses.
- AntiFraud as the block is generated using complex cryptography technique, no transaction can be reused, cannot be changed, and cannot be removed from the record. Once a transaction becomes part of the block chain, it cannot leave it. Someone might question, what if some piece of information is corrupted or deleted in the chain. Well, it’s not possible since there is not one copy of this chain of information but it’s copied (broadcasted) to thousands of nodes. In case, someone tries to forge records, the rest of the copies will be given signal that there is change in information and only if other copies confirm that the change is valid, the record can be updated otherwise not.
- Cost Effective as it uses the concept of decentralized/distributed system, the need for a central authority is removed which brings the cost of processing transactions lower (no intermediaries) and make the overall transaction faster, especially in the case of cross-border payments where processing time is reduced from a week to just a day or even hours.
Let’s share knowledge with each other. Tell us what do you think about this technology and how do you plan to use it.