For the past few years the word Bitcoin and Block Chain is the talk at the business coffee table. The technology giant Microsoft is also partnering with ConsenSys and Blockstack Labs to build an open source, blockchain-based identity system to help provide legal identification for people around the world and this technology could help fight human trafficking and child exploitation.
If we look at the businesses and investment of the past say a street food stall owner or a Fortune 500 company, they all have a ledger or an account book with rows and columns to keep the record of all transactions done. With technology running fast this ledger has now taken the shape of digital transactions and acquiring a new identity in the business world.
But what exactly is Block Chain technology and how is it going to help in your businesses is the curiosity to know.
Block Chain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority.
Once a block of data is recorded on the blockchain ledger, it’s extremely difficult to change or remove. When someone wants to add to it, participants in the network all of which have copies of the existing blockchain run algorithms to evaluate and verify the proposed transaction. If a majority of nodes agree that the transaction looks valid by identifying that information matches the blockchain’s history,then the new transaction will be approved and a new block added to the chain.
According to Marley Gray director of technology strategy for financial services at Microsoft, Bitcoin was the first application built on top of blockchain. In 2008, a person or group of people known as Satoshi Nakamoto published a paper describing bitcoin and how it could be used to digitally send payments between any two willing entities without the need for a third-party financial institution. Each transaction was recorded on the blockchain ledger, the newest block tied to the ones before it using a digital signature. To ensure trust in the ledger, participants on the network ran complicated algorithms to verify those digital signatures and add transactions to the blockchain.
Block Chain Public or Private and How does Block Chain Work
Now that you know what is a block chain it is to be known that there are different blockchain configurations that use different consensus mechanisms, depending on the type and size of the network and the use case of a particular company. Here are examples
The bitcoin blockchain– It is a public block chain, meaning anyone can participate and contribute to the ledger. Many firms also are exploring private blockchains whose network is made up only of known participants. Each of these blockchain implementations operate in different ways.
Guardtime, a company that sells blockchain-based products and services to enterprises and governments explains Block chain approach as below:
Suppose an organization has 10 transactions per second. Each of those transactions receives its own digital signature. Using a tree structure, those signatures are combined and given a single digital fingerprint, a unique representation of those transactions at a specific time. That fingerprint is sent up the tree to the next layer of infrastructure, such as a service provider or telecom company. This process happens for every organization in the network until there is a single digital fingerprint that encompasses all the transactions as they existed during that particular second. Once validated, that fingerprint is stored in a block chain that all the participants can see. A copy of that ledger is also sent back to each organization to store locally. Those signatures can be continuously verified against what is in the block chain, giving companies a way to monitor the state and integrity of a particular asset or transaction.
Anytime a change to data or an asset is proposed, a new, unique digital fingerprint is created. That fingerprint is sent to each client node for validation. If the fingerprints don’t match, or if the change to the data doesn’t fit with the network’s agreed-upon rules, the transaction may not be validated. This setup means the entire network, rather than a central authority, is responsible for ensuring the validity of each transaction.
So what constitutes in a Block Chain?
The three main components in a block chain are: a network of computers, a network protocol and a consensus mechanism.
A blockchain’s network can include everyone with a computer or a small group of known entities that agree to participate. Each computer in a particular network is called a node. In its ideal state, each node has a copy of the entire ledger, similar to a local database, and works with other nodes to maintain the ledger’s consistency. That creates fault tolerance, so if one node disappears or goes down, all is not lost. The network protocol governs how those nodes communicate with one another.
The consensus mechanism is a set of rules the network uses to verify each transaction and agree on the current state of the blockchain. For the bitcoin blockchain, the consensus mechanism is called proof of work, in which participants on the network run algorithms to confirm the digital signatures attached to blocks verify each transaction. In private blockchain networks, the consensus mechanism may be less stringent since each participant is known.
How does Block Chain mechanism help?
The block chain architecture allows a distributed network of computers to reach consensus without the need for a central authority or middleman. As an example in financial services, where trades are often verified by a central clearinghouse that maintains its own central ledger. Using that process, it can take days to settle a transaction, and the clearinghouse typically collects some kind of fee. Block chain technology could eliminate that clearinghouse by giving each bank in the network its own copy of the ledger. A common network protocol and consensus mechanism would allow the participants to communicate with one another. Using this method, transactions could be approved automatically in seconds or minutes, significantly cutting costs and boosting efficiency.
The technology is drawing interest from finance, shipping, manufacturing, heath and entertainment. In the last year, more than 40 financial institutions said they were working with blockchain.
The Block Chain ecosystem and future
A number of startups and industry groups are working at different levels of the blockchain, from underlying infrastructure to blockchain-based applications. Some companies continue to develop on the public bitcoin blockchain, but many also are exploring how they can deploy their own blockchain on smaller “permissioned” networks.
Financial institutions are experimenting with many different blockchain implementations from different vendors. Under the R3 consortium, a recent test of a private blockchain among 11 banks took place on a private instance of open-source blockchain technology from Ethereum and hosted on a virtual private network in Microsoft’s Azure cloud.
Block Chain in Banking Sector
If we look at the banks and financial services they are the first mover in blockchain, investing nearly $1 billion in blockchain companies. According to Wall Street Journal the technology could cut $20 billion in annual costs in global banking .
Nasdaq Inc., Citi Ventures, Visa Inc. and others put $30 million last September into Chain Inc., which is building block chain infrastructure for the financial industry. Digital Asset Holdings LLC, a blockchain startup led by banker Blythe Masters, has raised more than $50 million from 13 investors including J.P. Morgan Chase & Co., Citigroup Inc. and BNP Paribas SA. They plan to research and commercialize platforms for deals involving stocks, derivatives, loans and other assets — transactions that now are recorded centrally by banks or other institutions in a process that adds cost and time.
Individually and in partnerships, financial services firms are rushing to build pilots for settling trades, making cross-border payments and other transactions, with little lag time and less risk. The 42 banks in the R3 CEV LTD consortium expect to pilot a private blockchain this year, after 11 of the banks successfully conducted a test in January. Nasdaq recorded its first securities transaction on its block chain-powered Linq exchange in December.
Block Chain and Expensive Goods
Expensive goods attract criminals, often violent ones. The Islamic State is selling stolen art and antiquities to finance terrorist activities. In Africa, armed groups fund civil wars through blood diamonds mined and sold illegally, despite years of sanctions, bans and certification attempts by the United Nations and others.
According to Allianz Accelerator managing director, Sylvian Theveniaud , “A definitive registry to trace ownership and certify provenance of big-ticket items would root out illegal goods and decrease fraud worldwide”. Allianz is working with startup Everledger to develop a blockchain to track diamonds from mine to retail sale.
Late last year, the Gemological Institute of America said that grading reports for 1,042 registered diamonds were altered in a cybersecurity breach. The GIA has asked the diamonds’ owners to submit them for re evaluation but just 175 have done so.
For each diamond, Everledger measures 40 attributes: cut and clarity, the number of degrees in pavilion angles and, eventually, where they were mined. The company generates a serial number for each diamond, inscribed microscopically, then added to Everledger’s blockchain. Because the data is encrypted and replicated on all of the blockchain’s nodes, it can’t be compromised.
Ownership histories could also help police and insurance investigators track stolen gems. Reputable buyers could check the blockchain for information about the diamond on offer.
So far, Everledger has registered more than 858,000 diamonds with an additional 906,000 in queue and plans to expand to other high-value markets, such as fine art and perhaps titanium aerospace parts.
Block Chain and Entertainment
Blockchain could shift the dynamics in the media business through so-called smart contracts. These are agreements that nodes automatically execute, with no human intervention, once pre-coded conditions are met. In a simple example, a news website would unlock an article when a reader transfers payment.
According to Benji Rogers, a musician and CEO of PledgeMusic, a site for the crowd-funding of albums. In the music business, smart contracts on a blockchain could prevent piracy and give artists their due, Musicians have started to push back against major streaming services over royalties.
Singer-songwriter Imogen Heap released a new single in October on Ujo, a peer-to-peer music blockchain built on software from open-source consortium Ethereum. A smart contract could ensure that the song won’t play unless payment has been transferred. Similar setups could work for movies and other digital content.
According to Deloitte efficient micropayments could smooth payments for digital ads and spark new business models and Blockchain transactions can occur for negligible cost.
Block Chain and Health Sector
With Block chain technology the health-care system would be more efficient. Blockchain’s constant encryption and permanent transaction histories interest various health care organizations. According to Jonathan Cordwell, senior professional research analyst in health care at Computer Sciences Corp. Pharmaceutical companies could tag drugs with identification numbers on a blockchain, to track goods through the supply chain and cut theft and counterfeiting.
MIT is building a blockchain to let individuals store personal data securely, and selectively issue permission for its use. The Enigma project would shift power to privacy-seeking consumers, says Alex Pentland, a computer science professor and project advisor. Lawrence Lessig, Harvard Law School professor, says such technology will create new models for privacy.
For example, in one Enigma application, individuals could select portions of personal data to release to doctors for treatment or drug researchers to study. According toDr. Pentland “We’re going to start trading data more like money: You own it, you control it, you give it to people for a certain purpose and that’s it.”
MIT hopes to establish Enigma, due to enter beta tests this year, as a standard blockchain infrastructure platform on which companies can build applications. For example, market researchers could study anonymized personal data, he says. Financial services companies could also use it to issue loans, having applicants submit encrypted personal data, then execute smart contracts, he says.
Block Chain and Agriculture
In agriculture, farmers could put sensors in fields to monitor crops through growth, harvest and transport, recording data on a blockchain via wireless network. In a recall, farmers could quickly match tainted product to supply chain records. They could more accurately trace where their food went and assess the size and expense of the recall, says Mr. Schatsky of Deloitte.
Filament, a startup that offers wireless Internet of Things technology, is exploring such ideas with agriculture companies. Coca-Cola Co. is in discussions with Filament, which could lead to the use of blockchain and IoT to monitor vending machines, Also, affordable microtransactions on a blockchain could let vending machines to go cashless with customers paying via credit card.
Block Chain and Insurance
Tierion Inc. recently built a blockchain to process insurance claims, working with business and technology experts from Citigroup Inc. and others in a programming contest in September. Blockchain’s encryption and distributed verification can provide an efficient, trusted “proof of work” at each hand-off in claims processing.
Blockchain could facilitate new insurance models and destroy others. Companies could offer “instant” policies good for a few hours, says Tony Martin-Vegue, a cyber risk manager at an insurer in San Francisco. A whitewater rafter, for example, could request extra accident coverage during his Sunday afternoon venture. No matter that it’s a weekend; unlike insurance offices, a blockchain never closes.
Blockchain can also ease peer-to-peer insurance, circumventing established companies. For example, Uber or Lyft drivers, who currently rely mainly on their personal auto policies, could pool their money on a blockchain and create a smart contract to insure each other.
The impact of this technology could be massive. The power of block chain lies in its inherent security, which can establish trust directly among parties in transaction and to remove the middlemen that currently serve that function. Entire industries such as clearinghouses in financial trading or title-search firms in real estate, conceivably could be displaced, slashing costs and cutting the time required to complete a transaction. The block chain really could change the world, making financial crises much less damaging and reducing frictions in global commerce. It could also fade into the relative obscurity of narrowly conceived technical innovation. The technology deserves to be properly explored. Regulators can make the difference by giving it some space. The level of commitment to testing and development, especially in financial services, shows how seriously block chain is viewed in the coming years.