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Blockchain Technology and Applications

University of Texas at Austin_091921A
[ The University of Texas at Austin]

 

- Overview

A blockchain is a distributed database where every entry needs to be approved by a network of peers without any intervention from an intermediary or central authority. This distributed, decentralized nature of the database makes it highly secure and transparent, as multiple nodes (peers) in the network have copies of it. 

If there is any anomaly in a single node's database, other nodes in the network can point it out and correct it. It is an ideal feature not only for the financial industry, but for any industry that values data security and transparency.

 

- Blockchain: Disrupting the FinTech

Financial technology (FinTech) has disrupted banking, and blockchain has disrupted fintech. The blockchain is the public ledger of all executed Bitcoin transactions. Blockchain is the technology that underpins the Bitcoin digital currency and the technology that drives open finance, a decentralized public transaction ledger (or distributed ledger) that is revolutionizing the way people around the world exchange value. In the simplest terms, a blockchain is a series of time-stamped immutable data records managed by a cluster of computers that do not belong to any single entity. Each of these blocks of data (i.e. blocks) is secured and bound to each other using cryptographic principles (i.e. chains). Blockchain has no transaction costs. 

Blockchain is a simple and ingenious way of passing information from A to B in a fully automated and secure way. One party to the transaction initiates the process by creating a block. The block is verified by thousands or even millions of computers distributed across the network. Verified blocks are added to a chain, which is stored across the network, creating not only a unique record, but a unique record with a unique history. Falsifying one record would mean falsifying the entire chain in millions of instances. It's almost impossible. Bitcoin uses this model for currency transactions, but it can be deployed in many other ways. 

Taking traditional banking as an example, blockchain is like a complete history of banking transactions. Just like banking transactions, Bitcoin transactions are entered into the blockchain in chronological order. At the same time, blocks are like personal bank statements. A complete copy of the blockchain records every Bitcoin transaction ever performed. As such, it can provide insights into facts such as how much value a particular address was worth at any point in the past.

 

- Blockchain: a Comprehensive, Always Up-to-date Accounting Record 

Blockchain is a comprehensive, always up-to-date accounting record of who holds what or who transfers what to whom. It is becoming a way for people to instantly conduct and verify transactions on the network without a central authority. A block is the "current" part of the blockchain, which records some or all of the most recent transactions, and once completed, enters the blockchain as a permanent database. Every time a block is completed, a new block is generated. Blocks are linked to each other in a proper linear time order (like a chain), and each block contains the hash of the previous block. Blockchain has no transaction costs. 

Taking traditional banking as an example, blockchain is like a complete history of banking transactions. Just like banking transactions, Bitcoin transactions are entered into the blockchain in chronological order. At the same time, blocks are like personal bank statements. A complete copy of the blockchain records every Bitcoin transaction ever performed. As such, it can provide insights into facts such as how much value a particular address was worth at any point in the past.

 

- Three Main Types of Blockchains

There are three main types of blockchains: public (a platform where anyone on the platform can read or write to the platform), private (which only allows the owner to have rights to any changes that must be made), and consortium (public and Private hybrids where literacy can scale to a certain number of people/nodes). 

Ethereum is a distributed computing platform based on a public blockchain. It provides a way to create online marketplaces and programmable transactions called smart contracts. Ethereum is the biggest innovation after Bitcoin.


- Smart Contracts and Distributed Ledger

A core component of next-generation blockchain platforms, smart contracts are computer agreements designed to facilitate, verify, or enforce contract negotiation or performance. Proponents of smart contracts claim that various contract terms can be partially or fully self-enforcing, self-enforcing, or both. The purpose of smart contracts is to provide security over traditional contract law and reduce other transaction costs associated with contracts. Smart contracts automate business processes using self-executing software programs that run on distributed ledgers. The blockchain is the database, and the smart contracts are the application layer that enables many of the benefits of blockchain technology. Smart contracts lead to the convergence of smart devices, analytics, artificial intelligence, cloud and blockchain technology. 

Smart contracts are mainly used in connection with cryptocurrencies. The most prominent smart contract implementation is the Ethereum blockchain platform, also known as decentralized applications or dapps. Additionally, trade finance, post-trade services, and event-driven insurance are the main use cases that financial services institutions are piloting/piloting. Loyalty and rewards, smart grids and digital rights management are the main use cases piloted in other areas.

 

- Emerging Applications For Blockchain

Blockchain shows great promise in a wide range of business applications. Now, more and more businesses from all walks of life are exploring how to use blockchain technology to remove friction in business processes and build trust systems for the exchange of value. A blockchain database powered by an enterprise-grade, scalable and secure core database is at the heart of unlocking potential. 

By using blockchain, individuals can securely exchange money or purchase insurance without a bank account. Financial institutions can settle securities in minutes instead of days. Blockchain technology allows strangers to record simple, enforceable contracts without a lawyer. It can sell real estate, event tickets, stocks, and just about any other type of property or rights without a broker. Blockchain can also track and ensure that all payments are done correctly. Businesses of all types (government, banking, insurance, finance, accounting, healthcare, legal, supply chain and logistics, manufacturing, retail, etc.) can more closely manage the flow of goods and related pay. Unlike existing financial ledgers or databases used by banks and other institutions, blockchains are not updated and maintained by a single company or government. Instead, it is run by the user network.

 

- The Challenges To Blockchain Technology

Blockchain's reputation has also brought some new challenges, including interoperability, flexibility, scalability and governance. There are now many blockchain-based currencies, each optimized for a different purpose. And none of these currencies are compatible with other currencies, making it difficult for users to transfer funds between them. Also, there is a growing trend to use blockchain in other fields. These areas include the Internet of Things, supply chain, stock exchanges and other areas that are important for secure data transactions. However, the original blockchain used in Bitcoin was not designed to scale to all possible use cases, making it difficult to use it in these areas. Since the blockchain is a decentralized system, once a problem occurs, no one will sue and be held accountable, and there are also challenges in management. It will take some time to resolve these issues. The industry will have to work with governments to develop standard rules and laws governing transactions. Additionally, nodes holding a copy of the blockchain continuously receive updates. These nodes are distributed all over the world. Therefore, blockchain has high latency. 

Blockchain needs to be transformed if it is to meet the requirements of every possible industry. The Hyperledger Project is an effort overseen by the Linux Foundation to advance blockchain technology by identifying and addressing important characteristics of a cross-industry open standard for distributed ledgers that could transform the way global commerce is transacted.

 

 

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