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Blockchain technology needs no introduction in the technical field. The lack of clarity of the term leads most people to associate it with the digital currency Bitcoin. However, this is not the case. Blockchain technology covers a variety of different areas. To better understand the benefits, let’s take a look at how it works.
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In the realm of technology, blockchain technology needs no introduction. Since the rise of the internet, few technologies have brought about as fundamental and disruptive a change as blockchain. Most people learned about blockchain technology after Bitcoin crossed the $17,000 mark in 2017. But lately, blockchain has been a frequent topic of discussion among top tech companies.
The lack of clarity of the term leads most people to associate it with the digital currency Bitcoin. However, this is not the case. Blockchain technology covers a variety of different areas. To better understand the benefits, let’s take a look at how it works.
How blockchain technology works
Blockchain technology is a distributed digital ledger that is peer-to-peer. This means that each participating node/computer in the blockchain network has a copy of the entire blockchain. Each block consists of a set of data; a hash of the block, transaction details and a hash of the previous block.
The Bitcoin blockchain is a good example of this. It stores the hash of the current block, the hash of the previous block, sender and receiver details and the number of coins traded. The blockchain creates new blocks by hashing the current and previous hash. This enhances the security of the blockchain because once a block is created, its hash value is calculated and any change within the block changes the hash value, thus invalidating all subsequent blocks.
Before any block can be attached to the blockchain, nodes must reach a consensus through a cryptographic algorithm like the proof-of-work (PoW) algorithm used in the Bitcoin blockchain. Consensus algorithms also prevent a single point of attack, as more than 50 percent of the blockchain network must recognize the transaction as valid. Once consensus is reached by the participating nodes, the block will be attached to the blockchain.
What are the advantages of blockchain technology?
Even though blockchain is in its early stages, its uses are spread across several fields and offer a variety of different advantages, as shown below.
- Blockchain technology uses digital signatures and encryption to ensure that all data passed in the chain is secure, using hash algorithms to encrypt the data and hide the user’s identity.
- The system has no centralized agency; therefore, there are little or no transaction costs, as no third parties need to be paid.
- By ensuring that all nodes validate transactions before attaching them to the chain, trust on the network can be increased, thus making the network more transparent.
- Data is stored on all participating computers/nodes, so any missing information can be quickly retrieved from other computers/nodes.
- Users have the opportunity to choose between a public or private blockchain network. This provides several levels of access and permissions depending on the purpose of the network.
- Digital ledgers store data in chronological order to ensure that each transaction is time-stamped. As a result, users can trace the path of transactions, thereby controlling fraud and money laundering.
In what areas is blockchain technology being used?
Originally created as a transparent ledger for Bitcoin and cryptocurrencies, blockchain has seen growing adoption in several areas. Blockchain offers three key characteristics, namely transparency, immutability and security. Currently, blockchain is used in financial services, healthcare, education, government, supply chain management and real estate.
Benefits of applying blockchain technology in any industry
Blockchain technology is important because it can be applied in almost infinite ways. Just like the internet in its early days, blockchain can be upgraded and provide more solutions for multiple areas.
Greater transparency
Just as you have a bank account and name associated with it, blockchain technology provides its users with a public address. However, this address is a unique set of characters that hides your identity. With these addresses, each participating node in the network can track transactions while protecting their privacy. This provides the network with an unrivaled layer of accountability.
Enhanced Security
Blockchain technology is rated as one of the most secure record retention systems. By using cryptography, it ensures immutability. Since it is distributed, once a transaction is verified and attached, it cannot be tampered with or changed, thus preventing a single point of failure in the network. For a node to make any change in the chain, it requires two sets of keys, i.e., private and public, and consensus of more than 50% of the nodes in the network. Without these parameters, the transaction will be considered invalid.
Increased efficiency
Due to its decentralized nature, the transaction process is faster and more efficient as there are no intermediaries. In traditional sectors such as remittances and real estate, a large number of transactions take multiple days to complete. However, blockchain technology operates 24/7, which means that transactions can be carried out faster and more securely.
Top Benefits of Blockchain Technology in the Enterprise Sector
Reduced operating costs
One of the core benefits of blockchain technology is the elimination of middlemen. This reduces or even eliminates any administrative work and operational costs associated with record keeping and transaction validation.
Improving business through smart contracts
Blockchain allows businesses that regularly trade to create digitally signed smart contracts. They are convenient because they are immutable. Therefore, once the code has been written, there is no need to repeat it, just implement it on another transaction.
Transparency, traceability, authenticity, reliability and security
Finally, blockchain technology provides effective traceability, authenticity, transparency, reliability and security. This is because all data is encrypted and more secure, allowing every aspect of a transaction to be recorded and tracked.
Potential Benefits of Blockchain Technology for Government
Blockchain offers valuable attributes for governments. In particular, these attributes impact the field of democratic governance in terms of enhanced transparency, accountability, security and citizen engagement, as illustrated below.
Using Blockchain Technology to Build Trust with Doubting Citizens
According to the Pew Research Center, only 18 percent of Americans say they can trust the government to do the right thing for its citizens most of the time. At a time when citizen trust is at an all-time low, blockchain technology offers a solution.
The main feature of blockchain is transparency. Through transparency, blockchain changes the perception by half by allowing citizens to verify government statements in person. Citizens can view the data, track it, and ultimately verify it, thus alleviating the problem.
Protecting Sensitive Information
As social record keepers, governments are prime targets for global hackers. Stolen identities are part of today’s reality.
For example, issues like the Equifax data breach in 2017 and the data loss in 2015, in both cases, the personal data of millions of U.S. citizens and government employees, including Social Security numbers, were directly compromised under government supervision. As a result, a majority of U.S. citizens hold the government responsible.
This is where blockchain-based solutions play an important role. Since blockchain is tamper-proof and secured through cryptographic mechanisms, it eliminates the possibility of a single point of failure, making the network impossible to hack.
Improve efficiency and reduce costs
Currently, there are trillions of dollars of unreconciled and untracked funds in the federal budget. Tracking and reconciling these funds is expensive and time-consuming. Blockchain technology can alleviate this problem. If implemented effectively, blockchain will reduce redundancy, streamline processes, ensure data integrity, and reduce audit budgets.
How the creative industry can benefit from blockchain technology
Blockchain technology promises to redefine how artists get paid. It provides a platform where intellectual property creators can get value for their work. A common challenge among creators is the increase in third parties like YouTube, which takes up most of the link between creators and their audience. As a result, artists end up getting paid less and have less say in the matter. Smart contracts, peer-to-peer transactions and distributed nodes are some of the blockchain features used to address these issues.
What is the true cost of your bacon?
The advantages of secure, transparent and tamper-proof blockchain technology outweigh its disadvantages, and not adopting or even researching blockchain technology will pose a serious threat to your company.
