Blockchain, the technology which is about to set a new era of transaction through digitalisation, is actually not so new to the world of internet. This most discussed topic of present-day which was actually invented in late 2008 by a person or group of people known by the professional name, Satoshi Nakamoto. Satoshi Nakamoto is the person/group behind invention of the world famous cryptocurrency Bitcoin too. It hasn’t yet unveiled till date that who is this person and from where he belongs to. Satoshi Nakamoto or his team are claimed to be from Japan but there is no evidence to prove this fact. This ingenious invention of blockchain technology is the brainchild of this person/ group to make the first ever cryptocurrency Bitcoin be secured from hackers.
What is Blockchain Technology?
Blockchain technology is neither a company nor an application, rather it is an ultra-advanced way of recording and sharing data in the most secure way. A blockchain in the simplest way can be defined as a list of digital records which are called blocks and are chained together. A blockchain is like a distributed ledger which is shared with all computers ( which is generally called here as Nodes) with an internet connection. Every computer connected to the blockchain will have the access to add more information, provided other nodes of the same chain has authenticated the data. Once a data is authenticated and updated in the chain, that can never be disputed, deleted, edited or altered without the knowledge and permission of those who made that record, as well as the wider community.
One can exemplify a blockchain at the grass root level with a Google Doc. One can share a Google Doc with many persons and with the permission of the owner, whoever it is shared with can edit it. A shared Google Doc (or Google Sheet) gives access to multiple parties at the same time hence all can edit it at the same time and it is visible to all. A Google Doc or Sheet becomes distributed when sharing involves a number of people.
A blockchain is more or less like a shared Google Doc which is shared with millions of computers on the internet. This is a decentralised, distributed and highly encrypted ledger which securely records information across a peer to peer network. Though the invention of this technology was done to keep a digital currency safe from hackers but the potentials of its reaches are undoubtedly beyond the imagination of its inventors. A blockchain ledger can be used to store many valuable data like the land titles, banking, identities, hospital records, voting and many more uses. This technology is still new but impacts and uses are immense.
Types of Blockchain
There are four types of blockchains. All of them are created differently on the basis of ‘consensus’. The literal meaning of consensus is getting a ‘public agreement’ and the case of a blockchain also there is no difference. The different kinds of blockchains are created depending on the process of obtaining consensus or an approval from the other nodes or the computers connected to that blockchain for updating data in the same.
There are four main methods of finding consensus in a blockchain. They are ‘The Practical Byzantine Fault Tolerance Algorithm’ (PBFT), ‘The Proof-of-Work Algorithm'(PoW), ‘The Proof-of-Stake Algorithm’ (PoS), and ‘The Delegated Proof-of-Stake Algorithm’ (DPoS).
Here are the basic four types of blockchains which the above mentioned algorithm has produced.
1) Public Blockchain
A public blockchain is an ‘open to all’ blockchain. This type of blockchain is based on Proof of Work (PoW) consensus algorithms. Such blockchains are considered as ‘permissionless’ hence anyone can participate in these blockchains without permission. Once a node is connected to a chain, they can add blocks(information), validate transactions happening in the chain, thus participating in the consensus process. Every transaction happens here is a public transaction hence one can claim those transactions to be transparent. One may assume that since public blockchain is open source, the data saved here is not secured or true. On the contrary, your data is highly secured using cryptography and consensus protocol. A public blockchain is a decentralised ledger where anyone from any corner of the world can audit, transact or add blocks only if other nodes in the chain authenticate the same. The first ever cryptocurrency, Bitcoin is working with the same kind of blockchain which is open to all. One can download the data and a transaction of bitcoin can be done.
The other examples of public blockchain are – Ethereum, Monero, Dash, Litecoin, Dodgecoin etc
2) Consortium Blockchain
As the name suggests, a Consortium Blockchain is owned by a group of people or a corporation by whom the consensus process is controlled. This kind of blockchain is generally used in business. Consortium Blockchains are ‘permissioned blockchain’ where the right to read can be given to the public or only to the members of the chain. Such types of chains are considered to be better secured as the consensus process is controlled by a selected number of nodes. Let’s say there are there are 20 financial institutions in a blockchain and each of which operates a node. If any of the members wants to add an information or a transaction, 15 must sign that new block to make it valid. Unlike a public blockchain, anyone with an internet connection cannot get the access to this blockchain until and unless the consortium permits the admission. Banks are the best example of a consortium blockchain.
3) Private Blockchain
A Private Blockchain is a centralised chain where the chief control of the chain is in the hand of a single entity. The read permission may be given to the public or may not be given but any change in the chain is permissible only to the creator of the chain. A private blockchain owner can easily change the rules of a blockchain, revert transactions, modify balances etc. Since such blockchains are centralised one can take such chain at the highest secured and of course, a faster transaction can be done as the consensus has to be given by the single entity who owns the chain.
4) Semi-private blockchain
Semi-private blockchains are run by a single company where access to that chain is given to the person or a company if he fulfils the criteria mentioned by the owner of the blockchain. Such type of blockchains are neither entirely decentralised nor a private one. Such blockchains can be managed just like a company manages its website. This type of blockchain is mostly used by business to business cases or government applications. Examples of semi-private blockchains could include ones for government entities for record-keeping, land titles, public records, etc.
Here is a table to better understand the transaction over the the different kinds of blockchain.
Advantages of Blockchain Technology
The blockchain technology is being adopted in many countries for better and faster transactions. Here are the five biggest advantages of a blockchain which ensures a better transaction.
1. Transparency– This is the primary and definitely unique feature of a blockchain. A blockchain is a distributed ledger which is monitored by many nodes at a time. A public blockchain is publically viewable by all parties which creates transparency in transactions. One can not make any alteration in the logged data within a blockchain as countless eyes are viewing the same. All the transaction are immutable, meaning they cannot be altered or deleted without the permission of other nodes once they are uploaded in the chain.
2. Reduced Transaction Costs– Every transaction at present day comes at a cost which we pay to the financial mediator or a bank for a successful transaction. A blockchain is a peer-to-peer transaction system where the role of the middleman is eliminated. As there is no involvement of banks, it is obvious that it can actually reduce the cost of the transaction.
3. Permanence– Any data uploaded on the blockchain exists in the blockchain till the chain remains operative. The data will be accessible at any time. There is near to no chances of getting a data lost once uploaded in the chain.
4. Checks Double-spending- Double spending is one of the biggest issues of digital transaction. A blockchain technology ensures that a person cannot resend a single digital currency twice to two or more different persons. Such type of fraud is known as double-spending in technical terms. A blockchain technology promotes a peer to peer verification hence such frauds have become things of past.
5. Authenticity of Data– Blockchains assure data authenticity and integrity as every data or the block added to the chain is authenticated. These blocks are believed to be beyond tempering as each block is cryptographically tied to the previous block’s information by a digital key. If any person wants to change a data in a block he has to change it in every block which is nearly impossible. This is the process which safeguards the data and audit trail.
How does Blockchain Technology Work?
A blockchain is a chain of blocks which contains information. The data saved on a block of a chain can be different according to the purpose of creating the chain. Once a data is saved in the block, it is very difficult to change it. Here is how a blockchain is considered a safe platform for a transaction.
Every block in a chain contains three elements a) Data b) The hash of the block c) The hash of the previous block. The data is the basic element of the block and the rest of the two components are to keep the data secured. A hash of a block is a combination of letters and numbers which is like a thumb impression of a block that meant to be a unique one. If a person tries to temper a block, the hash of the block will be changed. Let’s check the diagram below.
Here three blocks namely Block A, Block B and Block C are shown and each is connected by its previous block. Let’s assume someone tries to temper block ‘B’. So the hash of the block ‘B’ will be changed and it will be no more linked to the block ‘C’. So changing a block will invalid all the following blocks hence a fraud can be detected by the other nodes in the chain easily. The first block of any chain doesn’t possess any hash of the previous block. Such blocks are known as genesis block.
Blockchain Technology and The Cryptocurrencies
This technology of transaction without a middleman came into focus after the white paper published by Satoshi Nakamoto for transacting his first ever cryptocurrency bitcoin. Between these two inventions ( bitcoin and blockchain technology) the real invention was the technology which made cryptocurrency work, not the bitcoin. Till last decade both these words ‘Bitcoin’ and ‘blockchain’ were used interchangeably but it has been cleared now that these two are two different concepts. Blockchain technology is the backbone of all cryptocurrencies.
The transaction of a cryptocurrency happens without any interference of financial institutions like a bank. This technology provides a decentralised and distributed ledger which is open to everyone with an internet connection. There will be no central entity server like a bank who holds the prime authority of the chain. Every computer represents a ‘node’ of the blockchain network and has a copy of the ledger file.
Unlike the present transaction system, while transacting through a blockchain, apart from ourselves, everyone in the network will know our account balances. If anything goes wrong with your transactions, there is no help desk to call or anyone to sue as there is no central authority. The security and reliability of a blockchain are obtained via special mathematical functions and code.
To start a transaction on a blockchain, you will need a ‘wallet’ which is a program that allows a node to have a transaction. The security of a bitcoin wallet is ensured with a special cryptographic method that uses a unique pair of different but connected keys: a private and a public key. These keys are a long and complicated set of alphanumeric combinations. Actually, a key is a large number but they are usually represented using a separate Wallet Import Format (WIF) which is formed by a combination of numbers and letters.
Whenever a transaction over a blockchain takes places a one has to use the private key which is a confidential key. Sharing a private key can result in hacking your wallet and stealing your bitcoins. The blockchain technology creates a public key with the reference of the private key. Every time you change the private key your public key will be changed. The public key is mathematically derived from the private key, using a complex algorithm. One can generate a public key using his private key but the same system cannot be reversed. It means although your public key may be known to many but no can create a private key using that. Hence the data in your wallet will always be safe.
All these security measures which a cryptocurrency has is actually the outcome of the technology behind it. There are numerous fields where these technology can be used beyond transactions of cryptocurrencies. It is true that the bitcoin cannot function without this technology but there are many aspects where a blockchain can be used beyond cryptocurrencies like bitcoin.
Industries that are Going to be Disrupted by Blockchain Technology
The incredible popularity of blockchain technology is because of its feature of being multipurpose. This technology was used for bitcoin transaction at the beginning. But the potentiality which is hidden in this technology made people appreciate and adopt this technology for a number of industries. The tech-driven entrepreneurs have come to believe that blockchain could transform many more industries beyond the finance section. One can use this transparency, trust and distributed data in endless ways. Here are some of the prominent industries which are believed to be overhauled by blockchain technology in the near future.
- The Banking Industry
Needless to say the industry which will be highly affected is the banking and the finance. Adopting this technology will solve a number of problems faced by the present banking industry. Nowadays bank has to save money for their customers, transfer funds and above all the transactions. Moreover, banks will not be questioned anymore for any transaction errors. Beyond the facility of reducing transaction cost, it would be faster too while transacting through a blockchain. The use of blockchain technology in banking will also reduce/end the chances of fraud and errors.
- The Real Estate Industry
The real estate industry has always been in need of a transparent system as there are high chances of facing a fraud. Buying or selling a property has been a lengthy and tedious job as one needs to verify the property in terms of the legal deed etc. very cautiously. Using the blockchain technology in this field can reduce the need for paper-based record keeping. This will at the same time speed up the transactions. This will also help the stakeholders to improve efficiency and reduce the transaction cost. The use of blockchain application can help record, track, and transfer land titles, property deeds, liens, and more. The use of blockchain will help in ensuring that all documents are accurate and verifiable.
The crowdfunding is a very useful tool to collect fund for SMEs. A crowdfunding empowered by blockchain will make the traditional venture capital system a backdated one. A blockchain will provide security, authenticity and a low transaction cost for both the investors and the SMEs.
4. The Healthcare Industry
The healthcare industry is also in need of such decentralised ledger where they can store medical records to make it everlasting, secure form errors, fraud and even the misplacing of important information. Any case of data leakage can create distrust between the medical authority and the patients. If the medical records are saved in a blockchain, it will be accessed only by authorised parties such as doctors hence one can be assured that the data saved here is not tampered.
5. The Legal Industry
The use of blockchain technology in legal industry can be helpful to the individuals more than one can imagine. In the countries like India where hundreds of court cases are filed daily, it can eliminate lengthy court battles. One can store data including property will on a blockchain which can be quickly and securely verified. If any change is needed to be done with the records, it has to be authenticated once again.
- The Education Industry
The education industry is another industry which can adopt this technology for a greater change in it system. With this technology, one can create global classroom like never before. SocratesCoin is a company which is working on turning this dream into reality. This company is trying to create a global community of teachers, students and the curriculum where students from over the globe can join and exchange and expand their knowledge.
- Government and Public Records
When it comes to maintaining public records by the public management, blockchain can prove to be a great help. Maintaining public records at present is a lengthy paper based work which is too difficult in terms of accountability, keeping it safe from fraud or possible errors in entering data. The introduction of blockchain in this industry can minimise all those hurdles of which comes in recording public data.
Elections in the democratic countries like India are often had to become the victim of corruption. To make voting system more and more authenticated a blockchain technology can be used by the Governments. A blockchain technology can authenticate the voter’s identity, securely save the records and trusted tallies can be done to determine the winner. This technology can even be used for casting, tracking and counting votes.
9. Ride Sharing
A blockchain technology used in ride sharing industry can ease the job of both rider and ride provider. The startup ride sharing company ‘Arcade City’ has been launched in southeastern Asia which is designed with a blockchain technology. With this technology which provides a distributed ledger, both riders and drivers can create more user-driven and value-oriented marketplace. The drivers of Arcade City are free to set their own rates, roadside assistance, deliveries etc according to their own convenience.
- The Startup Industry
The blockchain is a very good medium to find investors for start-up business. Actually, both the start ups and investors at present has to struggle a lot to find a correct match. A blockchain technology in this industry can help both of the parties find the correct match in a secured manner. The entrepreneur will create a summary of their product or service and add them in the chain so that investors can get the information and contact the entrepreneur.
Blockchain and Banking
Banking is the first industry which is about to face the greatest change in its functionality because of the use of blockchain. The present banking system in India is not totally free from errors. There are a few issues associated with the banking system which can be solved by introducing blockchain in banking. Let’s understand first what are the issues which we have to struggle with because of the present banking system.
- High Transaction Fee In the present banking system, any transaction between two individual cannot happen without the presence of a third party which is a financial institution like a bank or an e-wallet. They are the meditator who authenticate whether the one who is paying has that amount in his account or not. To do this authentication the third party means will take a charge from both the giver and the receiver which is a quite high amount when you go for big transactions.
- Restrictions– When we do any transaction with the authentication of a bank, we are to follow the rules and regulations which they have set for their customers. Any person has to follow many regulations such as the minimum amount or the maximum amount of transaction, the time frame etc. Sometimes even some of our credit cards and debit cards are not accepted in some of the websites.
- Net Banking Fraud– Net banking fraud is a very common threat all net-banking users. In order to have any transaction, we need to share our credit card or debit card details to the website which can be a reason for identity theft. Whenever we do a transaction, all our data is saved on the server of the bank. If that server is hacked all our personal banking data can be theft.
- Double Spending– The double spending is an issue while transacting cryptocurrencies like bitcoin. This is a problem in which the same digital coin is used more than once. This is possible because digital coins are consist of digital files which can be duplicated or falsified.
These all issues of the present banking system can be rectified if the blockchain technology is used in financial institutions. If the interference of this third party is eliminated, the people will be able to enjoy more freedom and transparency in a transaction. The use of blockchain not only benefits the customer of a bank. It is even helpful for banks too as the server which banks need to maintain to order to authenticate transactions of the general public is an expensive affair. Banks need to manpower, the security measures etc to keep the data safe from hackers. So if banks also accept this technology, it would be a win-win situation for both banks and the public.
Here is How the Implementation of Blockchain can help Banks
a) Fraud Reduction
The use of blockchain can help banks to reduce the frauds which occur because of hacking the server of the bank. All the financial institutions use a centralised database which is vulnerable to cyberattack. When the database is owned and handled by a single authority, it becomes easy for the hackers to hack the whole database as with the single penetration in the database will make them access the all the data entered in it. But if the same ledger is decentralised and distributed among many nodes it would be almost impossible to hack the system as any unauthorised edit in the chain can be noticed by other nodes of the chain.
b) Know Your Customer (KYC)
The KYC system is introduced in Indian Banks a few years back to check money laundering. The process of KYC is a lengthy and an expensive process. Banks have to use a huge amount to verify the identity of their customer. With the introduction of a blockchain, the KYC process can be monitored and adjusted more efficiently from an enterprise-wide level. As this system provides a shared ledger, the database of all clients activity and background information will be available to the bank and any kind of potential scam or fraudulent transaction could be communicated and updated in near real-time.
There can be even more benefits which financial institutions can gain by implementing blockchain technology. But the safety measures should be the first concern while bringing this system into the process. This system must comply with the privacy law so that the data uploaded here become safe. Moreover, the blockchain which is going to be used in finance sector must store a large size data and it must be scalable.
India’s take on Blockchain Technology in Different Fields
The Indian government is about to implement this advanced technology in various aspects. The finance minister Arun Jaitley mentioned the same in his budget speech on 1st Feb 2018. He said, “The government will explore the use of blockchain technology proactively for ushering in the digital economy”.
Realising the statement of finance minister, the state government of Andhra Pradesh is working with Swedish startup company Chromaway to set up a blockchain based land registry system that will make people collateralise property, get loans, and invest against that asset. This digital land registry system will be allowing people to circumvent disputes, frauds, and errors. Not only that while using this technology, the administrative hassle of registrations and title transfers will be eliminated. Along with Andhra Pradesh the neighbouring state Telangana also about to use blockchain for securing land records.
Banking is the sector which is going face an entire transformation by implementing blockchain technology. Before we plunge deep into the matter, let us first see this statement of Mr Sudin Baraokar, head of Innovation for State Bank of India. He said,“By 2030, traditional banking services could cease to exist with Blockchain. All services of banks can be replaced by Blockchain,”
This is a very big statement in itself and shows the potentiality and the power which is hidden in this technology. The green flag on the use of blockchain technology in the banking industry was shown by RBI in September 2017 through a conference organised by IDRBT ( The Institute for Development and Research in Banking Technology). The director of IDRBT cited that “We will be launching this platform very soon,”. With the approval of RBI, the state bank of India has become the first Indian bank to initiate the use of blockchain in their system. SBI has launched its first blockchain based product which is named as ” Bank-chain” and it is fully functional at present. This blockchain is a consortium blockchain and it has included some other big banks along with SBI. The first project of Bank Chain is – Clear-Chain(c2). This is permissioned blockchain and can be used for integrating and sharing valuable data like :
- KYC (Know Your Client)
- AML (Anti-Money Laundering)
- CFT (Countering the Financing of Terrorism)
- Investigation reports
- Suspicious transaction reports, and
- Cross-border wire transfer reports among the participating banks.
The other big banks which are in this blockchain are ICICI bank, Yes Bank, Axis bank, Kotak Mahindra Bank etc.
Scams in India vs Blockchain Technology
Scams are an old and ceaseless issues in India. The year 2018 has experienced the biggest scam ever of $1.78 billion (approx. Rs 11,400 crore) fraudulent and unauthorised transactions by Nirav Modi. This becomes a big hit of finance sector of India. Such scams can occur only when some of the very sensitive bank tasks are done manually or when an individual got the prime authority to make any change in the system. If the one who is authorized gets corrupted, a scam is then at his fingertips.
This Diamond jeweller Neerav Modi took a loan of the whole amount without a collateral. Two of the corrupted PNB Mumbai employees issued Letters of undertaking (LOU) for him which is actually nothing but a bank guarantee. They have misused their access to PNB’s SWIFT — the electronic messaging system used for overseas funds transfers. Theses bank workers never registered this transaction on the bank’s internal transaction messaging system, the Core Banking Solution (CBS), enabling the fraud to go undetected for long.
The only solution to this issue is adopting blockchain technology. If the total transaction of PNB would have done on the blockchain such types of fraud could be easily avoided. The PNB Mumbai officials could never have produced a fraudulent LOU into the system as it is a distributed ledger the fraud would have come into notice of high officials. The fraud would have come into notice on the same day and the entire banking community would get the alert.
The blockchain is such a technology where nobody can alone complete a transaction. The corrupt officials would never have provided LOU to Nirav Modi as having done such activity will come into the notice and they certainly had to face legal actions. Blockchain comes with a feature called ‘smart contacts’ in which all nodes in the block will know the transaction and without their permission, they can not transact. An unauthorised LOU could never have been provided as the other nodes would have denied the same. Not only that, the loan was taken without any collateral which is against the bank’s policies. The loan would never have been approved to Nirav Modi as the smart contracts would act as the catch. Moreover, as mentioned before, the transaction of the loan was never logged on PNB’s banking system. This could happen only because the bank followed a centralised database which was needed to be updated manually. The manual error or better said corruption is not very unusual. But one no can corrupt a blockchain banking system as there is only one ledger which is the ultimate truth and there is very less scope for error.
The Future of Blockchain Technology
The incredible opportunity of decentralisation which is provided by blockchain enables both business, transactions and operations become more transparent, flexible, secure and cost efficient. The security and the flexibility are the need of present generation who are known for being unstoppable. This is the technology which will take over the centralised systems in coming time for better transparency. Some of the industries have already started working with this technology while some others are still either in the development stage or in beta testing. The potentials of this technology are almost beyond count.