The development of Blockchain technology represents “a change from trusting people to trusting math,” considering that it no longer needs human involvement.
The development of blockchain technology in recent years supports several other ideas that have been put forth in the literature. Blockchain and distributed ledger technology are generating a lot of interest and sparking several projects across various industries. However, it is believed that the financial sector is the main user of the blockchain concept.
It is caused by significant process inefficiencies, a significant cost base issue unique to this business, and the fact that the most well-known use and development of Blockchain technology is the cryptocurrency Bitcoin. Furthermore, the financial crisis made it clear that it is not always possible to determine the correct existing owner of an asset.
Retracing ownership over a long chain of buyers makes it considerably more difficult. For instance, when the US investment bank Bear Stearns failed in 2008 and was completely bought by JP Morgan Chase, more shares were offered to the acquirer than were listed as outstanding on Bear Stearns’ books. There was no way to fix the accounting mistakes. Thus, JP Morgan Chase was left to pay for the excess (digital) shares.
When it comes to physical items like (blood) diamonds or broccoli, the issue of tracing back ownership in lengthy transaction chains is just as crucial as it is for financial markets. Wal-Mart, a US store with more than 260 million weekly consumers, is looking for a solution that can help to precisely identify those vegetable batches that are, for example, infected by coliform bacteria in a certain situation.
The most common method used today for processing transactions and confirming asset ownership is intermediary. Along a chain of intermediates, intermediaries thoroughly inspect each party involved. But in addition to being time-consuming and expensive, this carries a credit risk if a mediator fails.
The development of Blockchain technology, which represents “a change from trusting people to trusting math,” promises to address these important issues—considering that it no longer needs human involvement.
Blockchain functionalities and implications
A blockchain is made up of data sets built of several transactions packaged together in a chain of data packages, or “blocks.” With every new block added to the blockchain, the history of transactions is completely recorded. The network can use cryptographic techniques to validate blocks.
A timestamp, the hash value of the block before it (the “parent”), and a nonce, a random integer used to validate the hash, are all included in each block in addition to the transactions. With this idea, the integrity of the blockchain is guaranteed back to the genesis block.
Since hash values are one-of-a-kind and instantly change when a block in the chain is changed, fraud may be efficiently avoided. A block can be added to the chain if most nodes in the network concur via a consensus process on the legitimacy of the transactions included within the block and the block itself.
Swanson claims that development of blockchain technology or this consensus mechanism “is the process through which a majority (or in certain cases all) of network validators agree on the state of a ledger. It is a system of guidelines and practices that enables the upkeep of a consistent collection of information among several participating nodes. New transactions are thus not perpetually recorded in the ledger.
Instead, the consensus procedure ensures that these transactions are kept in a block for a certain amount of time (for example, 10 minutes in the Bitcoin blockchain) before being added to the ledger. After then, it will be impossible to modify any data in the blockchain. So-called miners produce blocks in the case of Bitcoin, who are compensated with Bitcoins for validating the blocks.
The blockchain’s underlying idea can affect more than just how transactions are carried out, as demonstrated by the case of Bitcoin. People worldwide can trust one another and transfer various types of assets peer-to-peer over the internet using cryptography.
The distributed ledger system mentioned above has a lot of advantages. Unlike centralized systems, the network’s functions continue to function even if some nodes fail. Because the intermediary and other network participants’ dependability can be taken for granted, confidence is increased. People only need to increase their confidence in the system as a whole; that is enough.
The lack of middlemen also aids data security. The practice of third parties acquiring personal data implies the risk of a security breach. The security of users can be increased by using the blockchain to exclude third parties. Several papers about blockchains have been published in computer science in recent years. These articles, for example, have investigated consensus techniques or offered unique concepts to address problems with smart contract privacy.
Most academic publications in information systems related to blockchain, besides many industry whitepapers, currently concentrate on cryptocurrencies. Along with major advantages, this body of work also addresses disadvantages and possible hazards.
Barber and colleagues point out several Bitcoin’s flaws, including theft or loss of Bitcoins (malware attacks, unintentional loss), scaling challenges (such as delayed transaction confirmation, data retention, and communication failures), and structural issues (e.g., deflationary spiral).
In addition, Barber and co-workers offer suggestions for enhancing the current Bitcoin technology. The user’s anonymity might be enhanced through a “fair exchange protocol,” for example.
Other authors have also talked about the privacy problems of Bitcoin. Using pseudonyms is the only way to protect privacy in the current Bitcoin environment. As an extension of Bitcoin, Zerocoin enables entirely anonymous cryptocurrency transactions. The Zerocoin replacement, Zcash, was introduced in 2016.
If the network adds blocks at a high rate, creating additional blocks could lead to performance issues. “Inclusive Block Chain Protocols” as an alternative to the current blockchain architecture to speed up transactions. Whether this new technology can solve performance issues will be an intriguing thing to watch.
Blockchain and Smart Contracts
The development of blockchain technology in recent years supports several other ideas that have been put forth in the literature.
To carry out a contract’s terms, “Smart Contracts,” which Szabo developed in 1997, combine computer protocols with user interfaces. Smart Contracts are growing in popularity due to the blockchain since they can be used more readily by utilizing blockchains compared to the technology available at the time of their inception 20 years ago.
Depending on certain factors, this novel approach could, for example, displace banks and lawyers from asset deal contracts. Controlling property ownership is another application for smart contracts. They could be material (like houses or cars) or intangible.
Ethereum is a well-known example of the development of blockchain technology that regards smart contracts as first-class citizens. Ethereum is a decentralized system first proposed by Buterin in 2014. Glaser and Bezzenberger present a classification of decentralized consensus systems and a summary of various system types. The Ethereum blockchain can be considered an expansion of the Bitcoin blockchain to support more varied applications.
Therefore, the development of blockchain technology eliminates the need for third parties (like a notary) who were once required to build confidence to create contracts using cryptography. By automatically carrying out contracts in a way that is efficient, transparent, and safe, blockchain might completely change how transactions are carried out. Glaser suggests a framework for analyzing the implications of blockchain systems for digital ecosystems, the architectural elements of blockchain technology, and how they interact.
The financial sector is even debating whether the blockchain will ultimately replace a significant portion of its current operations. The method of payment serves as an example of this. The settlement occurs after a few days if customers pay for goods with a credit card today. Due to the ability to make payments instantly by updating the ledger, the blockchain would make this delayed settlement unnecessary.
Applications of Blockchain and Future Trends
Applications
Financial and non-financial applications that the blockchain may be used for are distinguished. In addition to altering the way people interact in the finance industry, this disruptive invention has the potential to do so in a wide range of other aspects of daily life. For instance, Imogen Heap, a British artist, uses the blockchain to sell her music.
Future Trends
Blockchains appear to have a wide range of uses, particularly in industries that have historically relied on third parties to build confidence. According to Atzori, the blockchain may reorganize politics and society. Many functions might become outdated if society began to be organized and protected utilizing decentralized platforms. “Decentralization of government services using blockchains is possible and desirable since it may greatly boost public administration functionality,” he writes in his conclusion.
In developing nations, restructuring society is crucial. By using the blockchain, wealth can be protected more successfully. If, for instance, the local government wants to confiscate the populace, landowners often struggle to demonstrate their title, particularly in the third world. Integrating land titles onto the blockchain will help to mitigate these existential dangers. However, as Glaser noted, the boundary between the digital and physical worlds may be the weak point that undermines the digital trust built by a blockchain system.
Additionally, there is now a discussion among regulators and experts on whether blockchain-based cryptocurrencies can perform the tasks of actual money. According to Mishkin, money is “usually accepted as payment for products or services or as a means of reimbursing debts.” Cryptocurrencies are now only sporadically utilized as a medium of exchange, according to Luther and White.
According to Glaser and co-workers’ empirical findings, Bitcoin is largely employed as a speculative asset. However, spending and accepting money might become simpler due to creative business strategies that establish crypto currencies as a viable alternative to fiat money.
The blockchain may help alter how individuals make purchases in the real world. When purchasing real estate, homeowners often pay substantial transaction charges. Blockchain could lower title insurance costs and save the US $2 to $4 billion by cutting errors and manual labor claims Goldman Sachs.
Researchers from the field of business and information systems engineering have the chance to concentrate on market design, issues of trust and privacy, and the adoption or non-adoption of new technology.
In contrast, computer scientists primarily focus on this area’s technical and cryptographic challenges. Additionally, this disruptive innovation has the potential to fundamentally alter numerous current business models, develop new ones, and harm entire industries. Therefore, research on the interaction of technology, markets, and business models is undoubtedly worthwhile.
This article is jointly written by Kashif Hussaina, Maria Kausara, Muhammad Sohail Sajid a, Urfa Bin Tahira, Talha Khanb from a: Department of Parasitology, University of Agriculture Faisalabad, Pakistan; and b: Department of Applied Chemistry, Government College University Faisalabad, Pakistan