Some people may have already heard about the blockchain technology, but only a few can explain or describe what that is or what its function is. Certainly, this technology is a very promising one. Here, you will find out everything you need to know.
What does blockchain actually mean?
On a blockchain, datasets, more precisely transactions, are recorded chronologically. These blocks are linked together and form an immutable chain. The result is a decentralized database or you can also call it a distributed ledger. That means that the data does not only exist in one place, but it is spread among many participants in the network. So you don’t need a central administrator like a bank or government. The network of replicated databases is synchronized via the internet and visible to everyone in the network. With this technology, you have the opportunity to carry out transactions like sending money to someone.
However, blockchain is not synonymous with Bitcoin. This term first appeared in 2008 and describes a peer to peer electronic cash system which enables direct online payments without the need of an intermediary. In short, Bitcoin is a digital currency and blockchain is the technology that lies behind it and allows the money transactions. However, there are several other applications that use blockchain, but Bitcoin is the most popular one.
Let’s illustrate the process with an example: Imagine you want to buy something in the shopping mall and all you have is 100 $. You go to a shop and at the checkout you tell the cashier you will send an email with the promise to pay 100 $. The salesman accepts that. When you send the email, the other customers get that email, too and a few ‘special’ ones compete to be the first to validate the email. Therefore, they have to solve an electronic puzzle like a sudoku and the first one is the winner. After the others have checked the solution, they accept it. The email of the winner is then the ‘version of the truth’ and everyone in the mall gets a copy. If you want to buy more things and go to the next shop, we follow the same process: You promise to pay with an email, but now your offer is refused because everyone in the mall including the salesmen know that you don’t have any money left. That’s how it works. Your bank and the shop’s bank are also in the network, so the system controls itself and no intermediary is necessary for checking the transactions.
What are the advantages and disadvantages?
A great advantage is the decentralization of the blockchain because you don’t need a central administrator as already mentioned. The system has its own proof of validation and authorization. That’s why it is a very safe system because unauthorized people don’t have access to the database. The decentralization also provides protection from malicious attacks because the database is distributed among many computers. High transparency is given as well through all the participants, so that transactions can’t be altered or deleted. Furthermore, the transactions are faster and cheaper because no intermediaries are needed.
On the other hand, there are also a few disadvantages. It is difficult to integrate the blockchain technology into companies because the existing systems have to be changed or replaced completely. This is a big challenge. Moreover, the blockchain is growing continuously, so that it needs a lot of storage space. In addition, blockchain has a large energy consumption and needs substantial amounts of computer power for its transactions.
Where can this technology be used?
Blockchain is not only suitable for transferring money, it also offers possible applications in many other sectors like the automotive industry. The global leader in assurance, tax, transaction and advisory services EY has announced the launch of its integrated mobility platform Tesseract where you can find vehicles as well as trips. With the underlying blockchain technology, transactions will be automatically executed between the participants via a single source, usage-based payment system. So, EY follows the trend of changing mobility concepts and wants to reshape the automotive industry by permitting true peer-to-peer interaction. Finally, this will change society by association.
Electro mobility is another sector where blockchain can be a useful support. Currently, the process of charging electric cars is rather inconvenient but the German electricity supplier RWE that has more than 20 million customers worldwide, is testing an alternative using blockchain. With agreeing to so-called smart contracts, owners of electric cars interact with the charging station and make a deposit to the network which is released after the transaction is completed. In general, the process is more efficient and owners will pay less than nowadays.
The American IT company IBM is also currently working on two projects involving its own developed blockchain. One of them is a cooperation with the electronics company Sony. They want to develop an educational platform which saves and shares data of students. They will be shared with a few parties like school administrators or future employers. But it’s also a help for teachers because they have the opportunity to exchange about the learning progress and results of their students to develop individual teaching methods. Especially for the students it’s advantageous because with the blockchain they can create networks which can’t be changed by any of the parties.
Furthermore, IBM wants to collaborate with retailers and food companies like Unilever, Nestle and Walmart to fight the problem of food contamination. With the help of the blockchain network, suppliers are able to source information on origin, condition and movement of food. Therefore, transparency across the ecosystem is guaranteed and contaminated products can be traced in seconds. Similar to the educational platform, participants have the opportunity to share information across a strong trusted network, so the global food market becomes safer. IBM even has an eye on other industries like healthcare and marketing and sees opportunities to introduce blockchain there as well.
Innovative technology with potential for development
Blockchain is versatile and thus an innovative technology. However, it has not been completely perfected yet and requires further development time, so that existing weaknesses can be eliminated. We will surely hear a lot more about the blockchain technology in the future.
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