What is blockchain technology?
Blockchain is a distributed digital ledger that records transactions across multiple computers. It ensures that data is securely stored in a way that makes it nearly impossible to alter or tamper with. Each record in the blockchain is called a “block,” and these blocks are linked together to form a “chain.”
Blockchain characteristics:
- Decentralized – unlike traditional databases that are controlled by a central authority, blockchains operate on a network of computers (nodes) that all have equal authority.
- Auditable – data and transactions stored on the blockchain can be tracked and verified easily.
- Distributed – transactions are recorded and kept across several locations instead of a single, centralized database.
- Immutable – Once a transaction is recorded on the ledger, it can never be changed unless agreed upon by at least 51% of nodes.
- Pseudonymous – Each user that interacts with the blockchain uses a generated address that does not reveal their identity.
How blockchain works
A Transaction Initiation: When someone initiates a transaction, such as sending cryptocurrency to another person, the transaction details are sent to the network.
Verification: Computers in the network, called nodes, verify the transaction to ensure it’s valid. This process involves checking the sender’s balance and transaction details.
Block Creation: Once verified, the transaction is bundled with other transactions to form a block. Each block has a unique code, called a cryptographic hash, which links it to the previous block, creating a chain.
Consensus: The network of nodes must agree (reach a consensus) that the transaction is valid before the block is added to the chain. This consensus process can vary depending on the blockchain (e.g., Proof of Work, Proof of Stake).
Addition to the Blockchain: After consensus, the new block is added to the blockchain and becomes part of the permanent record.
Decentralization: Every node in the network has a copy of the entire blockchain, ensuring that no single entity controls the data.
This decentralized and transparent process makes blockchains secure and resistant to tampering, as altering any block would require changing all subsequent blocks on a majority of the network’s nodes.
To change a single transaction on a blockchain ledger, one would need to alter the record on at least 51% of all nodes in the network, a task nearly impossible due to the global distribution of nodes
9 Examples of Blockchain use
Blockchains’ high security and immutability make them suitable for various industries. While adoption rates vary, all industries are exploring blockchain’s potential to enhance transparency by decentralizing information.
1. Decentralized Cryptocurrencies
The first and most widespread use of blockchain technology is powering cryptocurrencies. Its peer-to-peer, censorship-resistant nature has enabled numerous cryptocurrency projects with various utilities:
- Privacy-focused assets like Monero (XMR) and Zcash (ZEC) allow for private transactions.
- Stablecoins such as USD Coin (USDC) and Tether (USDT) peg their value to real-world assets to reduce portfolio volatility.
- Governance tokens like Uniswap (UNI) and Curve (CRV) enable holders to vote on blockchain protocol decisions.
- Non-fungible tokens (NFTs) allow users to prove and trade ownership of unique digital items. For more details on how blockchains support cryptocurrencies, refer to our “What is Cryptocurrency?” guide.
2. Financial Services
Major companies extend blockchain’s capabilities beyond managing digital money to other financial services. Blockchain can improve efficiencies in inter-bank transactions, clearing, and settlements. Examples include:
- J.P. Morgan’s Onyx blockchain for value and data exchange.
- Santander’s issuance and management of a $20 million bond on Ethereum’s blockchain.
- The conceptual Regulated Liability Network (RLN) involving institutions like Wells Fargo and HSBC.
3. Supply Chain Management
Blockchain is also revolutionizing supply chain management. By creating transparency and consistency, it reduces barriers and potential points of failure. Major companies like Walmart and FedEx are exploring blockchain applications in their supply chains. Amazon’s Managed Blockchain helps enterprises deploy private blockchain networks for supply chain management.
4. Healthcare Records
Healthcare records maintained by centralized data centers face security and sharing challenges. Blockchain technology offers a solution by providing a secure and transparent mechanism for recording and managing health records. Examples include MedRec, Ancile, and OmniPHR.
5. Insurance
Insurance companies are exploring blockchain to increase operational efficiency. Examples include:
- AIA’s blockchain-based insurance solution in Hong Kong.
- TradeWaltz’s marine insurance blockchain platform used by Sompo and Tokio Marine.
6. Energy
Blockchain-based infrastructure is poised to revolutionize the energy industry. Examples include:
- Siemens’ Pebbles, a peer-to-peer energy trading market.
- Shell, Accenture, and Amex GBT’s Avelia, a blockchain-based sustainable aviation fuel solution.
- Power Ledger (POWR), a cryptocurrency project for peer-to-peer energy trading markets.
7. Identity Management
Handling personal information securely and accessibly makes blockchains ideal for identity management. Examples include IBM’s Digital Credentials service and the World Economic Forum’s Known Traveller Digital Identity (KTD).
8. Voting
Blockchain technology offers solutions for secure and verifiable voting systems, potentially eliminating fraudulent manipulation. Examples include Follow My Vote and Voatz, which aim to provide secure voting mechanisms.
9. Item Authentication
NFTs have demonstrated how blockchains can verify the authenticity of digital files. Other companies are now using blockchain to track and verify real items. Examples include the Aura Blockchain Consortium, Authena, and Seal.
By leveraging blockchain’s inherent security and transparency, various industries are enhancing their operations and creating new opportunities for innovation.
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