June 2018 Trends

Blockchain: The Biggest Thing Since the Internet?


Written By: Duncan Kabinu, CEO and Co-Founder Gainesville Dev Academy

Blockchain

“Salesforce Is Getting Into Blockchain. Here’s Why That Matters”

“Can Blockchain Solve Advertising’s Supply Chain Transparency Issues?”

“This Startup Could Finally Bring Real Estate Into The Blockchain Era”

The headline news around Fintech is riddled with headings such as these with “use-cases” of blockchain technology. But blockchain is not bitcoin…. It’s more than that.

Blockchain is usually most related to cryptocurrency Bitcoin. The first blockchain was conceptualized by Satoshi Nakamoto (an anonymous person or group) in 2008. Satoshi is also most well known for the popular cryptocurrency, Bitcoin. Blockchain was implemented into bitcoin as its core component serving as a public ledger for all transactions on the network.

Why blockchain?

Let’s begin with why the need for blockchain. Cryptocurrency was evolved as a way to enhance commerce on the internet which relied on financial institutions to process payments. These financial institutions act as a third party (or clearinghouse) between consumer and merchant, meaning there is a suggested trust-based model. There are some inherent issues including mediation disputes, which increase transaction costs and the possibility of reversible payments. The ability to reverse necessitates a level of trust in the process. No payment structure existed electronically without a trusted party. Hence, what was needed was a way for two parties to transact directly without a trusted third party.

Blockchain to the rescue

Blockchain can be simply explained as an electronic ledger that maintains all current and historical transactions with each user on the network retaining a copy of the ledger. This ledger allows transactions to be recorded without the ability to edit or delete, otherwise known as immutability. Each transaction holds information regarding the parties engaged, the amount of transaction (or some other data) and a timestamp. This is information is then digitally signed to ensure accuracy and eliminate possibility of double-spend or fraud.

Because a blockchain ledger is distributed to everyone within its network, if an individual party manages to falsify a block, the technology maintains several copies of the correct version. Before this false record is permanently recorded into the ledger, part of the validation and verification includes matching it to other records in existence. If no match is found,
then the false record is rejected.

So, let’s break it down

Block (in blockchain) is a record of new transaction — this could be cryptocurrency, medical data, voting records, etc. When a block is complete, it is added to a chain, creating a chain of blocks: a blockchain.
Each block can contain a number of transactional records and the chain links them all together with a hash function. Each block in a chain is connected to each other in proper linear, chronological order and each block contains a hash of the previous block.

Why is it secure?

A blockchain is created roughly every 10 minutes (this number is more related to bitcoin; some blockchains create a new block as frequently as every five seconds). To validate blocks, like in a traditional private ledger, blockchain uses complicated calculations. This validation is performed by “miners” using powerful computing hardware providing proof-of-work — a calculation the creates a number that verifies the block and the transaction it contains.

Public, Private and Consortium Blockchains

There are many forms of blockchain but all fall into two categories — public or private.

Public blockchains allow anyone to see and/or send transactions as long as they are part of the consensus process ex proof-of-work.

Private blockchains restrict the ability to write to a distributed ledger to specific organization like in a corporation among their employees or between companies like banks with some type of partnership.

A consortium blockchain is often said to be semi-decentralized. Instead of a single organization controlling it, a number of companies might each operate a node on
such a network.

What industries use Blockchain?

Shipping, Fintech, Healthcare, Energy, Real estate and Voting.

In shipping, bill of lading being paper based requires multiple sign-offs creating a length process in moving cargo. Maersk in March 2017 announced a blockchain based ledger to manage and track paper trail for tens of millions of shipping containers essentially digitizing the supply chain.

In Fintech, cross-border payments processing can be extremely complex and involves several layers of communication between participants to verify transactions (payment and settlement). Blockchain technology helps to reduce or eliminate need for reconciliation, confirmation and trade break analysis resulting in an efficient clearance and settlement process. JP Morgan has created the largest blockchain payments system to date – the Interbank Information Network (IIN).

In Brooklyn, residents can sell energy generated from their rooftop solar panels via a micorgrid enabled by a blockchain ledger. This ledger maintains all transactions made with a local utility.

In real estate, blockchain technology and smart contracts can help make transactions more transparent while improving the process of conveyancing and eliminating paper contracts and costly lawyer fees. The technology also has the potential to dramatically cut the traditionally lengthy process of recording and transferring titles, with the added benefit of virtually bullet-proof transparency.

Follow My Vote (followmyvote.com) is attempting to use blockchain for an electronic voting system that’s more secure than modern versions.

Blockchain have their problems but are by far much faster, cheaper and secure compared to traditional systems.

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