Why Do We Need Blockchain?

why do we need blockchain

The world of cryptocurrency is full of technical jargon with new words and phrases like “blockchain,” “smart contracts,” and more.

The Emergence of Digital Currencies

It is exciting to see so much technology revolving around the concept of financial assets. This new age of finance has moved toward an electronic medium where implementation of complex programming and cryptic language becomes important to keep the asset safe and secure for trading and transfer.

Although the world digital currency is still in its early days, it has the power to transform financial assets in a way that paper currencies will never be able to offer.

Bitcoins are the newest digital asset in the form of a currency which can be traded electronically without the intervention of a third-party intermediary. With a total market cap crossing $55 billion USD, the backbone of this genius invention is the blockchain.

Blockchain technology offers answers to many of the questions associated with digital currencies:

  • Who will first generate the currency?
  • Who will ensure that multiple transactions of the same currency do not occur?
  • Who will ensure the transactions are recorded clearly with time stamps to avoid issues in usage?

What is a Blockchain?

Blockchains are designed as a system which will change the model of trade, ownership, and trust. Money is used as a measure of payment for trades and goods.

Usually, when you pay someone or take payment in your bank account, it’s the bank or credit card company which keeps count, stores the transaction and records it for future reference. These are your third-party intermediaries. It is also a reference for yourself, as to how much money you still have left. Here you are dependent on the infrastructure of banks, notaries, governments, accountants, and others to tell you how much you have.

Money is used as a measure of payment for trades and goods. Usually, when you pay someone or take payment in your bank account, it’s the bank or credit card company which keeps count, stores the transaction, and records it for future reference. These are your third-party intermediaries. It is also a reference for yourself, as to how much money you still have left. Here you are dependent on the infrastructure of banks, notaries, governments, accountants, and others to tell you how much you have.

Now imagine a digital ledger where you can record the transactions you conduct with either the Bitcoin currency or any other digital asset: A collective ledger where the book-keeping is neither closed nor under the control of one party.

The Reliability of Blockchain

This ledger is distributed freely over the internet, accessible to anyone and everyone at all times. Anyone can record the transactions and view them when required. The information about all participants is stored in the ledger and available on all nodes of the computer network.

The transactions are verified by certain users who have high processing powers on their computers and are capable of solving mathematical puzzles as posed by the blockchain. These are called “miners.” The mathematical logic ingrained in the network ensures the nodes agree with each other on storage of information and get updated automatically.

This logical check ensures that anyone trying to hijack and manipulate the network will be thrown off the network as their fraud transaction will not get stored when the nodes do not fulfill the built-in logic. Thus, the sanctity of the network and the blockchain is maintained.

Everyone can view the shared “single source of truth” as all transactions are public. The possibilities of such a technology are tremendous as it essentially means we are in an error-proof and fraud-proof environment which is free, transparent, and highly-fungible. Fungibility of a currency is the transferability from one form to another. A bitcoin can be divided into 100 million parts where each can be assigned a specific value or property. All this is possible with the help of programming.

Blockchain as a carrier structure has created a paradigm shift in the way we can administer and remove bureaucratic errors and delays in repetitive work. The open-source system gives an opportunity to anyone to hire a programming whiz and create a system customized to their environment and needs, for error-free and effective data systems.

Final Thoughts

As a layman, the only thing to remember about blockchain is that it is a ledger in an electronic form and records all transactions.These are a decentralized and independent form of ledgers on a series of computers called as nodes which can come and go away and some other computers will become the new nodes. This kind of chicanery is possible only with highly complex mathematical rules which are the basis of crypto-currency.

Blockchains are a decentralized and independent form of ledgers on a series of computer nodes which can come and go away and some other computers will become the new nodes. This is possible only with highly complex mathematical rules which are the basis of cryptocurrency.

Large financial institutions such as Goldman Sachs, J.P. Morgan, and several others have joined hands to develop and harness the potential for blockchain. It clearly shows the promise of becoming a reliable and error-free recording system.

We are yet to fully understand the applications and implications of such a technology and the responsibility now stands on seeing the potentially harmful uses and ensuring the best use of such a disruptive technology.

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