Ensuring integrity of business transactions has been a long felt goal. Older citizens might have seen the bulky, leather-bound, folio-sized volumes of account books into which entries were made using permanent ink. Corrections were made through separate entries so that one could see how the original looked like. Blockchain technology is a less cumbersome (at the user end) alternative for integrity.
A blockchain is a chain of blocks (not a big surprise). A block is a transactional record. Each record contains several pieces of data, including a long string of unpredictable, long string of characters called a "hash." If you make any change in the record, the hash also will change.
Another piece of data in each record is the hash of the previous block. Now, if that previous record is changed in some way, there will be a mismatch between the actual hash in that record and the entry in the next record of the "previous" hash. This raises a signal that a "retroactive" change has been made. This signal can be nullified only by processing all the records after that changed record.
Now, you might say that in these days of fantastic computing power, processing even a million records is not that big a challenge. What makes blockchain really tamper-proof is the additional fact that the blockchain itself is duplicated in a vast peer-to-peer network of computers. Even if the chain in one of these computers is tampered as above, it will NOT get automatically reflected in all the other copies. Instead, it will require the concerted action on the part of the network itself to validate the change.
Considering that the computers in the network are under the control of different entities, such a concerted action is unlikely to validate a deliberate manipulation. This is particularly so as it will be against the self-interest of these entities.
The combined effect of the above two key characteristic is that manipulating data is practically impossible under blockchain technology. As a result, the technology is offering great promise for recording monetary transactions, contracts, land records and much more where corruption is a serious issue.
A prime example of blockchain technology in operation is the bitcoin economy. Bitcoin is an alternative currency that is implemented on the Internet. Every bitcoin transaction is recorded in blockchains residing on innumerable computers around the world. The chain nature of each blockchain allows the system to go back as needed and check how much balance each account-holder has. This prevents the account-holder from spending more than that balance.
Additionally, each bitcoin transaction is recorded in a block that is secured by the hash described above. If someone tries to make a retroactive change, hash mismatches will occur not only between that record and subsequent records but also among the numerous copies of the blockchain in the network. The result would be a very big and easily detected signal of manipulation, creating a big deterrent against fraud.
Blockchains are new technology layers that rewire the Internet and threaten to side-step older legacy constructs and centrally served businesses. At its core, a blockchain injects trust into the network, cutting off some intermediaries from serving that function and creatively disrupting how they operate.
The technology thus offers a great option for preventing fraud. It also offers security against hackers who cannot target a central repository to damage the data. The data is held in millions of computers so that if one gets damaged, it can be quickly repaired.
Applications of Blockchain Technology
A few applications of blockchain technology with the potential to transform existing practices for the better include:
- Identify Verification without Sacrificing Privacy: Identify can be verified without the verifier being able to access your personal data. All verifiers could go to the same source so that you need not verify your identity with everybody
- Peer-to-peer Transactions: You can find and sell to a buyer without the help of an intermediary
- Automatically-executing Contracts: Contracts involving say, escrow payments on the happening of agreed events can be recorded on blockchains to be executed automatically when the events are complete
- IP Protection: Artists could get paid for their work stored on blockchains that do not allow works to be copied and distributed freely