What is Blockchain Technology

Narendra Kumar

07 Dec, 2020

Blockchain Technology, popularly known as the backbone technology behind Bitcoin, is one of the emerging technologies currently in the market attracting a lot of attention from enterprises, start-ups, and media. Indian banks are slowly moving towards a significant piece of financial infrastructure onto a so-called blockchain.

What is Blockchain Technology?

Blockchain technology is the engine that drives the cryptocurrency Bitcoin. Simply, it is a protocol for exchanging value over the internet without an intermediary. In India, financial players are the first movers to capitalize on this technology even though it is still in a nascent stage. Basically, Blockchain is a system to transform multiple industries and which makes processes more democratic, secure, transparent, and efficient.

In India, the Reserve Bank of India has successfully tested blockchain technology for trade application. The evaluation was carried out in partnership with MonetaGo, domestic banks, and other financial institutions.

Main features of Blockchain Technology:

• Easy and quicker transaction execution to enhance customer service
• Cost efficiency in its operations
• Transparency to customers and regulators.

Every day due to digitization huge volume of data is getting generated, which require every organization to have effective management in the security threats and achieve significant cost efficiencies. There the blockchain technology its promises of decentralized ownership, immutability and cryptographic security of data.

What benefits Blockchain technology provides over the traditional database?

Ancient database system required authorities to transfer actual value between two parties and multiple intermediaries between transactions which create a huge requirement of assets. The blockchain base ledger creates trust by the cryptographic algorithm. The distributed nodes can maintain a shared source of information.

What are the types of Blockchain technology?

The blockchain can be classified into three categories which are Public, Permissioned, and Private.

Public blockchain provides a platform where anyone can read or write on giving proof of work. They are decentralized and Transparent.

Permission Blockchain serves selective transparency where only selected nodes to have the rights to access and provide consensus on that transaction. They are quasi-decentralized.

Private Blockchain provides right to the chosen players to join the network which creates a closed loop environment. It requires high trust entity.

What are the Benefits of using Blockchain?

The benefits Blockchain usage varies from case to case. However, many cases, Blockchain becomes a good fit when there is a lot of data that is shared across multiple parties with no Trust mechanism among the participants.

Below is the list of some benefits of using Blockchain:

• Sophisticated cryptographic authorization and verification mechanisms enable trust in shared data across complex multi-party networks.
• Provide time stamping which is agreed upon across multiple, possibly hostile or non-trusting entities.
• Secure encryption and verification technologies enable untrusted participants to securely share trustable information with a third party
• Digital signatures provide authenticity and non-repudiation.
• Resilience can be achieved through replication across the dispersed
• Lesser chance of loss of universal data
• Master data management is executed without a controlling entity
• Sophisticated cryptographic authorization mechanisms combined with programmable logic enable trust across complex multiparty agreements.

Blockchain technology- A disruptive:

All background checks on clients the know your customer (KYC) checks, Signzy, a two-year-old startup, is using blockchain with artificial intelligence to enable banks to authenticate and identify a person in a few hours. The blockchain is disruptive for sectors that rely on chains of consent and lead to massive paperwork, such as financial services. Real estate and logistics will also benefit as well.

That is presumably why the Reserve Bank of India (RBI) has signaled a favorable view saying blockchain will help the country’s banking sector.

Minimize fraud and maximize efficiency:

However viewed as a disruptive technology, blockchain is still linked in the minds of many with bitcoin. Some confuse bitcoin and blockchain, however, most businesses are aware of the distinction between the blockchain technology and the cryptocurrencies; permission and permission-less blockchains and private and shared blockchain solutions.

The blockchain has fascinated interest from within the government as well. We are having preliminary talks with government agencies to explore blockchain technology to record land registries. Creating and maintaining incorruptible registers of land titles is a huge and mostly unsolved problem In India. 

Challenges faced by the Blockchain technology:

• Lack of Internal Awareness
• Identification of business case and business partners for PoC
• Selection of vendor/platform
• Development environment and security related issues
• Integration challenges
• On deep dive into each of the areas, it was discovered that the challenges related to adoption and use case identification were the most difficult to surmount in the pre-POC stage of development while lack of common standards and complexity of current IT landscape is a key deterrent for PoC development and subsequent full-fledged implementation.

Way forward:

Today, blockchain may be compared to what the Internet was in the early 1990s. Whereas we have observed how the Internet of Information has changed our society over the past two decades, we are now entering a phase where Blockchain may do the same by accompanying in a new paradigm comprising ‘Internet of Trust’ and ‘Internet of Value’.

The financial services industry might be one of the firsts to be impacted by the wider adoption of Blockchain and its associated Distributed Ledger Technologies. The extent of this impact is contingent on how nimbly the industry players capitalize on this technology and the nature of support it garners from wider stakeholders.