What is blockchain technology?
Blockchain technology is an advanced database mechanism that enables the transparent sharing of information in business networks. The blockchain database stores data in blocks linked together in a chain. The data is chronologically consistent because you can't delete or change chains without consensus from the network. As a result, you can use blockchain technology to create an immutable ledger to track orders, payments, accounts, and other transactions. The system has a built-in mechanism that prevents unauthorized transaction entries and creates consistency in the shared view of these transactions.
Why are blockchains important?
Traditional database technologies present several challenges for recording financial transactions. For example, consider selling a property. Once the money is exchanged, ownership of the property is transferred to the buyer. Individually, both buyers and sellers can record monetary transactions, but there is no reliable source. Sellers can simply claim they haven't received the money even though they have, and buyers can equally argue that they have paid the money even though they haven't.
To avoid potential legal issues, a trusted third party must monitor and validate transactions. The presence of this central authority not only complicates transactions but also creates a single point of vulnerability. If the central database is compromised, both parties can suffer.
Blockchain alleviates this problem by creating a decentralized and tamper-proof system for recording transactions. In a property transaction scenario, the blockchain creates one ledger for buyers and sellers. All transactions must be approved by both parties and updated automatically in both ledgers in real time. Any corruption in historical transactions will destroy the entire ledger. This property of blockchain technology has led to its use in various sectors, including the creation of digital currencies such as Bitcoin.
How are various industries using blockchain?
Blockchain is a new technology that is being innovatively adopted by various industries. We describe some of the use cases across various industries in the following subsections:
Energy companies are using blockchain technology to create peer-to-peer energy trading platforms and streamline access to renewable energy. For example, consider using this:
A blockchain-based energy company has created a trading platform for the sale of electricity between individuals. Homeowners with solar panels use this platform to sell their excess solar energy to their neighbors. The process is largely automated: smart meters create transactions, and the blockchain records them.
Traditional financial systems, such as banks and stock exchanges, use blockchain services to manage online payments, accounts, and market trading. For example, Singapore Exchange Limited, an investment holding company that provides financial trading services across Asia, is using blockchain technology to build more efficient interbank payment accounts. By adopting blockchain, they solve several challenges, including batch processing and manual reconciliation of several thousand financial transactions.
What are the key components of blockchain technology?
The blockchain architecture has the following main components:
A distributed ledger is a shared database on a blockchain network that stores transactions, like a shared file that everyone on the team can edit. In most shared text editors, anyone with editing rights can delete the entire file. However, distributed ledger technology has strict rules about who can edit and how to edit. You cannot delete an entry after it has been recorded.
Companies use smart contracts to manage their own business contracts without the need for third-party assistance. It is a program stored in the blockchain system that runs automatically when predetermined conditions are met. They run if-then checks so transactions can be completed confidently. For example, a logistics company could have a smart contract that automatically makes payments once the goods arrive at the port.
What are the benefits of blockchain technology?
Blockchain technology brings many benefits to asset transaction management. We list some of them in the following subsections:
The Blockchain system provides the high level of security and trust required by modern digital transactions. There has always been a fear that someone would manipulate the underlying software to make fake money for themselves. But blockchain uses the three principles of cryptography, decentralization, and consensus to create a very secure underlying software system that is nearly impossible to tamper with. There is no single point of failure, and a single user cannot modify a transaction record.
Business-to-business transactions can be time-consuming and create operational bottlenecks, especially when third-party compliance and regulatory agencies are involved. Transparency and smart contracts in the blockchain make such business transactions faster and more efficient.
Companies must be able to securely generate, exchange, archive and reconstruct electronic transactions in an auditable manner. Blockchain records are chronologically immutable, which means that all records are always sorted by time. This data transparency makes the audit process faster.
“From Read, I left this material world and went into the world of the mind, and in that world of the mind i met with many great men, So from them I got Ideas and all those i put in a Great Job" ~Soekarno (The first president of indonesia, The Leader of Revolution, etc.)
Nando loves to read & write, trying to help people to understand about technology and business.