Blockchain Technology, also known as Distributed Ledger Technology, was invented by Satoshi Nakamoto in 2008. A Blockchain is essentially a kind of digital distributed ledger with a growing list of records or blocks that are linked together with cryptographic hashes.
Cryptography is the science of creating and using codes to safeguard and communicate information. How Blockchain works is basically that every transaction or record in a digital ledger is verified and encrypted by a network of computers, which are called Nodes, by using cryptography. These records or transactions are then grouped into blocks and different blocks thus created are linked through what are called Hashes or unique codes. Hashes are links that create a chain of evidence, proving the history and validity of the ledger. The name Blockchain was coined because of these chains of blocks that are created by the technology.
Blockchain technology is a transparent and immutable technology which negates the need for a centralized management entity. Contrary to what is commonly believed, Blockchain technology is more than just currencies like Bitcoin and Ethereum or a digital payment platform. In fact, it spans across industries such as Retail, Marketing and Advertising and Healthcare, because its tamper-proof sequential ledger in which values are stored as digital tokens and which eliminates the need for a trusted entity to facilitate digital transactions makes it impossible to hack the system or tamper with the data stored on the ledgers. Also, the data once stored is immutable, which means that it cannot be altered or reversed, leading to greater validity of transactions
Blockchain removes the risk of identity theft through the use of digital signatures and helps conduct business in real time, unlike with traditional banking systems which have time restrictions. Blockchain also lowers costs for businesses which have high value and high volume transactions because of its inherent design.
The basic advantages of Blockchain technology, which promises to revolutionize Information Technology, are that it is a highly secure, decentralized system which is speedy and efficient because it eliminates intermediaries and replaces many manual transaction processes. Governments are leaning more and more towards institution issued Cryptocurrency because it is more traceable, reduces settlement times and is overall much more efficient. Blockchain technology is also the basis for WEB 3, the new iteration of the internet, built on the network of blockchains and operated by multiple players unlike in the current scenario.
In the retail sector, Blockchain has great applicability because it can provide information of the origin of a product, leading to greater traceability and transparency of goods in a supply network. Blockchain also enables the implementation of ‘Smart Contracts,’ which are self-executing agreements. Google has reportedly created a new unit dedicated to Blockchain technology and next generation distributed computing.
However, there are many roadblocks to a total switchover to Blockchain because of the following reasons:
- It is difficult to change or add information to a record once it is entered in the ledger.
- Blockchain is still technically complex and requires a big investment in time, talent and resources. Blockchain developers and specialists are harder to find and cost more than traditional developers.
- For Blockchain technology to work in the manner it is supposed to, the Nodes have to be functioning properly. Also, although Blockchain is a distributed system technology, it is susceptible to monopoly over Nodes.
- Some Blockchain solutions require too much energy.
- Blockchain still suffers from scalability issues. The number of transactions per node is limited.
- The technology relies on individual users who each have their own private Keys, but these Keys can be lost or forgotten.
Despite these challenges, Bitcoin seems poised to revolutionized the digital arena because of its level of security, speed and convenience and removal of third party interference.