A new technology is becoming widely spread, and it was first introduced as the backbone of Bitcoin technology. Since then, numerous companies, investors and even governments have identified Blockchain as a revolutionary technology.
So what is blockchain?
A blockchain can be defined as “a digital, chronologically updated, distributed and cryptographically sealed record, of all data transfer activity. It may be thought of as a cloud-based ledger that is shared among a network of users (the “participants”), recording all data being transferred between them. This record displays all the information related to the data, while at the same time allowing the identity of the involved participants to remain confidential. The record can be viewed by all participants, but updates can only be made after being agreed upon by a majority of participants. Furthermore, once the data is entered into the record it can no longer be deleted.”
What are the most important benefits & challenges associated with the implementation of blockchain technology?
9 benefits of blockchain technology
- Disintermediation & trustless exchange Two parties are able to make an exchange without the oversight or intermediation of a third party, strongly reducing or even eliminating counterparty risk.
- Empowered users Users are in control of all their information and transactions.
- High quality data Blockchain data is complete, consistent, timely, accurate, and widely available.
- Durability, reliability, and longevity Due to the decentralized networks, blockchain does not have a central point of failure and is better able to withstand malicious attacks.
- Process integrity Users can trust that transactions will be executed exactly as the protocol commands removing the need for a trusted third party.
- Transparency and immutability Changes to public blockchains are publicly viewable by all parties creating transparency, and all transactions are immutable, meaning they cannot be altered or deleted.
- Ecosystem simplification With all transactions being added to a single public ledger, it reduces the clutter and complications of multiple ledgers.
- Faster transactions Interbank transactions can potentially take days for clearing and final settlement, especially outside of working hours. Blockchain transactions can reduce transaction times to minutes and are processed 24/7.
- Lower transaction costs By eliminating third party intermediaries and overhead costs for exchanging assets, blockchains have the potential to greatly reduce transaction fees.
7 challenges of blockchain technology
- Nascent technology Resolving challenges such as transaction speed, the verification process, and data limits will be crucial in making blockchain widely applicable.
- Uncertain regulatory status Because modern currencies have always been created and regulated by national governments, blockchain and Bitcoin face a hurdle in widespread adoption by pre-existing financial institutions if its government regulation status remains unsettled.
- Large energy consumption The Bitcoin blockchain network’s miners are attempting 450 thousand trillion solutions per second in efforts to validate transactions, using substantial amounts of computer power.
- Control, security, and privacy While solutions exist, including private or permissioned blockchains and strong encryption, there are still cyber security concerns that need to be addressed before the general public will entrust their personal data to a blockchain solution.
- Integration concerns Blockchain applications offer solutions that require significant changes to, or complete replacement of, existing systems. In order to make the switch, companies must strategize the transition.
- Cultural adoption Blockchain represents a complete shift to a decentralized network which requires the buy-in of its users and operators.
- Cost Blockchain offers tremendous savings in transaction costs and time but the high initial capital costs could be a deterrent.
So why is it important? Blockchain technology ensures detailed visibility to all participants.No one party can modify or delet any record without approval from others on the network. This level of transparency helps reduce fraud and errors, ultimately improving workflow. What to learn more? Try Blockchain on IBM’s Bluemix for free!