In our previous blog post, we touched on how blockchain technology can help counter scalper bots in the concert industry.
In this blog post, let’s dive deeper into what exactly blockchain technology is and how it can serve as a beneficial tool for your business.
Blockchain technology is an advanced, secure database that allows information sharing across a network. While it is widely known for its use in cryptocurrency, blockchain can be utilised in various industries outside of the cryptocurrency industry.
The underlying technology constructs a decentralised digital ledger that can be used to create data in any industry - immutable, preventing inconsistencies from manual entries.
Key Components of Blockchain Technology
Distributed Ledger
The distributed ledger is a shared database in the blockchain that stores and records the transactions and everyone in the same network has access to view, but only authorised nodes have permission to validate and add new entries, depending on the permission that is set.
Blocks
Transactions are stored in ‘block’, once the ‘block’ has been filled and validated, it will be added to the blockchain. A new ‘block’ will be added to the continuous process. Each block contains its very own hash, and it's calculated using the previous block’s hash.
Nodes
Nodes are individual computers participating in a blockchain network. It is rewarded with digital tokens/currency to make updates to blockchains. There are different types of nodes, serving specific purposes within the blockchain.
Full Nodes: It maintains a complete copy of the blockchain, storing all transaction data, and has the capacity to accept or reject the transaction.
Light Nodes (Lightweight): It relies on full nodes to provide them with data for verification. It does not store the entire blockchain but only downloads key information to verify transactions.
Miner Nodes: It verifies transactions and adds them to a blockchain with a Proof-of-Work model and ensures that transactions added are legitimate and secure.
Consensus Mechanisms
Proof-of-Work (PoW) is one of the consensus mechanisms that is used by popular cryptocurrency networks, such as Bitcoin and Litecoin. It requires nodes to solve complex mathematical problems to validate transactions.
Another consensus mechanism is Proof of Stake (PoS) which serves as an alternative to PoW as it is of lower cost and requires lower energy consumption. Validators are chosen based on the cryptocurrency they stake, hence the higher the amount of staked cryptocurrency, the participant will most likely be chosen, though the selection process may incorporate randomness at times to balance the fairness. Ethereum is one of the cryptocurrencies that is using PoS.
Smart Contracts
Smart contract’s terms are written and established as codes running on a blockchain, allowing automatic execution of transactions when predefined conditions are met. These contracts eliminate the need for intermediaries, saving time and cost in the long run.
How Can It Benefit Businesses Like Yours?
Enhanced Security
Once data has been added to the blockchain, it becomes almost virtually impossible to amend or alter, reducing the risk of manipulation or fraud. Additionally, consensus mechanisms further enhance security as they require members to agree on the validity before adding the transactions to the blockchain.
If an attempt is made to modify the data, the hash will change, hence breaking the chain, making it harder to tamper with as hackers need to tamper all the blocks on the chain, redo the PoW for each block, and take control of more than 50% of the peer-to-peer network.
Greater Transparency
All network participants have access to the information simultaneously, providing a full sense of transparency. Since transactions are immutable, and the data are shared among the participants, the blockchain will naturally deter fraudulent behaviour.
Increased Efficiency
Smart contracts are written in codes, which automates the verification process, eliminating the need for intermediaries, and streamlining the operation process. It can avoid delays without third-party validation, which can be ideal for time-sensitive transactions.
To name a few of the industries that have benefitted from this, the luxury goods industry is one, providing consumers with peace of mind during purchase, and the insurance industry, offering a faster claim experience and timely payment to policyholders.
Challenges of Blockchain
Despite demonstrating a tremendous potential for streamlining the validation process, it is not entirely invulnerable.
Security Disruption
This attack typically threatens less established blockchains with permissionless blockchain systems and low hash rates, where the hacker takes control of more than 50% of the total hashing power. This allows hackers to easily compromise the data, invalidate new transactions, and modify new blocks. A few of the notable 51% attacks are Bitcoin Gold (BTG) and Ethereum Classic.
High Implementation Cost
The implementation process often comes with a hefty price tag, from the initial setup to maintenance. Businesses will need to invest in robust hardware and software and hire skilled developers in order to adopt blockchain technology. Smaller businesses with limited budgets might struggle to implement blockchain technology.
Scalability Issues
As a blockchain network grows, it might have difficulty handling the high volume of transactions efficiently. Having high traffic can result in a longer processing time and a congested network.
Conclusion
Blockchain technology is safe and robust, as transactions are not governed by a single user. instead, it is by the entire transaction history ever recorded. Making it ideal for storing and processing sensitive data.
Understanding how blockchain works can offer numerous benefits to your business as it introduces ways to revamp the current workflow while lowering costs. Although there are hurdles in implementing blockchain technology, such as the high cost and scalability issues, however the potential benefits it can leverage and offer a competitive edge to your business in this evolving world.
Embracing blockchain technology into your business can transform how you connect with your stakeholders and clients, streamlining processes and driving efficiency for your business.
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