Blockchain is something we are hearing a lot about this in these days. What started with the popularity of Bitcoin soon seeped into mainstream business applications? Blockchain has moved past its initial stage and businesses today are ready to use it in its full form – beyond its obvious use for financial institutions.

While cryptocurrencies were the first popular use of blockchain, today the technology is revolutionizing all leading industries. Spotify has acquired blockchain startup Mediachain Labs to develop decentralized database-based solutions to connect artists and multi-track licensing agreements on the platform.

 

Another example of widespread blockchain applications is Warranteer. It is a blockchain application that allows customers to access information about the products they have purchased and get quick customer service in case of any malfunction.

Blockchain has been shown to break the shackles and enter mainstream business operations across industries to prove its applicability.

How does blockchain work?

To explain how blockchain works, let’s assume the example of its most common application – Bitcoin. Bitcoin is digital currency, and similar to other national currency in the world. To keep track of how many bitcoins each person owns, blockchain uses a ledger system—a file that maintains and tracks all transactions.

The ledger file is not stored on a central server – which brings us to the USP of blockchain – it is a decentralized system. The ledger file is distributed around the world and stored on private computers, all of which are used to store data and perform calculations.

When X wants to send 5 bitcoins to Y, it sends a message to all nodes (PCs) that X’s bitcoins should decrease by 5 and Y’s should increase by 5. Now each computer gets this information and updates its copy of X and Y’s Bitcoin balances.

Blockchain allows everyone to see everyone else’s transactions and doesn’t force you to trust any one person or entity. Instead, special mathematical functions and codes are implemented to enhance security and reliability.

Each wallet is protected by a cryptographic method that uses a unique and distinct pair of linked keys: a public key and a private key.

 

Each of these features of blockchain technology brings us to a specific advantage of using it.

Advantages of blockchain

Blockchain is nothing short of a game-changing technology for anyone who chooses to use and control it. Let’s discuss the benefits of blockchain –

Transparency – Blockchain make transactions history more transparent than before. Because it is a type of distributed ledger, all nodes in the network share a copy of the documentation. The data on the blockchain ledger is easily accessible to anyone. If the transaction history changes, everyone on the network will see the change and the updated record. So all information about currency exchange is available to everyone.

Security – Blockchain is better than any other record keeping system when it comes to security by any standards. The shared transaction documentation can only be updated and/or modified by consensus on the blockchain network. Information is modified only if all or most nodes agree to update the record. Additionally, when a transaction is approved, it is encrypted and linked to the previous transaction. Therefore, no person or party has the potential to alter the record. Blockchain is decentralized, so no one reserves the right to update records of their own free will. Any industry that has a critical need to protect sensitive data, such as governments, healthcare, financial services, etc., can use blockchain to enforce strict security.

Efficiency – With traditional paper-based processes, completing a transaction is time-consuming as it requires third-party mediation and is prone to human error. Blockchain can streamline and streamline these old methods and eliminate the risk of error, making trading more efficient and faster. Because there is only one ledger, the parties do not need to maintain multiple documents, resulting in much less clutter. And when everyone has access to the same information, building trust is easier. Settlements can also be made smoothly and effortlessly without the need for intermediaries.

Traceability – In complex supply chains, it is difficult to trace products back to their origin. But with blockchain, exchanges of goods are recorded, so you get an audit trail to find out where a particular asset came from. You’ll also know every product stop on its journey, and this level of product traceability can help verify authenticity and prevent fraud.

Auditability – Another aspect of the above point is auditability. Since every transaction is recorded on the blockchain for its lifetime, there is a pre-existing audit trail for you to see and verify the authenticity of your asset.

Cost reduction – As blockchain eliminates the need for third parties and intermediaries, it saves businesses huge costs. Since you can trust the trading partner, you don’t need anyone else to set the rules and principles of the exchange. It also saves the cost and effort of documentation and revisions, as everyone can view a single unchanging version of the ledger.

Disadvantages of blockchain

Every coin has another side. Blockchain today is a step up and the technology has some drawbacks that need to be overcome before it can be widely used for everyday transactions.

 

Scalability – The Blockchain application of Bitcoin is massively popular. However, it can handle only seven transactions a second, where Hyprledger can control/allow 10,000 and Visa 24,000. Considering the scalability issue, the practical use of blockchain is a bit difficult to imagine. Each participating node needs to verify and approve a transaction, so one Bitcoin exchange can take up to several hours.

Storage – Since blockchain databases are stored indefinitely on all network nodes, the issue of storage space arises. As the number of transactions increases, the size of the database will only expand, and personal computers cannot store unlimited data that just connects. To put this into perspective, the Ethereum blockchain is growing at a rate of 55 GB/year.