Under this system, a transaction is stored online as a ‘block’. When the transaction is verified, it gets added to a chain of blocks. The transaction is considered complete only when it is verified by a certain number of computers on a network. New transactions add to the existing block chain in a chronological manner.
How is Blockchain different from present system?
Presently, transactions are made through a trusted intermediary party such as a bank. However, blockchain allows parties to a transaction to connect directly, removing the need for the intermediary party.
How are the transactions recorded in Blockchain system?
Transactions are kept in a decentralized database, or “digital ledger”. This digital ledger is available online and is accessible to everyone. These transactions are verified by people on the network for an incentive such as small fee.
How it is a foolproof against fraud?
Let us take the example of Bitcoin. Blockchain stores the details of every transaction of the digital currency. Every transaction is recorded and once recorded, a transaction cannot be changed. Thus, the previous record stops the same Bitcoin being spent more than once.
Why is it so revolutionary?
The technology can be used to record almost every type of transaction, financial as well as non-financial. Blockchain will also help in reducing fraud because every transaction would be recorded and distributed on a public ledger which can be seen by anyone.
What is the present status of blockchain?
As of December 2017, only a very small proportion of global GDP (around 0.025%, or $20 billion) is held in the blockchain.
However, the use of blockchain for recording transactions will significantly increase in the next decade because it will help in reducing the cost of recording transactions. Moreover, the chances of financial frauds will also reduce.
How is the verification done?
Let us take example of Bitcoin. Computers on the Bitcoin network verify transactions via the digital signatures that are attached to each transaction. Each digital signature has a public key and a private key.
When first party transfers Bitcoin to the second party, the first party attaches his/her digital signature to the transaction. The corresponding public key to digital signature of first party is used by computers on the Bitcoin network to confirm the transaction. Once the transaction is confirmed, it gets added to the chain. Each Bitcoin also has unique address. These bitcoins with unique addresses are attached to individual accounts.
Blockchain 2.0 allows programmable transactions (modified by a condition or a set of conditions), extending capability from being able to do simple transactions to more complex transactions. It can also address privacy and regulatory needs.
Use of blockchain beyond cryptocurrencies
Blockchain is not restricted to cryptocurrencies. It can be used in multiple fields as given below:
Blockchain can be used in smart contracts. Every piece of information can be recorded in a traceable and irreversible manner in these contracts. Thus, blockchain based smart contracts will have extremely high credibility and accuracy.
Property transactions in India are still carried out on paper, making them prone to disputes. Application of blockchain technology would bring revolutionary changes through in-built transparency and traceability in recording transactions.
Financial services are already adopting blockchain technology. For example, Yes Bank is implementing a blockchain-based system to fully digitise vendor financing.
The technology can also be used to prevent the sale of spurious drugs in the country by tracking every step of the supply chain network at every level.
Blockchain could play a crucial part in health insurance claims management by reducing the risk of insurance claim frauds.
The education sector can maintain repository of pass-outs and job records of students by using blockchain technology.
View of Indian Government
The government of India is considering use of blockchain technology for ushering in India’s digital economy. The NITI Aayog is nodal agency to explore the use of blockchain and AI technologies in diverse areas. In this direction, Aayog is building a platform called ‘IndiaChain’.