See Part I for an overview and Part II for a look into the components of Blockchain.
Strengths of Blockchain
Let us now look at some of the superpowers of blockchain technology that make it so disruptive.
Security
What gives blockchain its super-strength is the Public Key Infrastructure (PKI). PKI is used to implement data encryption and authentication on the blockchain, making it completely secure. It also makes it pseudonymous.
So each user can have a public key (like your UPI id or your bank account number). It is known to everyone, and anyone can send an asset to her using it. Similarly, each user also has a private key (like your ATM or UPI PIN) which she can use to authorize a transaction from her end. The private key is secret, and no one except the user should know it.
This makes it simple to identify a user unequivocally on the blockchain network using her public key without revealing complete information about her. Hence the privacy of the user is preserved, and the authenticity of the transaction is confirmed.
All this without a third party acting as an intermediary!
Affordability
The transaction costs go down as the need for an intermediary is eliminated. Micro-transactions are possible, and the location of the sender and receiver do not matter anymore. The internet promised to be inclusive, but the fact remains that many people globally still do not have access to the internet. Blockchain goes a step further.
While Bitcoin (the first application of blockchain technology) was designed to work on the internet, it can operate without it if needed. A person can access the blockchain through a Simplified Payment Verification mode that works on cell phones. It allows a person with a simple mobile handset to be a part of the blockchain- without the need for an identity or even a bank account.
In fact, the Australian micropayment service mHITS (Mobile Handset Initiated Transactions) has launched a service allowing users to buy international mobile top-up using Bitcoin by just sending a text message.
Transparency
A copy of the ledger resides with each node of the network. So the data is there for anyone to see. Each transaction is time stamped and signed digitally using the private key of the sender. Hence, it is easy to track the movement of the asset along the blockchain.
Also, if a change in protocol is to be made, the majority of the nodes have to agree for it to be implemented.
There is no central authority to change the rules- no central bank or government to pass a law so that suddenly all the currency notes you hold in your wallet mean nothing more than coloured paper.
Immutability
Once a block gets added to the chain, there is no going back. It is ‘set in stone’. No one can come and fudge the books or meddle with the ledger. The chaining of the block, coupled with the cryptography and the consensus algorithm, makes it nearly impossible for a malicious attacker to attack or change the data.
Traceability
Each transaction is recorded immutably in the blockchain and signed cryptographically. So the audit trail makes it easier to trace the movement of any asset across the network.
Stay tuned for the next installment in which Udisha Alok will review the applications of Blockchain.
Visit QuantInsti for additional insight on this topic: https://blog.quantinsti.com/blockchain/
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