There is a reason why I say that Blockchain is the next major disruption in the computing world after mainframes, Personal Computers, Internet and social media. In order to understand it better, let me present to you a real world example. Suppose you need to transfer some money to your friend.
Now you make a transaction, your bank approves it and sends to your friend’s bank, via which your friend will receive the transacted amount. Here you and your friend are dependent on your respective banks for the transaction. The bank is a Central Authority which is managing your transactions. Let us do a quick analysis of your dependence on your bank:
- You are dependent on your bank for keeping and testifying (if necessary) of all the past records of your transactions.
- You are dependent on your bank for any approving and enabling each transaction that you make.
- If you have a credit card, you are dependent on your bank for maintaining your card details (which when stolen can get you in serious trouble financially).
- Even you are dependent on your bank for allowing you to take out as much money as you need. In case of crisis or malpractice, if say the bank puts a limit on the transaction then you have no choice but to follow it (do you remember the Yes Bank crisis in India).
Hence, we see that we are living in a world that follows Centralization of Power and Governance. Not only in cases related to money and banks but there are several other cases (which I will discuss later) where a Central authority governs the system.
Some real world incidents:
- In 2015 citizens of Greece whose money was in a centralized bank, could only access €60, per day.
- Uber drivers penalized based upon where they drive by their centralized employer.
- Social and financial threat raised to Forty-seven thousand Sony employees whose social security numbers were stolen, forty million Target customers whose credit card information was stolen, or the seventy-six million households affected by the JP Morgan hack.
- Yes Bank in India imposed a limit on the amount of data debited to INR 50K a month to its customers, which made these customers sacrifice their monthly expenditures.
The advent of the Blockchain:
In the midst of the financial crisis of 2007-2008, on October 31st, 2008, an unknown individual or body (which we still do not know), by the name of Satoshi Nakamoto released a whitepaper by the name of “Bitcoin: A Peer to Peer Electronic Cash System”. For the very first time this whitepaper introduced the concept of Decentralization, in which transfer of cash from peer to peer was possible without the necessity of any Central Authority. Bitcoin was a currency introduced which can be transferred from peer to peer directly using the platform of Blockchain. Blockchain is a chain of these nodes, each maintaining a ledger (hence, Decentralized Ledger). The transactions are direct, from one peer to another, secured by cryptography.
Blockchain: The enabler for a Decentralized Economy
Hence Blockchain is transitioning our world from a Centralized fashion of holding data to a Decentralized fashion of doing so. A Centralized economy is governed and managed by a Central Authority. For instance, in the money transaction case that we discussed initially, the Bank was the Central Authority which maintains all your financial data: your transactions, your credit and debit card details, etc. You rely on the ethics of your Bank for safeguarding your money, credentials, etc.
On the other hand, a Decentralized economy which is enabled by a Blockchain network, is something in which the Power is decentralized, and no one is dependent on any Central authority or middlemen for the wellbeing of their respective interests. Let us go through some of the benefits of the Blockchain:
- Confidential data is not managed by a Central Authority: The technology that tenants the Blockchain enables for creation of ledgers in each of the nodes (computer system) of the chain. For each entry (like a money transaction) in the chain, the data related to the entry is logged into each ledger using cryptography for security. Hence, rather than logging in all the data in a Central ledger, the data is stored using cryptography in different ledgers of respective nodes. This helps in:
- Negligible risks of cyberattacks: Since data is not maintained in a Decentralized Ledger system in multiple nodes, it becomes nearly impossible to hack it. The use of cryptography further secures the data.
- Data cannot be manipulated: One needs to alter all the entries made in all the ledgers for tampering or manipulating the data, which is not a practical thing even with the highest of the technical knowledge.
- Unwanted charges of middlemen/institutions (like banks) is avoided: For instance, rethink of the situation in which you needed to send money to your friend. This needed involvement from your bank which would have a charge involved for the transaction. This middleman cost is replicated in other industries also such as real estate, BFSI, insurance which completely eradicated by the Blockchain network.
For now you can know that there are basically 4 different types of Blockchains, namely, Public, Private, Hybrid and Consortium. To know more about them refer to the article here.