The underlying technology of cryptocurrencies is the Internet of value. For nearly four decades we have internet of information. It vastly improved the flow of data within and among firms and people, but it has not transformed how we do business. That's because the Internet was designed to move information, not value from person to person.
To do a business transaction, we cannot email money directly to someone not just because copying money is illegal but because we can't be 100 percent sure our recipient is who says he is. Information about identity needs to be scarce, permanent, and unchangeable. Banks, Governments, and even big technology companies confirm our identities and enable us to transfer assets, they clear and settle transactions and keep records of these transfers.
The Blockchain, Satoshi Nakamoto's innovation, is the heart and soul of Cryptocurrencies. It secures the cryptocurrency by, among other things, making it impossible for someone to counterfeit bitcoin, which isn’t an easy task.
In the simplest terms, the Blockchain is just a ledger that lists all the units of the cryptocurrency and who owns them. As money changes hands, the ledger is rewritten to reflect the transaction. This way it does not matter where the money is physically located as long as there is a single unit of all the units in existence, and who owns how much.
1. Distributed ledger technology
Distributed ledger technology – commonly referred to as Blockchain – has emerged as a candidate for financial institutions to reform their businesses. The speed and cost of doing business using distributed ledger technology are expected to improve by simplifying back-office operations and lowering the need for human intervention. However, a number of security concerns around this new technology remain.
Instead of depending on a central entity such as a single financial institution to track the validity of ownership of funds, a distributed ledger maintains all transactions and holdings and is updated by a number of counterparties.
It is a peer-to-peer ledger that is distributed in nature based on the principle that the "world can exist without intermediaries or third parties and it works based on consensus i.e., validation mechanisms programmed on different nodes of its network.
2. Blockchain is composed of three core parts:
a. Blocks: A list of transactions recorded into a ledger over a given period. The size, period, and triggering event for blocks are different for every blockchain. Not all blockchains are recording and securing a record of the movement of their cryptocurrency as their primary objective. But all the blockchain do record the movement of their cryptocurrency or token. Think of the transaction as simple as being recording the data. Assigning a value to it (such as happens in a financial transaction) is used to interpret what data means. Each Block is formed by a proof of work algorithm, through which consensus of this distributed system could be obtained via the longest possible chain.
b. Chain: A Hash that links one block to another, mathematically chaining them together. This is one of the most difficult concepts in blockchain to Comprehend. It’s also the magic that glues blockchains together and allows them to create mathematical trust. The hash in a blockchain is created from the data that was in the previous block. The hash is a fingerprint of this data and locks blocks in order and time. Although blockchain is a relatively new innovation, hashing is not. Hashing was invented over 30 years ago. This old innovation is being used because it creates a one-way function that cannot be decrypted. A hashing function creates a mathematical algorithm that maps data of any size to a bit string of a fixed size. A bit string is usually 32 characters long, which then represents the data that was hashed. The Secured Hash Algorithm (SHA) is one of some cryptographic hash functions used in a blockchain. SHA 256 is a common algorithm that generates an almost unique, fixed-size 256-bit (32 bytes) hash. For practical purposes, think of a hash as a digital fingerprint of data that is used to lock it in a place within the blockchain.
c. Network: The network is composed of "full nodes”. Think of them as a computer running an algorithm that is securing the network. Each node contains a complete record of all the transactions that were ever recorded in that Blockchain. The nodes are located all over the world and can be operated by anyone
3. How Blockchain Works?
In a step-by-step way-
Step 1
A user requests a transaction
Step 2
The request is transmitted to the network
Step 3
The network validates the transaction or the transaction is not accepted
Step 4
The transaction is added to the current block of transactions
Step 5
The block of the transaction is then chained to the older block of transactions
Step 6
The transaction is confirmed.
Blockchain technology is a new tool with potential applications for organizations, enabling secure transactions without the need for a central authority. The use of Blockchain technology is still in its early stages, but it is built on widely understood and sound cryptographic principles. Currently, there is a lot of hype around the technology, and many proposed uses for it.
Transactions of any kind will be cheaper, fast, and secure when completed via Blockchain. The intermediaries and mediators will be misplaced.
For currencies, these are banks, for patents- the patent office, for election- the electoral commission, for smart contracts- the executors, and for public service- the state authorities.
Blockchain technology goes far beyond cryptocurrencies and tokens and its usefulness as a wider economic and administrative tool is well worth exploring.
Companies, as well as authorities, are exploring different aspects of Blockchain. They are doing so with an objective to create a system that is safe and secure. Blockchain will be helpful in creating brand value; it will create more opportunities to explore in the future. Since Blockchain has many features that the companies might be looking at when they want to promote themselves, it becomes one of the most sought–after technology for the future.
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