What is Blockchain?
This blogpost discusses the concepts and applications of blockchain technology. A blockchain is a distributed ledger, immutable in nature and meant to record transactions and to track the assets. The transactions in blockchain are added only if it is validated through a consensus-based mechanism.
Put in another way, all the information is represented in the form of blocks connected to each other. The very first of the blocks in the chain is known as the Genesis block and all of the subsequent blocks are connected to the previous blocks in the chain. Moreover, each of the blocks contains the information regarding the previous block, for example the hash, timestamp, and other transaction related data.
The Need and Origin
According to Manav Gupta, the reason for the development of the blockchain technology is the set of limitations or shortcomings of the conventional systems. For example, inefficiency, lack of security and privacy, reliability, cost effectiveness have emerged as the issues that call for the introduction of better, efficient, cost effective, reliable and secure processes for businesses. Particularly, the financial sector like banks and e-commerce applications requiring financial transactions demand the aforementioned attributes from the software applications. Moreover, the volume of online transactions worldwide has also fueled the vulnerabilities, inefficiencies and complexities of the processes.
To address the aforementioned issues, blockchain technology has exhibited its potential to develop a sustainable, efficient, reliable, and secure ecosystem that not only can help organizations but is also useful for governments in embracing the move towards digital transformation.
A popular example “Bitcoin”
A popular use case of blockchain that majority of the people today are familiar with is Bitcoin. In contrast to the conventional currencies, the Bitcoin does not have any central authority responsible for controlling. Rather, the users mine the cryptocurrency using the high-end computing machines. Sometimes there is a misconception due to which some people think that blockchain and Bitcoin are the same. This is not true at all. In fact, blockchain offers the infrastructure to record and store the transactions in the distributed ledger. In other words, blockchain is the technology that makes Bitcoin work.
What are Smart Contracts?
Smart contract is a self-executable program stored in the distributed ledgers. Smart contracts execute when a certain condition is fulfilled. For example, upon verification that a certain item requested by the user via an ecommerce site results in automatically triggering the payment to the supplier. The presence of smart contracts reduces the need for intermediaries which not only results in efficient execution of processes but also saves the processing costs.
The blockchain technology is being employed in different areas, for example healthcare, finance and banks, insurance companies, government organizations, and land record automation etc. The most popular application of blockchain technology is Bitcoin that has already been sufficiently discussed in the literature. Therefore, instead of discussing Bitcoin again here, in this blogpost we will focus on the other applications of blockchain.
Blockchain Application in Healthcare
The blockchain technology has a very effective application in healthcare domain. We know that the health data is vulnerable to unauthorized accesses though significant measures are taken for its protection. The distributed ledgers in the blockchain help prevent unauthorized access to the health data and also maintains complete log of the access to the data. Likewise, patients can also selectively grant permissions to the portions of their health records to different entities based on the roles of the requesters. Hence, the roles can see only those records that they are allowed to view.
Blockchain Application in Finance
Blockchain has an exciting application in finance for making international payments in secure and efficient way. The blockchain in international payments and remittance transfer has eliminated the need of the conventional intermediaries, for example multiple banks. Therefore, the remittances are transferred in an efficient way directly from one bank to another. This also saves the remittance transfer fees because the intermediate parties in conventional banking are removed in case of blockchain.
Blockchain for Anti Money laundering
Another application of blockchain which is essentially very useful for governments is against the prevention of money laundering. The distributed ledgers with the help of cryptographic techniques offer a means to track the transactions along with the timestamps. The transactions in the distributed ledgers are immutable which cannot be reversed or modified illegitimately. Therefore, this technology can facilitate the regulatory authorities to effectively monitor the suspicious transactions with the complete log and records related to each transaction.
Blockchain for Insurance Industry
Another noteworthy application of blockchain is in insurance industry. Multi-party authentication and verification through smart contracts brings a low cost and economical solution for the insurance industry to efficiently process the claims.
Blockchain Applications for Governments
Blockchain brings diverse and exciting opportunities for governments. Protecting the sensitive information of citizens, for example social security numbers, passport IDs, credit / debit card information and other critical data through blockchain technology can relieve the authorities of the stress of information theft by the hackers. Similarly, moving the land records to blockchain technology can prevent the property transfer frauds because multiple parties hold the registries of the land, which is difficult to tamper. In addition, there are various other ways where the adoption of blockchain technology can bring an exciting opportunity for digital transformation.
In conclusion, blockchain technology is exhibiting significant potential to be the future technology due to its multidimensional benefits, such as cost effectiveness, efficiency, reliability, and security etc. Initiatives at the government level are needed to take full advantage of this technology in reducing the documentation costs that are recurring and hence, these saved funds can be diverted to other areas of need.