What is the blockchain technology and where will it lead us to?
During last few years blockchain has gone far from being an object of an obscure curiosity to something discussed by everyone. Today the blockchain technology is considered to be one of the most revolutionary approached to the transformation in financial industry.
However, few of us know what the blockchain is?
This technology was introduced in 2008 along with the digital currency, the Bitcoin. Given this close relationship, the two are often confused but it is important to draw those terms apart.
Blockchain technology is a continuous sequential chain of blocks containing information. The information in the blockchain is kept in ‘blocks’ made of a computer code. The blocks can be programmed to represent any data — from money to a birth certificate. Every single block is connected to other blocks securely through encryption, hence the ‘chain’. This ‘chain’ can be compared to the likes of a traditional database. It contains an aggregation of data.
Bitcoin is the first and most well-known adoption of the blockchain technology. However, it is only one of about seven hundred possible ways where it is used today.
The blockchain technology taken as a whole can be compared to an accounting ledger which contains a record of transactions. Blockchain relies on a ‘Distributed Ledger’ instead of being recorded on paper or in a local ERP software.
One of the main principles of the blockchain technology is that its database isn’t stored in one location. It is kept simultaneously on thousands of computers worldwide, which means that there are thousands of identical copies of the database around the world. In practice, say the distributed data is shared across thousands of computers and someone wants to change information recorded in one of the blocks. The person will have to hack all the thousands of computers. The working principle of the blockchain can guarantee that all the records it keeps, are truly public and easily verifiable.
Another benefit of the technology is that blockchain provides the distribution of data on a peer-to-peer basis, rather than the client-server.
The benefit of p2p over client-server is that with p2p the network doesn’t rely on one central point of control, rather on having the centralized application logic. Blockchain transactions have their own proof of validity and authorization to enforce the constraints. By eliminating third-party intermediaries and overhead costs for exchanging assets, blockchain has the potential to greatly reduce transaction fees.
Among other advantages it is should be admitted that the blockchain technology is a breakthrough in cybersecurity. It can ensure the highest level of data confidentiality, availability, and security. However, the complexity of the technology may cause difficulties in development and real-world use.
One of the biggest challenges the technology faces is the speed of transactions. Due to the 1MB limit on blicks’ size transactions in the blockchain are slower than in centralized databases. It can lead to the increase of fees and delayed the processing of transactions that could not fit a block.
One block in Bitcoin can handle around 7 transactions per second in the absolute maximum. For comparison, VISA handles around 56,000 transactions per second.
So, if we want Bitcoin to scale to all economic transactions worldwide, including cash, it should handle a lot more than 7 or even 56000 transactions per second. Also, the need to be able to withstand DoS attacks (which VISA does not have to deal with) implies, we would want to scale far beyond the standard peak rates.
Despite all the negative aspects, we should consider that the blockchain technology is only in the beginning of its development, and as any other new technology it requires time to evolve.
The potential of Blockchain is obvious and its opportunities appear to be endless as the technology can be adopted across various industries.
Though all began with Bitcoin, it is not just a financial services technology. The blockchain technology can be used to increase transparency in many spheres from establishing the provenance of goods in a supply chain to healthcare records, tax collection, and digital identity management.
Most leading countries have already realized the potential profit from blockchain implementation, among those are UK, Sweden, Singapore, UAE. Using the technology, they expect to optimize the processes and reduce banks’ spending by 30%. Moreover, specialists think that the distributed registry technology will reduce financial reporting by 70% due to the improved data quality, transparency, and internal control. The cost of compliance will also be reduced by 50% due to the transparency and transaction auditing. Banks will be able to cut operating costs by 50% in support of trade, mid-office, clearance and other business operations.
Belarus is also among the countries that made a step to the blockchain currency implementation. It is the first country where the cryptocurrency was legalized.
The analysts state that the country has all the conditions to become a Global Crypto Hub. A large-scale digitalization is about to be launched in the country along with the creation of the necessary infrastructure that will allow big, small and medium-sized businesses to develop in the sphere of blockchain and cryptocurrency.
In the nutshell, the blockchain technology persistently penetrates various spheres of our world. Though nobody can predict how exactly it all goes, soon we will see how the technology impacted our life.