Heated debates about cryptocurrencies are common, with both sides having enough to argue about. But one aspect on which all sides almost unanimously agree on is the usefulness of the blockchain technology, on which cryptocurrencies are based. A panel constituted by the government to look into the manner in which cryptocurrencies need to be regulated had highlighted the potential in the blockchain technology, even as it recommended a ban on non-official digital currencies.
What is it?
Blockchain is a series of data linked together. Every single transaction is linked to the chain using cryptographic principles in batches, making blocks. The blocks are connected to each other and have unique identifier codes (called hashes) that connect them to the previous and the subsequent blocks. This forms a blockchain, usually in the form of a continuous ledger of transactions. It isn’t owned by any one individual. The series is managed and stored across several computer systems. Each ledger is shared, copied and stored on every computer connected in the system.
This decentralised nature of storage provides security, since changing the details of one record will cause the hash of that block to change, disconnecting it from the next one and causing the latter’s hash to change, and further such disruptions. Since the data is stored on multiple systems, any person looking to change the details on one system will have to do it for every other system as well.
Why is it important?
Blockchain technology has been the backbone of bitcoin and other cryptocurrencies. The transparency and the security offered by the technology are some of the main reasons why cryptocurrency has become so popular. This technology is increasingly being adopted in the retail, manufacturing and banking sectors due to its benefits, like eliminating middlemen, providing data security, reducing corruption and improving the speed of service delivery. It can be particularly useful in maintaining government data related to public transactions. For instance, if all land records are moved on a blockchain, with each subsequent buying and selling of a property being recorded as a block that can be publicly accessed, corruption can be arrested and governing will be made so much easier. Similarly, hallmarked gold jewellery can be moved on an open-source blockchain ledger, which can be maintained by jewellers and viewed by consumers.
However, blockchain technology must be adopted in a gradual manner. Bitcoin and other cryptocurrencies have seen wild fluctuations in value, due to the lack of regulatory supervision. The open nature of the technology implies that anyone can adopt it, which is partly why the government is hesitant to go ahead and use it. Scalability, transaction speed and data protection are key technological hurdles, along with the difficulty of integrating the technology into existing financial systems. Many legal and regulatory challenges are also involved.
Why should I care?
Blockchain is a developing field and its practical uses are being explored in many areas. You may want to adopt this technology in your business, if you are a B2C company and want to improve user experience or enhance transparency. There is a possibility of some data, such as banking transactions, land records and vehicle registration details, moving on the blockchain platform in the future.
You may not be able to block this technology from your lives. So embrace it.
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The writer interned with BusinessLine.