Blockchain: The Disruptive Technology and its Challenges!!!

Introduction

Blockchain is a buzzword which is creating a hype now a day. This technology was first introduced by Satoshi Nakamoto in a paper published in 2008. It’s like the internet in the early 90s but can be as big as same. Blockchain is not a use case of internet like retail or ecommerce, in fact its parallel to internet. It’s simple yet powerful and has the potential to change our life like internet has changed in past 20 years. Most of the people think blockchain as Bitcoin, but then it’s like using the internet for sending mails.

What is Blockchain?

Blockchain is a distributed, peer to peer technology that allows the data to be stored globally on thousands of services while letting anyone on the network to see everyone else entries in real time, which makes it difficult for one user to gain control of and hack the network. Every time a set of transactions is added, that data becomes another block in the chain (hence, the name). Blockchain can only be updated by consensus between participants in the system, and once new data is entered it can never be erased.

There are 3 key technical aspects of a blockchain

1) Maintain a Replicated Ledger: Record a history of all transactions details, append-only with immutable past transactions, and can replication and distribute to all participants.

2) Cryptography: Use of cryptography in the ledger to guarantee the authenticity of the transactions, the privacy of the transactions and confirms the identity of the participants.

3) Consensus Logic: It’s an algorithm that confirms the validity of all the transactions happening on the network and produce the relevant block to the network chain.

 

The blockchain data structure is time stamped, non-repudiable transaction list of the entire systems history. Blockchain utilizes a distributed network of nodes that stores and maintains a copy of a “public ledger” containing a full list of transactions. A group of these transactions referred to as a “block,” are encrypted and added from top-to-bottom in the order that they occur. A block adds to the end of each “chain”. Once a block adds to the chain, it becomes a permanent record and data in that block is never modified. Blocks are connected through hash chaining, utilizing a cryptographic hash. Blocks connect through hash chaining. Blocks contain a header; headers chain, therefore blocks chain. The Merkle root relates the transactions in the block to the header, creating a logical combined unit. Blockchain does not allow an arbitrary block to attach to an arbitrary header. Each header only attaches to one set of transactions.

The Merkel tree is the consensus protocol used by blockchain and is an essential part of blockchain’s data integrity. The Merkel Tree detects any changes to any data within a block, by rerunning the process for each transaction—and comparing the results to the original hash. Transactions propagate across the network where the Merkel Tree consensus algorithms check whether a node copy of the ledger matches the copy of other nodes. This continuous verification circumvents falsification of data anywhere within the chain, and the process is known as a consensus protocol. Each node keeps a copy of the block to give to other nodes when requested. Every block after that relies on that hash, and that hash relies on the Merkel Root, and the Merkel root relies on the hash of the transaction data. Altering the data within a chained block will cause that copy of the chain to no longer match the other nodes, thereby causing that node to be corrupt. The Merkel Tree allows nodes with matching ledgers continue to process, while nodes with mismatched ledgers are marked as corrupt. Transactions can be “pruned” from blocks, therefore removing the corruption.

Benefits of Blockchain

  1. Greater Transparency – Since blockchain worked on distributed ledger technology, all participants in the network share a copy of the documentation.  The data on a blockchain ledger is easily accessible for everyone to view. If a transaction history changes, everyone in the network can see the change and the updated record.
  2. Enhance Security – Blockchain works on the consensus algorithm. Thus any update/modification in the data over the blockchain requires the agreement from other participants. When a new transaction is approved its encrypted and connected to previous transaction and data is stored across a network of computers making it very difficult for hackers to compromise the data.
  3. Improved traceability – With the use of Blockchain, the exchange of data is added and recorded by adding new blocks to previous one. It gives an audit trail to understand the source of data, increasing the traceability of source to avoid fraud.
  4. Reduced cost by avoiding 3rd parties – As blockchain eliminates the need for third-parties and middlemen, it saves enormous costs for businesses.
  5. Increased data integrity –  Accessing and modifying the data stored on the blockchain is nearly impossible without notifying and seeking consensus from the entire network. Thus, blockchain can be used as the source of truth by participants and drive a secure ecosystem that can function in a trustless manner, i.e., without requiring any trust or even familiarity with the other party.

Why blockchain is not yet evolved in market?

Creating a robust blockchain implementation requires integrating a wide variety of systems: homegrown application systems, databases, files, and networks that businesses rely on. For years, businesses have struggled to integrate their information assets and systems within a single enterprise. A network of blockchain participants, each having its own interoperability challenges, poses even greater obstacles. The scale of the integration needed to implement even a small private blockchain can be complex, time consuming, and expensive.

Scalability is another problem blockchain is facing. The early blockchain protocols are quite constrained by the number of transactions they can process concurrently, and the cost for committing a transaction on the blockchain network is too high.

The current blockchain systems are complex to understand. If we consider from payment card industry point of view, a mass adoption would require for a system as seamless as a card payment, or mobile wallets. Shoppers and even merchants often aren’t too familiar with what is going on in the background. They wouldn’t have to understand the technology; it would just have to be much more accessible. This is another reason why blockchain hasn’t quite disrupted the industry just yet.

Conclusion

Blockchain has the potential to satisfy requirements for protection of sensitive information within a transaction. However, to be useful, it must transform or extend to the degree that it can be applied, and implemented by mainstream business in manufacturing, supply chain, food industry, healthcare, Banking and Financial services including issuing banks, acquiring banks and endorsed by card schemes, payment processors and card networks.

Ajay Wadbudhe

Ajay is a Project Manager in Verinite. Associated with BFSI domain from the start of the career. Believes in "Do what you like". Big cricket fan and loves cooking.