Based on research published in November 2008, an anonymous person using a pseudonym, Satoshi Nakamoto, created an electronic currency called Bitcoin that is fully coded and based on blockchain technologies in its first application as a technology that will change the way banks and financials sectors work all across the world.
Before we get into the heart of the topic, let’s take a look at some background information.
Assume that a person in the United States wants to send $500 to someone in Australia. The typical method is to visit a neighboring bank.
It can also transmit payments via another financial intermediary, such as PayPal or Payoneer, which is a money transfer service.
The issue with this technique is that if the sender wishes to transfer a certain amount to someone, he must pay a fee during the transaction.
The recipient may face the same situation, and they may be required to pay a charge to retrieve their funds. In addition, the entire procedure may take a few days so that the receiver may profit from the cash.
Finally, there is the issue of privacy, as the third party that mediators between them will know a lot of personal information about them that has nothing to do with the transfer process.
What if there was a way to transfer money from one person (or company) to another without any intervening or third-party action, without any additional fees, and it happened instantly?
What if the entire transaction was protected, and the parties to the transaction did not need to disclose any personal information about themselves? This sounds fantastic, and because of blockchain technology, it is now a fact.
What exactly is a blockchain?
Blockchain is a technology that enables a person (or corporation) to transfer valuable assets to another person securely and without the involvement of a third party.
A blockchain is basically a collection of records, or fixed blocks of data, that are controlled by a network of computers that are not owned by a single company.
Data blocks (or blocks for short) are encrypted and connected to one another using cryptographic principles.
The blockchain network is self-contained and not controlled by any central body. It is basically a shared and immutable record, and the information contained inside it is open and visible to everybody.
As a result, anything produced on the blockchain is by definition transparent. Furthermore, transactions on the blockchain are free and incur no direct costs.
In essence, blockchain is a method for storing, verifying, and licensing digital transactions on the Internet with a high level of security and encryption that, given current capabilities, may be difficult to crack.
What is the operation of blockchain technology?
The blockchain’s “blocks” are made up of a collection of digital data. It may be thought of as a page in a ledger carrying a collection of data about certain financial transactions.
When a block is finished, a new block connected with it is opened and added to the chain.
Once written, the block cannot be modified, and it usually consists of two parts:
The block header contains various components, including the software version number, the preceding block’s identity (hash) token, the block’s registration date, financial transactions, and other data.
The block body contains all of the exchanges that are placed in the block, as well as information about the persons involved in the transactions; however, without using real names, transactions and orders are marked using a digital signature, which is similar to a username, and will not be seen by anyone.
There is no requirement to get any personal data.
Each block has its own unique identifying code (hash) that sets it apart from the others. A lengthy string of characters and digits make up this code (eg: 00094bfa4e6hs8js9j9shwsr3245c34452e4418e9a124e335b16).
Compare traditional banking transactions with blockchain transactions
In most cases, traditional business management relies on centralization and the inevitability of a third party in any transaction that authorizes or ensures its occurrence.
Banks, for example, dominate the money transmission industry for a predetermined price.
In this scenario, for example, the bank acts as a third party in the transaction to ensure that it takes place and that money is sent from the sender to the recipient.
This centralization in all transactions is harmful:
- It takes time to complete (lack of speed)
- Expensive financial fees are charged in every transaction.
- tamperable and hackable
- Participation is restricted.
- Third-party role control systems are required.
Blockchain technology, on the other hand, is a new sort of database. Instead of being centralized in a third party and stored in one or more servers administered by the third party, blockchain databases are usually stored in all linked devices that interact with one another.
Or on the devices of people dealing with each other, who utilize the databases stored in their devices to check the authenticity of each transaction regularly.
Assume there is an encrypted database in the blockchain (that only I can view), and this database is encrypted and stored in the devices of ten people, and this database contains my personal data, and I am the only person authorized to make any changes to this database, and if I change the number of people who have access to this database, My mobile phone The system in my device will make the modification in the database in my device and communicate in encrypted form with all devices that carry the same database to report the change.
And until all of the devices in the blockchain network agree that I have the required permission to change the phone number and then modify the recorded database, the modification will be refused by the rules. For example, imagine a hacker succeeds in altering my phone number in the blockchain database. Hacking into the blockchain network is nearly impossible due to other data in the blockchain network.
What is preventing blockchain technology from being used?
Most individuals and workers in technical and service institutions have no idea what blockchain technology is, and if they do, their understanding of it is as basic as their understanding of Bitcoin.
The originality of this technology, which takes time to develop, as well as its applications, is diverse.
Many researchers and professionals believe that blockchain technology will open the door to a vast world of developments in the internet space, as well as the destabilization and change of business methods, to the point where many companies around the world will become money transfer companies unless they ride the wave and adapt their businesses to new technologies.