This article is written by Abhishek Sharma, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com. Here he discusses “Blockchain Technology”.
Table of Contents
Introduction
Have you ever wondered if there is any easy way of transferring money and completing transactions without having to deal with online wallets, banks and third-party applications? Well, it’s possible and thanks to the Blockchain technology. There are a bunch of ledgers owned by banks, financial institutions, regulators, insurance companies, and each of these ledgers have to be reconciled. And because you have to reconcile so many of them and change, it creates time delay and obviously cost. Money sent by your friend to you from America to India may reach you 7 days later. This is one of many aspects this blockchain technology tries to figure out. The first blockchain was conceptualized by a person named Satoshi Nakamoto in the year 2008. Blockchain is regarded as a revolutionary form of technological innovation that has the capacity to impact the economy of a nation. It is a digital and distributed ledger of records which can be stored and transferred for a value at global level in real-time and cost-effective manner. All the letters in the block are crypto graphed and validated by 64 letters #. Therefore, the record is immutable. Most of us fail to understand the meaning of Blockchain technology and cryptocurrency because the structure of this technology is complex and data available on the internet is difficult to understand. So, let’s solve this misery and understand the working of blockchain technology in the simplest manner possible on the earth. We shall discuss this in an informal manner and later discuss all the complexities associated with it.
Understanding Blockchain Technology
Imagine 4 people have gone for dinner namely Jack, Monty, Smith and Cook. After the dinner was over, Jack paid the bill and all of them decided to split the bill amongst each other. Now on the next day when Monty sends his share to Jack his online money transaction is sent to Jack without a hitch. Similarly, Smith and Cook share the money but their transactions don’t go through. Both their transactions had some issues with their respective banks. That’s when Jack and all of them come to know the many ways of how the bank transactions could fail. It could be due to technical issues online, transfer limit exceeded, additional transfer charges, or their accounts may have been hacked.
To solve this issue the concept of cryptocurrency came into existence. A cryptocurrency is a form of digital or virtual currency that runs on a technology called blockchain and thanks to blockchain that cryptocurrencies are immune to counterfeiting, don’t require a central authority and are protected by strong and complex encryption algorithms. And in the market of thousand of cryptocurrencies such as Ethereum, Litecoin, Dogecoin, Ripple XRP, one reigns supreme and i.e. Bitcoin. And now let’s get back to our previous example where we had Jack, Monty, Smith and Cook. Now assume that Monty, Smith and Cook send 2 Bitcoins each to Jack as a contribution to their previous night’s contribution. Assume that Jack already has 5 bitcoins and rest others have 3 bitcoins each. If Monty sends his 2 bitcoins to Jack, a record is created in the form of a block and the transaction details between them are permanently inscribed in this block. This record also holds the number of bitcoins each of the friends own. So, after Monty’s transaction Jack now has 7 bitcoins, Monty has one. Following this, Smith and Cook send 2 bitcoins each to Jack. A new block is now again created for each of these transactions. These blocks hold the transaction details as well as how many blocks all 4 of them have in reserve. These blocks are connected to each other as each block takes reference from the previous block for the no. of blocks each friend owns.
This chain of records or blocks is called “Ledger” and this ledger is shared among all the friends which acts as a “Public Distributed Ledger”, this forms the basis of blockchain. Imagine if Monty has only 1 bitcoin left and he tries to send 2 more bitcoins to Jack, the transaction will not go through. This is for a simple reason; all his friends have copies of each ledger and it is clear that Monty has only 1 bitcoin left. His friends flag this transaction as invalid. Moreover, any hacker will not be able to alter the date in the blockchain because each user has a copy of the ledger and the date in the blocks are encrypted by complex algorithms. All of this is made possible because of blockchain technology.
Working of Blockchain
Blockchain can simply be defined as a collection of records linked with each other, strongly resistant to alteration and protected using Cryptography.
Now let us understand the transaction between Jack and Monty. Every user in the bitcoin network has 2 keys, a Public key and a Private key. The Public key is an address that everyone in the address knows of just like an email address of the user. Whereas a private key is the unique address that only the user has the knowledge of (Something like a password).
First Monty passes the no. of bitcoins he wants to send to Jack. Along with his and Jack’s wallet address through a hashing (#) algorithm. All of this is a part of the transaction details. These details are encrypted using encryption algorithms using Monty’s private key. All this is done to digitally sign the transaction and to indicate the fact that the transaction came from Monty. It is important to note that this output is now transmitted to the outer world using Jack’s public key. With this the message or the transaction can be decrypted by Jack’s private key which only Jack has knowledge of. Different Cryptocurrencies use different hashing algorithms. For example, Bitcoin uses the SHA256 algorithm, Ethereum uses ETHASH. These types of transactions are taking place across the world and are added block by block.
Miners: The people who validate these blocks are called “Miners”. For a transaction to be validated and added to the blockchain, miners need to solve their complex mathematical problem. The Miner who solves the complex transaction first includes the transaction in the block and is rewarded 12.5 Bitcoins.
Proof of Work: The process of solving these complex mathematical problems is called “Proof of Work”.
Mining: The process of adding a block to the blockchain is called “mining”.
And after this process Monty’s and Jack’s wallet are updated. Whenever any transaction happens it gets connected to the already existing chain of ledgers. This transaction has rightly been authenticated by everyone.
Walmart Example
Let us now understand how Walmart uses Blockchain technology to provide better services to its users. Walmart was facing problems in delivering quality products to its customers. They were facing high return rates and large amounts of refunds due to their product’s bad quality. They were unable to determine the point of failure in their supply chain which started from farm, storage, transportation, processing and all the way to the distribution center. Then Walmart adopted Blockchain technology and the quality of their products was permanently inscribed in a block. For example, if the customer receives a damaged product, it could now be identified as to where the product is damaged in the supply chain. Thus, helping Walmart to identify the problem area and fixing them. And this is just one of several ways where blockchain is used in the world.
Farm
Storage
Transportation
Processing
Distribution Center
How Blockchain can transform India
Blockchain Technology is as new as the Internet was in the early 90’s but it is big. E-commerce, social networks or email use the internet but blockchain is as parallel and as fundamental as the internet. This technology sounds incredibly simple to understand but at the same time complex in its functioning. It has the potential to change our lives in the next 20 years the same way the internet has changed our lives in the last 20 years. To inform a country like India, we always look forward to transforming agriculture. Over 120 million farmers are directly engaged in agriculture. But the no. that kills everyone of us is that 23 farmers commit suicide every single day because of poverty, no farm equipment, small land, lack of financing and many more. Now how can farmers be transformed? Now Blockchain is the ideal technology to create fractional ownership and 10 framers can own one tractor and all the complications that arise from this technology can largely be taken care of by this technology. The countries all over the world are trying to digitize land but if you digitize it someone can still go and hack it and change the name. Moreover, if you digitize it, what you know is whom it belongs to but you don’t know whom it belonged to. So again, blockchain can come in and solve these problems. In fact, Andhra Pradesh is the first state to take initiative and use Blockchain. Today power is a centralized concept where power is supplied in cities from power plants to multiple users. But it doesn’t make sense in villages because you have to produce power where you need power. So again, if you use blockchain, excess power can be supplied to deficit power. We can also use cryptocurrency which can actually be used to buy power and people from cities can donate power. This blockchain technology can make power viable. Healthcare, education fraud, voting fraud, fraud in chit funds, managing subsidies, loans, Aadhaar can be on blockchain. If we just elevate ourselves and use this technology which is not just a technology but a philosophy can do wonders.
Application of Blockchain
Having been discussed the blockchain technology which is an exciting new alternative to traditional currency, centralized banking, and transaction methods that is not only changing the way we handle financial transactions, but also alternative uses that will change the world. Here are certain uses of blockchain in different areas:
- Electronic Voting
- Cloud Storage
- Smart Contracts
- Paying Employees
- Insurance
- Payments
- Asset Management
- Internet of things
- Smart Appliances
- Healthcare
- Passports
- Personal Identification
Conclusion
Blockchain is arguably the best technology today which is safe and secure, according to Alex Tapscott, the CEO and founder of Northwest Passage Ventures, a venture capital firm that invests in blockchain technology companies.
Whenever you want to move anything of any value over any kind of blockchain, the network (Nodes) must first agree that the transaction is valid which means that nothing can be altered in the blockchain without meeting the requirements with the previous block. To hack it, you wouldn’t just have to hack a single network but every single computer on that network which is fighting against you in doing that. There is greater amount of transparency form the fact that its transaction ledger for public addresses is open to viewing. Since this technology is decentralized, it removes the need for middlemen in many processes for fields such as payments and real estate. Auditing is very easy in a sense that it is very easy to trace where the goods come from. This helps in improving security and prevent fraud. This technology uses the P2P network which is an integral and critical part of blockchain technology. “peer” refers to the computer system within this technology. Blockchain is by far the most trustable and secure network as identity remains confidential. The world is progressing and blockchain technology is the future now and forever till the next big thing comes and replaces blockchain technology which is not possible in near future.
References
1. What is Blockchain Technology? A Step-by-Step Guide For Beginners, Ameer Rosic, available at https://blockgeeks.com/guides/what-is-blockchain-technology/ (Last visited 20 May 2020)
2. Transforming India through Blockchain, Jaspreet Bindra, 30 March 2018, available at https://www.livemint.com/Technology/UZIex6fPPyAqVuTHqpzZiN/Transforming-India-through-blockchain.html (Last visited 22 May 2020)
3. Walmart Case Study, How Walmart brought unprecedented transparency to the supply chain, available at https://www.hyperledger.org/learn/publications/walmart-case-study (Last Visited 25 May 2020)
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