Blockchain: An Overview
What is a blockchain?
A blockchain is a record of financial ledger entries, or of transactions. Every transaction is recorded in a public database. It is verified by the consensus of a majority of the users of the system. It is digitally signed to ensure its authenticity, so that no one can tamper with it. Each transaction has a unique code and a time stamp. The ledger itself and the existing transactions within it are assumed to be of high integrity.
How does blockchain work?
When a new transaction or an edit to an existing one comes in, the blockchain executes algorithms to verify the history of the individual blockchain block that is proposed.
If the majority of the nodes along the blockchain comes to a consensus that the history and signature is valid, the new block of transactions is accepted into the ledger. A new block is added to the chain of transactions. If the majority does not concede to the addition or modification of the ledger entry, it is denied and not added to the chain.
This decentralized consensus model allows blockchain to run as a distributed ledger without the need for some central, unifying authority.
What are the benefits?
- Reduced cost and higher efficiency: The lack of a requirement for a central authority reduces the overall cost for transactions. It makes transactions faster and more flexible, as the validation of transactions does not depend on the working capacity or the office time schedule of a third party.
- Higher data safety and transparency: Given that all users share the same documentation as opposed to individual copies, data on a blockchain is more accurate, consistent and transparent. Changing a single transaction record would require the alteration of all subsequent records and the collusion of the entire network.
- More opportunities for SMBs: In the past, it was hard for SMB to raise money for business development from traditional financial institutions like banks. Now, SMBs can raise money through an Initial Coin Offering. The direct B2B relationship reduces the risk for information mismatch and improves efficiency of the market.
What are potential challenges?
- Regulatory and legal environments are still under development.
- Implementing and standardizing blockchain requires significant investment, including legacy system integration and retraining of the workforce.
- Related training and tool development services is currently far from sufficient, and the high complexity of the terms and the system add to the difficulty for extensive participation.
Berkeley Univerity: Blockchain Technology Beyond Bitcoin
CIO: What Is Blockchain and How Does It Work?
IBM: Top Five Blockchain Benefits Transforming Your Industry
OpenMind: IoT and Blockchain: Challenges and Risks
Ernst & Young: The Risks and Opportunities of Blockchain
Nasdaq: Five Challenges Blockchain Technology Must Overcome Before Mainstream Adoption