A broad definition of blockchain technology is a technology that allows for creation of a public data base that can be accessed by any node in a peer to peer network. In the context of crptocurrency, a blockchain is a decentralized distributed ledger that records transactions and broadcasts each transaction to all members of the network. The technology works such that information once recorded cannot be erased or altered without the consensus of all members. An attempt to make changes on one block causes alteration of subsequent blocks.
History of blockchain technology
The first implementation of blockchain technology was in 2009 when an anonymous person or group, Satoshi Nakamoto used the technology as the core of mining and transacting bitcoins. In the years following, blockchain technology was primarily associated with digital currencies and creating a public database of financial transactions. However, in the last half decade, the technology has been adopted for different industries finding wide application across the globe.
Overview of how blockchain technology works.
Blockchain technology uses a combination of different technologies to create a safe and secure database. These technologies are cryptography, peer to peer network and distributed ledger. Individuals joining the network are give a unique identity. Through the cryptography technology they are each given a digital signature that they use to authenticate themselves in the network. A peer to peer network consists of several, hundreds or thousands of computers(nodes) all interconnected with equal authority over each other. Once a transaction has been made, it is time stamped. Miners access the records to be able to verify them and put them in chronologically organized blocks within the chain. The blocks are then broadcasted to the entire networks for all nodes to see.
Types of blockchain technology
There are two main types of blockchains: private and public. A public blockchain platform is permissionless. Any member of the network can make transactions, access records and participate in making decisions for the network. On the other hand, while a private platform allows all members of the network to make transactions, only select members can participate in decision making.
Features of block chain technology
- Blockchain technology is a decentralized system. Data is not held in a specific central server rather throughout a peer to peer network. Being a peer to peer network, it means that all nodes across the network have equal authority to create and access records. The decentralized system lowers the risk associated with centralized systems such as controlling and manipulation of the database. It also means that members do not have to rely on an authority to approve a transaction.
- Distributed ledger. Blockchain technology makes it possible for a public distributed ledger. The ledger makes record of any transaction that takes place. The record is broadcast to all members in the network. Since it is public, anyone who joins the network can see the ledger.
- Offers user anonymity. In public blockchain platforms many users prefer to remain anonymous. Blockchain technology makes it possible for the system to verify the actual identity of a member while keeping his identity anonymous in the network. This is possible because members’ accounts and user names are labeled using random numbers and alphabets.
- Increased storage capacity. Due to the decentralized nature of the database, information is not stored on one server computer. Thousands of nodes in the network work together to form a decentralized database offering greater storage capacity.
- Blockchain technology utilizes cryptography to secure data. Data once recorded cannot be changed without consent of all members of the network.
- Since the technology is implemented in a peer to peer network and information is distributed to all nodes, there is no single point of failure. Even if one node shuts down, the others remain functional. In addition, since a transaction by one node is broadcasted to all odes, it means that at any one point there are thousands of “eyes” on the network closing any loop hole for breach.
Applications of blockchain technology
Bitcoins was the first and is this far the largest application of blockchain technology. To a point that the term bitcoin and blockchain technology have been used interchangeably. However, they are two different concepts. Bitcoin has utilized the technology to facilitate transaction. The technology has gained application in many industries so far including:
- In finance and accounting, blockchain technology has been used to reconcile transactions carried out globally fast and at a low cost.
- Blockchain technology has found use in logistics where it is used to create an immutable trail record of goods for more efficient tracking.
- Smart contracts. In creating smart contracts, at least two parties code their contract into the blockchain. Even if the two may be strangers, the contract remains a public ledger. For instance, if there are dates stipulated in the contract, when they are triggered they automatically execute themselves without need for the parties’ participation.
- Governments can adopt blockchain technology for use in record keeping of citizen information. Many government offices are filled with piles of paper. Even in government institutions that have computerized their record keeping, they are faced with issues of system breakdown and slow access time. These issues can be resolved by implementing blockchain technology in record keeping.
Pros of blockchain technology
- Saves costs of creating and authenticating database in businesses. Everyday, businesses carry out numerous transactions. In most cases, these transactions require to be verified. A blockchain system allows businesses to record crucial customer information, make records of transactions and allow verifications fast to be done remotely. It also saves cost of building and maintaining networks. Since the system is decentralized, there is no need for high end servers that are costly to set up and maintain.
- Offers high level of security. Due to its imputable nature, it is imposable to corrupt records. Besides, if one node fails, other nodes take note of new transaction.
- Blockchain technology gives all users of the networks control over information and transactions being transmitted via the network.
- The technology has eased management of global organization. It has enabled creation of a network via the internet that managers can use to share information and make decisions in technology.
Cons of blockchain technology
High energy consumption. The blockchain technology is energy intensive especially for miners.
The technology is also faced with uncertainty in regulation. Some governments and international bodies are advocating for regulation of the technology which may reduce its efficiency as a decentralized system. However, some governments and international communities are beginning to accept use of cryptocurrencies as a mode of payment in some countries.
Interesting statistics on blockchain technology
According to the Statica Report 2017, the market for blockchain technology is expected to grow exponential between 2016-2021. The global market for blockchain technology in 2017 was valued at 339.5 million and is expected to reach 2.3billion US dollars in 2021.
The increase in market share can be associated with beneficial features of the system. The technology is predicted to reduce infrastructural costs in banks by 30% which would result to an annual saving in the banking sector of approximately 10 billion dollars. This would be a substantial saving as the average cost of implementing blockchain technology in banks and financial institutions is 1 million dollars.
IBM is top among the companies spearheading implementation of blockchain technology in various industries. In 2016, the company invested over 200 million dollars in blockchain related innovations.
Significance of blockchain technology in explosion of bitcoin and Cryptocurrency trading.
Blockchain technology has played a key role in the explosive growth of bitcoins and crptocurrency. It created a platform for the homogenous currency to be mined, distributed and transacted across the globe. It has also enabled keeping of a public record of all transactions made. Since no authorization is required from governments or banks, many people have been able to trade in the cryptocurrencies without limitations that come with currency regulation. It has also enable for 24/7 trading of the currencies.
The technology can be accredited to the 12,000 transactions of bitcoins per hour. It has enabled the bitcoin network to grow to a blockchain size of 166GB. Over 500,000 bitcoin wallets have been downloaded so far. According to a 2017 Cambridge research, the number of bitcoin users in the world is about 5 million.
As a result of the tremendous growth in bitcoin and the efficiency brought by the technology, other cryptocurrencies have come up including litecoin and ether. The crptocurrency market by mid 2017 was valued at 19 billion dollars. Bitcoin has in the last quarter of 2017 hit a new high of over $7,800. Top tech companies such as IBM and Microsoft as well as investment companies are investing in the technology.
Blockchain technology is emerging as a disruptive technology that is bound to change the world. Its ability to disrupt has been evidenced by the exponential growth in popularity and value of bitcoins. The technology has shifted internet use and enabled digitization of assets and their management. It is expected to disrupt numerous industries including banking, healthcare, real estate, insurance, Internet of things (IOT) and many more.