Blockchain, or blockchain technology, has become a buzzword in the financial sector. It is a new form of handling and storing data that is not just limited to financial transactions.
The Database Problem
When building a growing list of records, storing the information securely and safely becomes a concern. Using a traditional database is one way of circumventing this task. Albeit they are convenient, a traditional database is not too secure. There are also concerns as to if and when data could be either corrupted or overwritten.
For smaller data sets, that will pose no major problem. Corporations, on the other hand, cannot afford to have such mishaps take place. A blockchain provides a more elegant solution. Its technical infrastructure is very different from databases, particularly in terms of security.
Forming a Chain of Records
In a blockchain environment, there are several key aspects to take note of.
First of all, the system needs to form a block of records or information. This is achieved by bundling a maximum amount of data – as specified by the network’s maximum block size – into one “batch”, which is then secured through a cryptographic hash.
Cryptography is what not only ensures the individual security of a network block, but also allows it to be linked to the rest of the chain.
Secondly, once the linking of individual blocks has begun, the “chain” aspect comes into the picture. As every block has its individual timestamp and associated information, cryptographic hashes of subsequent blocks are linked together. Once this link has been established, the information stored in the previous block can no longer be altered.
No Data Modification Allowed
Not being able to overwrite data that existed prior is the main selling point of blockchain technology. The core design of this technology is to be modification-resistant. Although it is an open and distributed ledger that can record data between multiple parties effectively, it also needs to be permanently verifiable.
To ensure that is the case, most blockchains have a peer-to-peer network associated to ensure no “central authority” can take control of the system.
The only way to alter a previous block in the chain is by also modifying the subsequent blocks. During the early stages of a new blockchain, that approach is still somewhat viable. As the network grows, more blocks would need to be altered to achieve this same goal. Even so, the modification of any network block cannot occur without obtaining a network consensus.
Bitcoin serves as a good example of immutable data. Its blockchain has been around since 2009. Since then, the chain has grown significantly, both in size and data records. Today, it is virtually impossible to roll back the entire transaction record established over the past eleven years.
Exploring use Cases
This cryptocurrency is also a key example of how blockchains can provide financial security, if they are utilized for that specific purpose. It is the first financial implementation to successfully solve the “double-spend” problem without relying on a central authority or server. Once a Bitcoin transaction is created and confirmed by a following network block, it is no longer possible to spend that same transaction to a different address.
The finality of such transactions also comes at a small price. Every confirmed transfer on the network cannot be refunded unless the other party agrees to do so. Unlike traditional finance, there are no chargebacks or transaction reversals users can fall back on.
While used for payments, this technology can cater to many different needs and uses. Storing data, communication, and even building a decentralized internet are just some of the potential implications waiting to be explored.