The beginner’s guide to blockchain

Discover blockchain: what it is, how it works and who is exploring it in India.

This is our guide to what you need to know about blockchain technology.

What is blockchain?

The term “blockchain technology” can be confusing. Blockchain is a type of distributed ledger that keeps transparent records of digital transactions. It provides a secure and immediate way of digitally transferring anything of value. Rather than having a central administrator like a traditional database, a distributed ledger has a network of replicated databases, synchronised and spread across a variety of computers in different locations.

Originally used as the tracking mechanism for digital currency bitcoin, blockchain has now been adopted by a wide variety of financial platforms. The use of digital currencies is on the rise and blockchain technology has caught the attention of prominent business, technology and government leaders.

The concept behind blockchain first appeared in 2008, defined in the source code of a Bitcoin white paper released by someone using the name Satoshi Nakamoto. That name Satoshi Nakamoto is widely believed to be an alias for a person or group of individuals whose identities remain unknown.

How does blockchain work?

A blockchain distributed ledger contains records held in “blocks”. When a transaction is logged, it is either validated or rejected by different nodes (members in the network). After receiving verification, a cryptographically-protected block gets added to the chain in a linear, chronological order.

New blocks are linked to the older blocks, and the chain is continually updated so every ledger is the same. This gives each node the ability to prove who owns what at any given time. The decentralised and transparent nature of blockchain makes it highly secure and tamperproof. Any slight change in one ledger causes a discrepancy in the entire network. For example, to break into a distributed ledger with 5,000 computers would require you to hack all 5,000 computers at the same time, changing the same piece of information.

Because blockchain is non-refutable, secure, unbreakable and transparent, it also ensures trust between parties. Previous solutions to this problem have required a third party or intermediary, which usually costs money.

Real world use cases for blockchain

Blockchain has applications for a range of industries and services. Remember, blockchain allows the digital transfer of anything of value, so this goes way beyond obvious applications like digital currencies. Potential applications include:

• Electronic voting and voter authentication
• Smart legal contracts
• Peer-to-peer payments
• International money transfers
• Transferring ownership of equities and clearing settlements
• Patient health records management
• Digitally recorded property assets
• Proof of ownership for digital content

Questions you might still have about blockchain

• Why should I care about blockchain?

  Most people and businesses use intermediary services everyday, and they are all charging hefty fees. Blockchain technology aims to drastically reduce these fees and save you huge amounts of time.

• What industries could blockchain potentially disrupt?

  Blockchain technology aims to profoundly disrupt hundreds of industries that rely on intermediaries, including banking, finance, academia, real estate and insurance, legal, healthcare and the public sector.

• What are the main benefits of blockchain technology?

  The elimination of intermediaries brings with it substantial benefits. The blockchain will enable people and businesses to trade much more frequently and efficiently. Blockchain’s goal is to eliminate expensive intermediary fees and provide greater protection against criminal activities like fraud and theft.

• Can I use blockchain to transfer real money?

  Not yet. At the moment this is only possible with digital currencies such as bitcoin.

• How secure is blockchain?

  Very. The distributed nature of blockchain provides a new level of protection. Hacking attacks and fraudulent activities that commonly impact large centralised intermediaries such as banks would not be possible with blockchain technology.

Images: Shutterstock