Blockchain technology is the latest buzzword in the ever-expanding IT industry. It refers to a modern business mechanism that transparently secures company data, leaving no scope for any illegal tampering. How significant is blockchain technology for a business?
Read on to know more about what the mechanism entails and how it can be a game-changer for managing business transactions.
What is Blockchain?
A blockchain is a series of digital or physical transactions/assets shared among different stakeholders. It secures information in a digital format and reduces third-party verification.
How does blockchain technology work?
Following are the simply-described steps through which complex blockchain technology works:
Recording the transaction
A blockchain transaction is the physical (or otherwise) movement of any asset from one party to another. It records crucial information like the presence of parties, the amount involved, date, time, place and any other prerequisites.
Gaining party consensus
The parties involved are run through the transaction, and they are required to confirm all the details are correct and valid. The next step is linking the blocks.
Linking the blocks
The transaction blocks are linked into what is termed a digital ledger book. Every new transaction begins with a cryptographic hash. This hash is the “chain” that links the “blocks” of transactions together- hence, blockchain. Once secured, any tampering in the blockchain will change the hash value, thereby signalling a breach.
Sharing the ledger
Once the ledger is made, it is distributed to all participants.
Features of blockchain technology
Following are some of the positive features of blockchain technology:
Decentralisation of authority
A decentralised blockchain refers to shifting the decision-making power and control from a centralised authority figure (an entire business or organisation) into the hands of smaller, decentralised networks. The networks run on transparency and simultaneously decrease a single person’s control over any network as well.
Unchangeable in nature
No participant can change or tamper with a transaction once it has been recorded in a shared ledger and put on a timestamp. One has to induce a new transaction for any error included. Any error in the transaction is clearly shown, and both the initial and the rectified transactions are visible in case anything changes.
Blockchain technology allows for the rectification of any network only after mutual consent has been collected from most of the network participants. This ensures security and transparency.
How significant is blockchain?
Traditional database sources used for storing different transactions are sometimes hard to trust, and the transaction amount can be tampered with. The involvement of any third party, manual or otherwise, creates further complications in terms of time and money paid to solve the problem. This might result in a legal battle.
A blockchain simultaneously removes the need for third-party involvement and updates the transactions in the shared ledger in real time, where any change is possible only after both parties have consented. This reduces error and tampering and increases transparency, all the while minimising added costs.
Pros and cons of blockchain technology
With all its complexities and advancement, blockchain has established itself as a secure and reliable business mechanism. However, there are a few disadvantages to using the system. Listed below are the pros and cons of blockchain technology.
- Reduces manual intervention, thereby improving accuracy.
- Reduces the cost of manual intervention or verification.
- Any transaction is secure, private and unchangeable.
- Provides an alternative way to secure personal information and bulk data.
- Technology cost increases while dealing with bitcoin or cryptocurrency.
- It can be accessed freely on illegal websites or used in illegal activities once tampered with.
- It comes with huge data storage limitations that might not suffice for a very large business.
- The number of transactions per second is significantly lower than other mechanisms and hence slower.
With the advent of bitcoin and cryptocurrency, blockchain technology has increased in demand. This demand is set to grow steadily as it continues to secure data that ease out business operations.
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