Touted as one of the biggest disruptions in tech today, Blockchain’s popularity has a lot to do with its effectiveness as a transparent tool for maintaining a record of transactions. Corporations ranging from IBM, Microsoft and Intel are leveraging Blockchain to develop a range of applications as for them it’s just another tool to get business done. Some other corporations rolling out or piloting Blockchain solutions include Goldman Sachs, Nasdaq, Walmart and Visa. Most interestingly, it is a vibrant start-up ecosystem that is creating innovative solutions for solving problems around Trust, Data Provenance and Verifiability. For the uninitiated, what makes Blockchain technology especially unique is that control doesn’t lie with a single entity. No one party holds ownership of the ledger and can’t amend the entries already recorded, making Blockchain an immutable repository of information.
Increasingly, enterprises are adopting Blockchain to establish trust in a digital economy. In Business to Business, Person to Person or even Person to Business transactions or interactions, Blockchain technology is enabling a new kind of ‘trust economy’ that is no longer dependent on traditional methods such as credit ratings, government verification, notarization or cashier checks.
How Blockchain builds trust
Blockchain is essentially an electronic ledger that is accessible to all participating users (public or permissioned) for creating unchangeable time-stamped records of transactions, each record linked to the previous one. Because the ledger can only be updated through consensus among all parties and data cannot be erased, it hosts a true and verifiable record of every transaction ever made. In order to initiate a change, the interested party needs to place a request for adding new data which is sent on a P2P network to other partners involved. At this stage, each party needs to accept and approve the request which gets added to the ledger. It is only at the end of this long and complex procedure that a transaction is finished.
Blockchain databases can be managed by the participants so there is no need for an administrator. In this way, Blockchain doesn’t simply solve data access issues, it also solves a trust problem. For instance, in a peer-to-peer trust economy, an individual user — not a third party — determines the information be recorded in a Blockchain and its use. As a repository of valuable data, Blockchain provides users with unprecedented control over their digital identities. For enterprises, it eliminates the need for labor-intensive operations to handle the details and coordination of each transaction. Since such a distributed ledger is inherently transparent, it does a good job of eliminating fraud, further bringing down the cost of doing business for all parties.
A key benefit of the Blockchain is that its peer to peer network of distributed database of encrypted transactions this system of trust at every node is very difficult to manipulate. In an optimal scenario to change a transaction record would require having control of 51 percent of the computing power in the network, making it difficult to tamper with. This is significantly more difficult than in a traditional setup of client server architecture, where a hacker only needed to penetrate into the server to gain access to all the data in the network.
Enhanced control over data
Significant players in several industries have adopted Blockchain because of the transparency and control it confers. Essentially, the biggest advantage of using Blockchain is that there is no single entity controlling it — each party controls a single token and shares verifiable keys to transactions. This ensures that there is ample scope for decentralisation with each player playing an important role. In fact, any change in the Blockchain can be brought about only through consensus among all users. Any change made to the Blockchain is also visible to all participants, thereby reducing any scope for conflict or dispute amongst parties in case of disagreement over accounting and balance. Interestingly, the right way to keep data privacy on Blockchain is by distributing data fingerprints and not the underlying data itself. This is explained in more detailed in our next Blog ‘Keeping Data Private on Blockchain’!
Elimination of intermediaries
Often, the role of a third party is to introduce trust and integrity in transactions, especially when the parties are unknown to each other. However, Blockchain allows counterparties to independently transact and verify data on a ledger, thus making expensive third parties redundant. A decrease in dependence on intermediaries means that users no longer have to work according to their rules. Often a single party holding all data within its grip also leads to suspicion of data leaks or theft. Blockchain on the other hand not only reduces transaction costs but also generates greater trust amongst individuals involved as chances of duping or fraud by the third parties is reduced. Besides, with data being easily accessible, the very process of decentralisation of networks further facilitates an environment of trust and reliability.
For instance, real estate transactions often see escrow companies acting as a third party between to collect fees etc. On Blockchain, individuals and businesses can transact directly, eliminating the need for specialists for legal, finance, etc. while also speeding the process up.
Final words
One of the most significant areas where the usage of Blockchain has revolutionized traditional functioning is that of finance, government, and security. Some of the most prevalent use-cases of Blockchain have been in the finance and education sectors which are leveraging it to enable seamless and trust-based transactions.
As Blockchain gains greater currency in the future, we will see greater adoption by several industries. Clearly, Blockchain’s ability to create and sustain trust in transactions will push this acceptability.