Gideon Tay Yee Chuen
Introduction
Blockchain: a buzzword you have probably heard about, maybe in connection to cryptocurrencies like Bitcoin, projects like Ethereum or companies like Ripple. When you hear about it, you would also probably be swarmed by jargon such as ‘immutable’, ‘ledger’, ‘node’, ‘hash rate’, ‘mining’, ‘distributed’ and ‘decentralized’. Confused yet? What does it all mean? What is blockchain... really? How is it going to affect my life? Here, we explain the fundamentals of blockchain technology and explore current and upcoming blockchain applications while acknowledging its limitations.
What is Blockchain?
Blockchain began in 2008 when an unknown individual or group going by the name of Satoshi Nakamoto release a white paper titled “Bitcoin: A Peer to Peer Electronic Cash System”, and soon launched bitcoin to the open source community [1]. However, though intrinsically linked, one should never equate blockchain to bitcoin. Blockchain is the technology on which cryptocurrencies such as bitcoin are based on, but it has applications extending far beyond cryptocurrencies or the financial industry for that matter.
Simply put, blockchain technology is a growing list of records, called ‘blocks’, that are added to a ledger chronologically, with each block having a timestamp and data, while being connected to the previous block by a cryptographic hash. [2] These hashes are essential to the reliability of the data carried by each block, as an external party attempting to change or edit information in an earlier block would affect the hash generated, making it not correspond to the future hashes.
Another important characteristic of the blockchain is its decentralised or distributed nature. Whenever a block is to be added to the ledger, or the growing list of records, it has to be validated by nodes, or computers, each carrying a copy of the ledger. These nodes are distributed across the world, and blocks are only generated after validation by the nodes. This distribution contrasts with the typical centralisation of data we are familiar with in the past, with large companies owning large data centres that hold immense amount of data all in one place. With this distribution, it becomes harder, and close to impossible, for anyone to make a false transaction.
In short, the concept of a blockchain is revolutionary because it provides a way in which we may store data reliably in a distributed manner, with the data being immutable (being resistant to tempering).
What’s all the hype about?
With a predicted 75% growth of the blockchain industry by 2024, the founding of many blockchain startups in Silicon Valley and around the world, along with the entry of companies like IBM, AWS and Microsoft into the field, it is without a doubt that the blockchain industry is growing rapidly [3]. It may seem like blockchain is just a hype, but its potential in disrupting industries cannot be overlooked. As a technology, blockchain has numerous applications such as in insurance, financial transactions and supply chain management [4].
A well-known example of a blockchain application is financial transactions. Bitcoin and ripple for instance allow for reliable global financial transactions, while removing the need for intermediaries or third parties thus reducing costs of such transactions. Besides finance, the idea of smart contracts has allowed for the application of blockchain in many other industries. Smart contracts allow for the exchange of value, be it shares, property or money once certain conditions of the contract is met, doing so without the need of third-parties [6]. This allows for processes such as insurance claims-processing to become much more efficient and transparent.
Meanwhile, blockchain could revolutionise supply chain management in manufacturing and even the food and beverage industry. With blockchain, one may track in a transparent and open ledger the movement of materials and processes used to produce a given product, be it computers, your morning coffee or clothes. For instance, this would allow a business to ensure that all the coffee beans it uses for its coffee are obtained from plantations with fair labour practices, or that all the materials and minerals used to produce a computer are obtained from ethical sources (no conflict minerals for example) [5].
Limitations of Blockchain
For all its hype, blockchain technology does have limitations and cannot be applied for all scenarios. A key drawback of blockchain technology is the speed in which blocks may be added to the ledger [7]. Transaction speeds in blockchain are relatively slow due to the need to validate each transactions with many nodes, or for ‘consensus’. Hence, blockchain would not be suitable for time-sensitive applications where blocks have to be added in the timescale of nanoseconds for instance.
What now?
The blockchain industry is a rapidly booming sunrise industry, and we are now seeing blockchain applications and ideas being brought to life around us. Though being more backend in nature and thus less prominent to everyday consumers, it would no doubt permeate our lives and the technology we use and interact with everyday.
References
[1] Marr, Bernard. (16/02/2018). A Very Brief History of Blockchain Technology Everyone Should Read. Forbes. https://www.forbes.com/sites/bernardmarr/2018/02/16/a-very-brief-history-of-blockchain-technology-everyone-should-read/#3b4c82b57bc4. Retrieved: 9 August 2018.
[2] How Blockchain Technology Works: Guide for Beginners. Coin Telegraph. https://cointelegraph.com/bitcoin-for-beginners/how-blockchain-technology-works-guide-for-beginners. Retrieved: 9 August 2018.
[3] PR Newswire. Blockchain Technology Market to see a whopping 75% growth to 2024. Market Insider. https://markets.businessinsider.com/news/stocks/blockchain-technology-market-to-see-a-whopping-75-growth-to-2024-1027442852. Retrieved: 9 August 2018.
{4] 17 Blockchain Applications That Are Transforming Society. Block Geeks. https://blockgeeks.com/guides/blockchain-applications/. Retrieved: 9 August 2018.
[5] Cheng, Evelyn (04/06/2018). For all the hype, blockchain applications are still years, even decades away. CNBC. https://www.cnbc.com/2018/06/04/for-all-the-hype-blockchain-applications-are-still-years-even-decades-away.html. Retrieved: 9 August 2018.
[6] Tar, Andrew (31/10/2017). Smart Contracts, Explained. Coin Telegraph. https://cointelegraph.com/explained/smart-contracts-explained. Retrieved: 9 August 2018.
[7] Fauvel, Warren (11/08/2017). Blockchain Advantages and Disadvantages. Medium. https://medium.com/nudjed/blockchain-advantage-and-disadvantages-e76dfde3bbc0. Retrieved: 9 August 2018.
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