What is Blockchain? How does It work? What problems does it solve and how can It be used?
As the name explains, A blockchain is a chain of blocks that contains data. Blockchain was originally described in 1991 by researchers and it was initially intended to timestamp digital documents in order, That it is unattainable to backdate them or to play with them. Almost sort of a notary.
However, It elapsed mostly unused until it absolutely was adapted by Satoshi Nakamoto in the year 2009 to make the Bitcoin Cryptocurrency.
A blockchain may be a distributed ledger that’s completely receptive to anyone. they need a remarkable property: once some data has been recorded inside a blockchain, it becomes very difficult to vary it.
How does Blockchain work?
Well, let’s take a more in-depth observe a block. Each block contains some data, the hash of the block, and also the hash of the previous block. the data that’s stored inside a block depends on the kind of blockchain.
The Bitcoin blockchain, as an example, stores the tiny print some transactions in here, just like the sender, receiver, and amount of coins. A block also contains a hash. You will be ready to compare a hash to a fingerprint. It identifies a block and each one among its contents and it’s often unique, while a fingerprint. Once a block is formed, its hash is being calculated. Changing something inside the block will cause the hash to vary. So in other words: hashes are very useful after you want to detect changes to blocks. If the fingerprint of a block changes, it now not is that the same block. The third element inside each block is the hash of the previous block. This effectively creates a sequence of blocks and it’s this method that creates a blockchain so secure.
Blockchain is a mechanism that slows down the creation of new blocks. In Bitcoins case: it takes about 10 minutes to calculate the required proof-of-work and add a new block to the chain. This mechanism makes it very hard to tamper with the blocks because if you tamper with 1 block, you’ll need to recalculate the proof-of-work for all the following blocks. So, the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism.
But there is one more way that blockchains secure themselves and that’s by being distributed. Instead of using a central entity to manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join. When someone joins this network, he gets the full copy of the blockchain. The node can use this to verify that everything is still in order. Now let’s see what happens when someone creates a new block. That new block is sent to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to its own blockchain. All the nodes in this network create consensus. They agree about what blocks are valid and which aren’t. Blocks that are tampered with will be rejected by other nodes in the network. So, to successfully tamper with a blockchain you’ll need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer network. Only then will your tampered block become accepted by everyone else. This is almost impossible to do! Blockchains are also constantly evolving. One of the more recent developments is the creation of smart contracts. These contracts are simple programs that are stored on the blockchain and can be used to automatically exchange coins based on certain conditions.
The creation of blockchain technology peaked a lot of people’s interest. Soon, others realized that the technology would be used for other things like storing medical records, creating a digital notary, and even collecting taxes.
How Blockchain is useful for Banking Industry?
Blockchain is taking over the world like a Storm. It will surely disrupt and revolutionize many financial banking institutions. This Technology can be considered a mathematical model for processing securing and finalizing transactions in the form of cryptocurrencies like traditional banks for trillions of transactions are being processed every day. which is the reason why it will disrupt the financial industry. As of now, over 60% of financial institutions are planning to use blockchain technology for international money transfers, 23% for security clearing and settlement, and over 20% for KYC, regulations, and services for anti-money laundering.
3 key factors of blockchain technology that are responsible to disrupt the banking industry irrespective of providing a decentralized platform for secure transaction r1 transactions are extremely fast two processing fees are minimal and three recorded data is immutable whether in finance or personal banking. The wait times depend on deposits that are often long and frustrating. It typically takes two to six business days to process whereas using blockchain the same can be achieved in about 10 seconds.
Every year 150 to 300 trillion dollars of transactions are made across the globe with an average transaction fee of 10% it takes about 2 to 6 business days to transfer. The money financial institutions are spending up to five hundred million dollars just to keep up with KYC regulation.
With blockchain technology transactions can be made within seconds and for pennies on the dollar. It will remove the customer identification cost as on a distributed ledger confirmations are done effectively by everyone on the network. Thus, It will eliminate intermediaries and toll extraction in the process.
In conclusion, Blockchain Technology will not only have the potential to speed up the transactions drastically locally and across the globe but also save banks millions of dollars. These are some of the reasons why banks around the world are currently investing in blockchain various banks are seeking patents for blockchain a number of banks like Citibank Bank of New York, Mellon Goldman Sachs, and JP Morgan Chase have introduced their own cryptocurrency these banks are investing for their future.
Blockchain – Pros and Cons
We know a blockchain may be a system composed of a selected set of Records linked to every other using cryptography a blockchain will be seen as a distributed ledger that may record transactions between two parties efficiently and in a very verifiable and permanent way. Blockchain has increased in recent years given the recognition of cryptocurrencies like Bitcoin or the smart contracts platform aetherium that’s the blockchain as their underlying technology. But what are the benefits and downsides of blockchain technology let’s take a better look to start with all data stored in the blockchain is immutable?
Once a bit of information enters into the blockchain it’s practically impossible to change its value because it might invalidate all the kid locks whose ancestor is altered this is often guaranteed using advanced cryptography algorithms. On the other hand, this immutability could also be a difficulty when data is recorded into the blockchain it can not be modified this is why it’s unacceptable to reverse the theft of cryptocurrency funds. However, blockchain is fault-tolerant if for a few reasons a node or a set of notes is close up the entire network won’t be affected because the remaining nodes will continue working, as usual, assuming there are sufficient accurately operating components to maintain the service.
A motivating problem with notes is that they will cause slow processing if there don’t seem to be enough blocking networks required notes to run. But as many of those networks are new they lack the number of notes to facilitate widespread usage in other words luxury networks aren’t fast locks are added at regular time intervals and notes prioritize transactions with high rewards for completing transactions in an exceedingly supply and demand scenario. This causes some transactions to be confirmed later than others if the reward provided to them isn’t competitive still not everybody or organization owns the full system.
The blockchain may be a distributed ledger every node within the network has an identical or almost identical copy of the ledger. This ensures that if a note is compromised or damaged it can always be restored every could receive a whole copy of the database from the system through the form of a sub-database. But what about the punks safety can be turned to customer support just in case we lose our private key.
Somehow the solution isn’t any loitering technologies involve the employment of private and public case if those keys are not kept safe the chance of losing funds or introducing valet transactions from a business logic point of view is present law chain allows digital transactions to happen between parties who don’t trust one another. There’s no need to trust third parties because the technology behind its supported consensus before adding a brand new block or transaction every node within the network verifies the authenticity of the item and then proceeds to either added to the head of the blockchain. Just in case of a brand new block or in a very block to the mind just in case of a brand new transaction the difficulty is that most of the nodes resources are spent on mining.
Therefore, the amount of transactions blockchain systems capable of processing is far below some alternatives designed to handle thousands of transactions per second. Blockchain Technologies work under the belief that honest nodes control the network if attacker nodes collectively control more computational power than the nice ones.
The network is vulnerable to the so-called 51% attack in this scenario all those nodes would be ready to control the transactions to be added to the blockchain but notes aside people are still exploring and finding new ways of implementing blockchain technology in existence due to its versatility.
Leading to new and innovative applications a number of them are voting and consensus property ownership documents and certificates supply chain business decentralized storage with all of this in mind it’s possible to mention without a doubt that Blockchain Technology is revolutionary with the potential to boost or develop new systems in several industries and areas its applications may well be countless but like all technology, it’s not a solution it has demonstrated that it can be useful for storing immutable data ensuring that nothing or nobody will alter data for there benefit since blockchain is decentralized no central authority can control it making it less corruptible with its fault-tolerant and robust system thanks to the redundancy of the information it contains blockchain could play an important role within the global society in near future with numerous possibilities from a worldwide decentralized economic system to authenticity verification and supply traceability.