Helitha RupasingheNo doubt you have seen plenty of hype around blockchain. It may be a life saver for you but there are a few instances where it can do more harm than good.
In this article, we'll look at a few choices that will make it clear if you should go for the decentralized technology or not.
What is a blockchain?
A blockchain is a open-source, decentralized database or ledger that's shared among computer network nodes. The transferred data is stored within a database in virtual format. Blockchains are well known for their role in keeping a secure and decentralized file of transactions. This way no one person or entity (i.e. government) has control over the blockchain which is a huge win over centralised databases that are managed and administered by businesses and other entities.
How does a blockchain work?
Blockchain, as the name suggests, is comprised of blocks of data, with each block being connected to the preceding block, forming a chain. The intention of the blockchain is to allow digital information to be recorded and distributed, but no longer edited. In this way, a blockchain can be very useful for retaining an in-depth system of transactions that cannot be lost or destroyed.
Because the whole blockchain is transmitted across many computers, any person can view the complete blockchain. Transactions or data are processed not by one central administrator, but by a network of users who work to verify the data and achieve a consensus.
If any of this sounds familiar, it is due to Bitcoin. In truth, Bitcoin is the primary instance of blockchain in action which was released in 2009 as open-source software.
Why use blockchain?
In a nutshell, you have a recipe for success with using blockchain technology:
- All transactions are public, anyone can verify them in seconds. When you examine a regular database, you’re getting a snapshot of data that’s up to date for that second in real time. Blockchains do that too, but they also maintain a history of all the information that existed before.
- It’s safe and convenient. The truth that blockchain is a decentralised manner of storing and accessing data makes the whole system incredibly secure – because, unlike a centralised database, there’s no one single point of entry for hackers. This makes it especially beneficial for recording transactions in a stable manner.
- No centralised control. Because the system of record is decentralised and replicated in its entirety in more than one place, there’s no need for a central administrator and all the costs and infrastructure that comes with it.
When might you use blockchain?
Here's why you would possibly pick out blockchain over a standard database:
Anywhere a middleman or gatekeeper function is expensive or time-consuming. For instance, a tour organisation TUI is so satisfied with the strength of blockchain, it’s pioneering approaches to connect hoteliers and clients directly, so that they can transact via blockchain in an easy, secure and consistent way, rather than via a central booking platform like Airbnb.
Where the data is constantly changing and you want to keep a file of past actions. Blockchain is a better, more secure manner to record activity and keep data fresh, while maintaining a record of its history. The data can’t be corrupted by anyone or accidentally deleted, and also you gain from both a historical trail of data, plus an instantly up-to-date record.
When you want to record secure file transactions, especially between multiple partners. A conventional database can be appropriate for recording easy transactions between two parties (peer-to-peer), but when things get more complicated, blockchain can reduce bottlenecks and simplify relationships. For example, delivery conglomerate Maersk is running with IBM to expand a private blockchain platform to connect its diverse clients and customers across the shipping industry. What’s more, the added security of a decentralised system makes blockchain perfect for transactions in general.
When shouldn’t you use blockchain?
Don’t want a distributed database? If you have a great database solution deployed right now for your business and you're happy with it then there probably isn’t any reason to transfer from that to blockchain. The transfer entails rethinking the whole thing, recording most things, and betting on a new technology that will need many years of work to mature compared to the database you’re currently using.
Aren’t ready to pay the environmental cost? Blockchain secures its transaction using a cryptographically stable method called the crypto hashes. These hashes call for mining to be accomplished on the GPU. Now the mining rigs call for a lot of computing power that sometimes hundreds of GPU's have to work simultaneously to mine a single block. Taking the most widely known and used blockchain as an example – Bitcoin – last year it was claimed that the computing power required to keep the network running consumes as much energy as was used by 159 of the world’s nations.
Don’t need true transparency.
We know that the blockchain doesn't lie. Everything you do is seen by everyone. So before transferring to the blockchain technology you have to check if that is what you want.
why we need blockchain?
Security. Cracking blockchain is virtually impossible. An attacker would need extremely good hardware and also an equally extreme amount of free time. It doesn’t compute, no person has those resources. Thanks to the decentralized nature of blockchain, assets are secured like in a vault. Theoretically, it’s still possible to crack this safe open. In reality, it doesn’t make sense for anyone to try.
Transparency. Every member of the community that makes use of blockchain (or even folks that don’t) can see the details of each transaction. No risky details, simply the basics. Because of that, transactions are crystal clear and seen to all. No one can lie and claim the money “just went out” and be there in a day or two. Under blockchain, they land on designated accounts in minutes and that fact can be verified by anyone with even the least amount of knowledge. Users may decide on FinTech products with blockchain features and invest their trust in companies that adopt it early on, even at the minimum viable product (MVP) stage.
Operational efficiency. If there’s one reason to even consider blockchain, it would be it. Many executives ask why blockchain is important and the shortest solution is that it simplifies the whole thing for everyone. The company, its clients and customers. The cost of every transaction is minimal and paid through microtransactions. Time of these transactions is dramatically cut, so that you can spend more time thinking about business improvements and less about money flows. Increased performance also builds market credibility. You can gain in the eyes of potential investors. You can attract new customers that will think about the product as reliable. The beauty of blockchain is that, at least in some cases, it’s a low-hanging fruit with sound business outcomes.
Fraud protection and compliance coverage. Security risks, frauds and data leaks may be very costly. Especially in FinTech, which falls into many compliance categories. With many very demanding regulations existing in both the U.S. and European Union (not to mention the rest of the world), it’s very difficult to run the business. With blockchain, nothing is ever hidden. Since each transaction is out in the open, laundering cash by bad actors or any different kind of criminal activity is no longer possible. And despite the fact that a person could try it, each swindle is easily detected and tracked to the account’s owner.
Solid base for InsurTech products. Digital insurance products are very useful but vulnerable. Some customers would possible want to take advantage of that and push their agendas, such as false claims or overestimated amounts for a car crash or holiday accident. With blockchain, it’s not that easy. Everyone has access to all records, even historical ones. Everyone can get rid of suspicious or duplicate transactions by simply reporting them to the product’s owners. With little time needed for each verification, each fraud attempt can be recorded and possibly eliminated. Insurance technology is at the forefront of change and the blockchain wave can help it grow.
Permanent digital footprint. If I steal something from a shop around the corner, cameras would possibly capture me but not if I’m smart enough. With blockchain, there’s nowhere to hide. If I do something horrific, then people can link my account to the act and make me suffer by implementing higher insurance costs, which forces discipline and honesty.
Data immunity. If data is stored under blockchain, it can’t be modified or altered in any manner. That way it’s easily traceable by anyone who desires to verify any given transaction and shape an opinion about an entity or a person.
Recap
With many practical applications for the technology already being carried out and explored, blockchain is finally making a name for itself in no small part because of bitcoin and cryptocurrency.
If you would love to know more about blockchain technology, then take a loot at these courses on Udemy:
