I will keep this as simple as possible with decent terminologies. Just an attempt to make people understand a technology that we are using right now and which soon will disrupt the Business World, Financial Institutions, the Healthcare system, and what more.
Why Blockchain is an emerging technology? How has it even become a buzz word?
To give you an analogy, now, blockchain is the internet in the early nineties. It’s just waiting for the right time to explode as the internet did back then. Blockchain will connect the world so much more while the Internet failed to do in that minuscule level. Yeah, I will explain how, while we go further.
Blockchain can be used for almost everything. Basically, it will eliminate the intermediates in all business processes. For example, if you want to purchase an Ebook online, instead of Amazon taking a cut in the money you pay and the credit/debit card company earning money on the sale. You can pay the digital currency directly to the author and unlock the book you wanted to read without any cut in the price. Money goes from you to the author.
The second example, if you want to travel in air, say, from Chennai to Delhi, you have to book your online tickets through MakeMyTrip or Goibibo like most of us do. Instead of them taking cuts in the purchase, blockchain will do that in zero(negligible) transaction cost. Only the ticket price.
Now, the third example, if you want to transfer money online to your friend, you can transfer the money to your friend through bank online platforms like net banking, mobile banking, or UPI. Instead, blockchain will send the digital currency to your friend without having a bank as an intermediate. It’s good, right? But trust me, it’s way better than you think.
How does blockchain actually work?
I just want you to picture thousands and thousands of Google Spreadsheets, that are being connected in a loop or like a chain. This technology is designed to update all the transactions in the Google spreadsheet. Each transaction, you make will be stored as a record. Each record is added to the block only after the network, called nodes, validate it.
Here, Records are being validated by the nodes of the network.
Collective records will be stored in the block. Each block will be connected like a chain with another block using the Hash algorithm (Number of records is a block and the number of blocks is connected as a chain). With the picture below, you get to understand more clearly.
Record is nothing but the transactions you make. Hash Algorithm is a complex mathematical key that helps to connect with another block to form a blockchain.
Each block is linked with another with the help of the Hash function, which makes the Blockchain robust. Just understand Hash function is nothing but a 256 — bit length mathematical equation to secure your data. (If you still didn't get it, consider hash as a lock)
In the traditional way of updating the records in the ledger, you are locked out of editing until someone is done with it. To give you a small example, two people are working on the same presentation(MS-PPT). One has to wait until the other has to revert him back with changes made. That's how banks keep databases today. But with the Google Spreadsheet kinda thing, simultaneously you can make changes while others can spectate what all the changes have been made so far. Because it doesn’t have a centralized point that means your data will be present everywhere in the network as a single version, provided by giving access to it, so it’s very difficult to change the record illegally.
Let’s see, how it really works with the above example. While booking tickets online, there are only two parties in the transaction process, one is you and the second one is the airline. So, the transaction you make will be stored as a record (Like we saw in the above spreadsheet). The number of records forms a block and now the block is connected in a loop or a chain. To put it in a simple way, it gets updated in the excel sheet under some specific name, say, Ticket blockchain. Also, while transferring money to your friend, the transaction is updated in the chain without having a bank as an intermediate to hold your past records. You will be the one holding your own data. Even for the airlines, there will be a sheet for them comprises of every ticket ever sold. It’s very easy for anyone to check in the excel kinda sheet for all your past transactions and records. In the healthcare system, imagine one database for all your health reports, so it's very easy to track backward for further treatments.
What problem will Blockchain solve which Internet didn’t?
- Blind trust
- Owner of your own data
- On the internet, everyone, in the beginning, has to go for blind trust, be it Amazon, Facebook, or Google. Now, all three are frisking and growing tremendously because of trust. In the blockchain, trust is maintained because your transactions or actions are validated by the people in the network. Like I said before, everyone in the network can view your transactions, provided by giving access to people who can view or who can edit.
- Facebook has your own data even you might not aware of it. I don’t think, I have to talk more about data and Facebook as many of you already know about it. Blockchain will give ownership of your own data which the Internet failed to do.
I haven't touched the technical side of it, which needs a whacking dive to know about. If you understood whatever I’ve written then you have a basic understanding of the emerging technology. Financial institutions along with new entrants like OLA, OYO whatsoever are threatened by blockchain.
If banks don’t adopt blockchain then the present bank accounts and the services they provide will be irrelevant. Before even, we understand the knack of Blockchain technology, the business like Amazon, Facebook, and IBM is already in a spree of spending billions and billions of money on the research side of blockchain.
Blockchain is a tad more complex. Even if it is 1% that you learned from this article, then the purpose of writing is done.
Thank you.
*If you could suggest to me how can I explain in a more simple way, I would take that as constructive feedback so that in the end it would help everyone.
If you are interested then we can go for horizontal learning where we will take up a business sector and see how blockchain can disrupt from a layman perspective and can also deep dive in the privacy or transparency part in the blockchain.*
Thanks again!