Blockchain is an emerging technology that has generated a lot of hype globally and is of concern to the financial world so much so that Wall Street is taking notice due to its disruptive potential. Given that the term has only been recently circulated among us, the majority of us may be new to the world of blockchain.
What is Blockchain
Blockchain is a publicly distributed (decentralised) ledger that allows us to record transactions globally without a need for a centralised authority. The unique feature of the blockchain database is the level of security it provides, which stems from the process in which transactions are recorded. Whenever a new transaction is made, it will be imposed with cryptography before the transaction is recorded as a “block” in the system, and it gets added on and linked to the previous block. Hence the term “Blockchain”.
What this means is that a series of algorithms will be used to check the legitimacy of each transaction before any changes can be made in the blockchain, strengthening the integrity of the information within the database. These verified blocks will then be arranged in chronological order within blockchain itself, linking each transaction to one another in a linear fashion.
Not to be confused with Bitcoin or any other “cryptocurrencies”, blockchain is mainly the underlying technology and not a currency on its own. The ledger system utilises blockchain technology and encryption techniques to facilitate the usage or advent of new applications or digital currencies.
Benefits of Blockchain
After understanding how blockchain works, it is important for us to look into the benefits that the technology can bring to businesses and individuals. The following points will sum up the reasons why companies have been focusing their attention on the usage of blockchain.
Security of transaction
Since each transaction is verified algorithmically and regulated globally by all users, it removes the likelihood of fraud or mistakes within a transaction.
Reduction in transaction cost and time
As blockchain is a decentralised digital ledger, it removes the need for middlemen (i.e. banks), when there is a transaction. Transactions can therefore be made more quickly given that there is no need for any intermediaries to confirm the integrity of each transaction made.
The capabilities of blockchain provides a potential system for people to use a single ledger to record all types of transaction. This will simplify and ease the tracking of transactions made by an organisation or individual.
Challenges ahead for Blockchain
This does not mean that blockchain is all bloom and no gloom. Potential issues that could arise as the usage of blockchain continues to expand and grow, may include the following.
Given that blockchain is currently in its experimental phase, it is unknown whether problems such as data limits and multiple transactions may cause the speed to slow as its usage grow. New standards are continually being discussed.
Potential cybersecurity threats
Similar to other forms of technologies in the world, the blockchain database may be vulnerable to security and privacy problems. While transactions can be encrypted to enhance its security, loopholes that have yet to be discovered may be exploited to obtain private data within the system.
While it is ideal for all transactions to be integrated together within a single digital ledger, it will require the replacement or exporting of data from the existing systems used. Such integrations may be administratively taxing or impossible, hindering the effectiveness of blockchain.
In a nutshell, blockchain is one of the ways to move forward especially in the area of trust, it is still important for us to consider the potential challenges that may come with it. That being said, blockchain is certainly a technology with exciting prospects, and may drastically shape the way we transact with one another in the future.