Blockchain technology is defined as a digital ledger innovation that records the history of an asset. It has gained popularity because of its decentralized nature and immutability, minimizing the potential of fraudulent transactions occurring. The technology has quite some impact already: we've seen its applications across industries like online brokers, payments security, and healthcare. There is no doubt that mainstream usage for this technology will only grow more pronounced as time goes by.
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Blockchain has been compared to the UML (Unified Modelling Language) because of its ability for programming code. Again, all business transactions are within one block or system without having any single point failure.
Various assets can be stored in a blockchain. Some of the more popularly known ones are as follows:
Smart contracts are digital contracts that are executed automatically when certain conditions are met. For example, a buyer can release payment for an item instantly once the seller agrees on all specified conditions of a deal. In addition, Smart Contracts reduce or even eliminate the need for third-party verification by using coded instructions that self-execute once the transaction is approved in the blockchain.
A crypto token is a denomination of a cryptocurrency. To illustrate, some of the most commonly seen tokens on Ethereum include BAT, BNT, and Tether.
Tokens represent a tradable asset or utility stored on its own blockchain and allows the holder to use it for different purposes. Consequently, tokens that reside on blockchains are segmented into reward tokens, currency tokens, utility tokens, security tokens, and asset tokens.
Not to be confused with tokens, coins are essentially digital versions of money, while tokens can stand for assets or deeds. Unlike tokens, coins operate exclusively on their own blockchain, which means they do not move around when you use them to process a payment – only your account balances change.
Public blockchains are open, permissionless distributed ledger systems. Anyone with the internet can sign up and become part of this new platform for innovation that will allow them to take advantage of its benefits. The most basic use for public blockchains is to provide security and facilitate transactions. This can be seen in Bitcoin or Litecoin, often used as currencies on external platforms like exchanges.
A private blockchain is a restrictive or permission-based network that allows only the participants of an organisation to access it. This database can help maintain sensitive data within companies and provide additional security measures by using robust encryption methods. Private blockchains are like public blockchains, but they have a smaller and more restricted network. They're commonly used for voting systems such as Multichain or Hyperledger projects (Fabric), supply chain management with Corda, digital identity on R3's platform called Dfinity.
Because a blockchain transaction requires verification from multiple nodes, this can reduce error in transactions. It is set up in a way that if one node has a mistake in the database, other nodes would catch the mismatch. In comparison to a traditional database that utilises single-process verifications, errors are likely to go through.
Using blockchain, two parties in a transaction can confirm and complete something without the need for a third party. This makes for more efficient transactions, and reduces the costs of paying for market transactions.
The structure of a decentralized network like blockchain makes it nearly impossible for someone to make fraudulent transactions. To engage in an illegitimate action, a hacker would need to enter every node and change every ledger. While this isn’t necessarily impossible, many cryptocurrency blockchain systems use proof-of-stake or proof-of-work transaction verification methods that make hacking difficult.
Blockchain have proven to be an effective alternative for data storage for institutions like banks or governments. Take for example the government of Estonia, which has joined forces with Ericsson to create a new center for database storage and management. This has allowed public data to be securely into a platform that increased transparency, security, participation rates among its citizens across Europe.
Blockchain technology is also revolutionising the healthcare and medicine industry. MedRec, for example, is an MIT-backed project that intends to ensure confidentiality and authenticity during medicine-related data sharing. The project is also slated to utilise the blockchain technology in storing sensitive electronic medical records.
FollowMyVote is a project that could help the UN with its election process. It uses blockchain technology and online voting, reducing costs of elections and ensuring privacy for voters so they can participate in the elections without worrying about their data being mishandled or manipulated.
An IBM survey report stated that over 91% of the banks worldwide have started investing in blockchain solutions. One platform focused on this space is Aeternity, which automates payment processes for financial institutions using blockchain network technology. This innovation can effectively cut down operational costs for banks, as well as reduce transaction fees for their customers.
In recent years, the gaming industry has gone one step further, using blockchain technology and the creation of digital currencies to monetise games and for the gamers themselves to become investors. Some of the various ways blockchain technology is impacting the gaming industry include preventing fraud, creating safe player environments, and allowing players to truly own their in-game assets.
A non-fungible token (NFT) is a digital asset that represents real-world objects like art, music, in-game items and videos. They are typically held on the Ethereum blockchain, although other blockchains support them as well.
In recent years, buying and selling of NFTs with cryptocurrency have become increasingly popular and this has afforded artists and content creators a unique opportunity to monetize their work. For example, artists no longer have to rely on galleries or auction houses to sell their art. Instead, an artist can sell it directly to a consumer as an NFT, which lets them keep more of the profits. In addition, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
Blockchain technology promises to facilitate fast, secure, low-cost international payment processing. This is due to its capability of processing trusted real-time verification of transactions without the need for intermediaries such as correspondent banks and clearing houses.
Numerous initiatives are focusing on applying blockchain to accelerate and reduce the cost of trade finance, which some consider ready for disruption because it currently often involves costly, time-consuming, paper-based manual processes. Some blockchain-based B2B payment processing services already exist, with a few solutions addressing much larger audiences by using Bitcoin to transfer payments in conventional currencies.