WHY BLOCKCHAIN TECHNOLOGY IN FINANCE?
The understanding of any technology or applied science begins with studying the need that originated it. The point of using a blockchain is to let people share information who mistrust each other in a way that the data does not get tampered with. The digital data is prone to attack and tampering. Despite this, Digital interaction and transaction are getting popular these days and indeed would be the way of the future. Here, blockchain technology serves as the ray guiding the new path. Blockchain technology is a system where everybody can see the data but no one can corrupt the data. Being highly secure and decentralized, it is gaining popularity these days. The word decentralized reflects the fact that the digital interaction or transaction is being governed by mutual consent of the giver and the acceptor and there is no involvement of a central monitoring system like government or other institutions. It finds its applications in cryptocurrency, finance, supply chain, manufacturing. Notably, bitcoin is the currency that relies on blockchain technology.
WHAT IS BLOCKCHAIN AND HOW IT WORKS BEHIND CRYPTOCURENCY ?
The next step to understand any technology or applied science is analyzing how this works. Blockchain is a combination of three leading technologies:
- Cryptographic keys: There are two types of keys. They are – public keys and private keys. The public key is used to encrypt and a private key is used to decrypt the data. Every individual has his own public and private key. These keys are in the form of digital signatures in the world of cryptocurrency. These keys help in authorizing and controlling transactions.
- A peer-to-peer network containing a shared ledger: In its simplest form, a peer-to-peer (P2P) network is created when two or more PCs are connected and share resources without going through a separate server computer. Further, Distributed ledger technology (DLT) is a digital system for recording the transaction of digital assets in which the data and the details are recorded in multiple places at the same time.
- A means of computing: to store the transactions and records of the network. They are the nodes of the network.
So the data is stored in the form blocks. This is where blockchain technology gets its name from. These blocks are chained together such that the information they store can’t be altered without separating the blocks. Every block consists of the hash of the previous block, the transaction data, and the nonce. The nonce is some random string specific to that block.
Firstly, a record is maintained for every transaction. This is in the form of a digital signature. The transaction is then verified. This verification process involves every node accepting and validate the transaction. The computer systems in the network are called nodes. After verification, the blocks are hashed. The hash is a code that determines the address of the block in the chain. Numerous people around the world try to figure out the right hash value to meet a pre-determined condition using computational algorithms. The transaction completes when the predetermined condition is met. To put it more plainly, attempts are made to solve a mathematical puzzle, which is referred to as a proof of work problem. Whoever solves it first gets a reward. This is called mining. Once, the hash value is figured out, the blocks get attached to the chain based on their hash code.
OTHER APPLICATION EXCEPT CRYPTOCURENCY
Presently, cryptocurrencies serve as the most popular usage of blockchain technology. However, this would soon expand to various fields that would range from voting apps to management of content creation and sharing, licensing and distribution, digital use, payments, and royalties for artists. Due to its transparency and secured exchange of data, blockchain technology would soon reach the peak of popularity in the coming future.
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