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by Keith S.
Blockchain is something we’ve all heard about and it’s a topic that has gained a ton of traction throughout the recent years. In simple words, Blockchain technology is used to eliminate the need for a ‘middle man’ or third party to be involved in transactions; it allows transactions to be processed from point A to B. The third party could be banks or governments who are trusted by people and businesses to ensure their transactions are completed problem-free. The third party is normally responsible for tasks including authentication, auditing, legal services, and record keeping among others, in a transactional process. The need for an intermediary is very important for digital transactions because digital assets such as stocks, money and intellectual property can be reproduced with ease. By providing the security and trust for entities to deal with each other directly, Blockchain has the potential to have huge impact on all aspects of digital commerce.
Whenever Blockchain is discussed, Bitcoin is bound to be mentioned. Bitcoin is a digital currency that enables transactions without the use of credit cards or banks. It was created to allow users to transfer money through the Internet in an efficient manner. When Bitcoin was released, it became evident that it is the technology behind it was the real disruptor, rather than the digital currency itself. You guessed it: the back-end technology was blockchain. Even though Blockchain is associated with Bitcoin, the blockchain technology has many other applications. However, the Bitcoin was its first and perhaps best-known use. Currently, there are approximately seven hundred applications that use the blockchain operating system.
Blockchain is a decentralized database which holds records of digital transactions. This is different from the normal central administrator found in the traditional databases which are used by banks today. The decentralized approach allows a network of replicated databases to be automatically synchronized using the Internet while being visible to the members within the network. Blockchain networks can be private, limited to specific number of members such as an intranet, or they can be public like the Internet which can be accessed by anyone.
To ensure transactions are secure, Blockchain uses cryptography which involves encryption techniques throughout the process. Therefore, when a digital transaction takes places, it is grouped in a block that is cryptographically sheltered with other transactions that have been carried out within the last ten minutes and dispatched to the entire network. Miners are members within the network who have high computing powers who play a key role of validating transactions and solving complex problems. The key here is that the Miners are competing for a reward: the first Miner to solve the problem and verify the block is rewarded. Thus, in a Bitcoin Blockchain network the Miner would receive Bitcoins as their reward.
The next stage for the approved block is being timestamped. After being timestamped, it is added to a chain in a linear and orderly fashion. New blocks of verified transactions are aligned to older blocks, making a chain of blocks showing each transaction made in the history of that blockchain. The entire chain is constantly updated allowing every ledger within the network to be the same and to provide each member with the capability of proving who owns what at any specific time.
The decentralized, open and cryptographic approach encourages people to trust one another and transact peer to peer. Security infringements such as hacking that is commonly associated with large centralized intermediaries is very difficult to accomplish within the Blockchain. The hard part is, if someone wanted to hack into a specific block within the chain, they not only have to hack that one block but all the blocks before it. This ultimately would lead the hacker going back through the entire history of that blockchain.
Blockchain has the potential to be a big disruptor, changing many industries that rely on intermediaries such as real estate, insurance, healthcare and more. This can result in job losses and a complete alteration of many industries. On the other hand, the elimination of the intermediaries has benefits, allowing entities to trade more frequently and efficiently, so progressively reducing the high intermediary fees.
Today a small proportion of the global GDP is held in the Blockchain, about 0.025% according to a survey held by the World Economic Forum’s Global Agenda Council. However, the Forum’s research indicates that this number is expected to increase. Companies such as Microsoft, IBM and PwC are working with blockchain technology wanting to capitalize on its benefits. Do you think Blockchain will make a huge impact in the near or long term future?
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Keerthan (Keith) Sivanesan recently completed his commerce degree in Business Technology Management at Ted Rogers School of Management, Ryerson University. He is interested in both the Business Analysis and Project Management fields and loves volunteering for the CIO association.