What is Blockchain? –
Blockchain is a technological institution that has the potential to change the ways of how we conduct business in the digital world, including trading or completing payments. From a pure technology standpoint Blockchain is a decentralized architecture of computer systems connected without the need for a centralized governing person or entity. In this environment, third parties like; Banks, Government, Corporations, or Attorneys will have to undergo a major restructuring if they want to take an active role in the new commerce landscape.
This new way of conducting business will set the stage for using digital currency or Cryptocurrencies based on extremely secured algorithms removing today’s uncertainties when conducting business online; Who is the other party? can I trust them? Will my information be secured? What if I do not receive the requested goods or services?
History. –
Blockchain can be traced back to late 2008, just after the USA Real Estate market crash where investment firms, the housing market, and the overall USA economy were shaken to its cores. It was allegedly invented by a mysterious individual/group known as Satoshi Nakamoto who published a white-paper called “Bitcoin: A Peer to Peer Electronic Cash System”. This paper became a protocol for exchanging electronic encrypted transactions without the need of trust currently controlled by financial institutions.
Key Components in the world of Blockchain. –
Let’s establish some baseline understanding of the new technological evolution that we disrupt what we know today as the commercial world.
Smart Contracts. – are basically self-executing agreements in the form of computer programs activated when predetermined rules are met. Its benefits include; Speed and accuracy, Trust, Security, and Savings.
Cryptocurrency. – is a digital currency/asset stored on Blockchain in which encryption techniques are used to create units of currency and operate independently of a central bank. Examples of cryptocurrencies include; Bitcoin, Ethereum, and Ripple.
Bitcoin. – As defined by its creator Satoshi Nakamoto, bitcoin is a chain of digital signatures. In simple terms, it is a digital token in the form of currency. This digital asset is one of many currencies used to perform transactions in Blockchain.
Decentralized Network (also known as Peer to Peer). – is a computer network dynamically connected to move data among its peers and without the need for a central hub. Conceptually, it is what we know today as the Internet but on a smaller scale.
Public Ledger. – A massive public database of all Blockchain transactions. These transactions take the form of blocks connected together in the network by cryptography which ensures its security.
Miners. – A group of subject matter experts (gatekeepers) around the world validating each transaction on the Blockchain. These miners are compensated in digital currency by completing very complex mathematical challenges using cryptographic algorithms. On average, Miners create a new block every 10 minutes.
Consensus mechanisms. – As described by Deloitte, these are processes used to achieve agreement among distributed processes or systems. Information can be added onto a Blockchain only if all, or a defined number of participants in the network agree on the correctness of the information.
Public Key. – is a long alphanumeric combination of characters that can be freely shared with others; this is your identity on Blockchain.
Private Key. – is a private identifier used to manage and verify your digital identity when executing a Blockchain transaction.
Blockchain: Some Key Benefits
No “Middle Man”. – Blockchain transactions have their own proof of validity and authorization to enforce the constraints without the need of a governing body.
Transaction Integrity. – Transactions will be executed exactly as per the protocol commands, removing the need for a trusted third party.
Data Quality. – Blockchain data is complete, consistent, timely, accurate, and widely available. In order words, the data can be trusted.
Transparency. – Changes to public blockchains are viewable by all parties, creating transparency and reducing the risks of fraud.
Processing Speed. – Blockchain can reduce transactions processing time to minutes or seconds, and are processed 24/7, instead of days as it usually takes for final settlements.
Immutability. – All transactions must be verified by algorithms and have to be connected to every previous block distributed across the network, which means they cannot be altered or deleted.
To summarize, Blockchain is a public ledger of information that is replicated across computers that are joined in a Peer-to-Peer network.
Stay tuned for our next blog where we will discuss, Blockchain; business applications, key system characteristics, its challenges, and additional benefits of its usage. Additionally, we will explore standard audit risks to consider. For more information, register at https://efficientadvice.com/subscribe. We are here to work with you and to make it better!
Sources:
Cryptocurrency & Blockchain Infographics - https://www.linkedin.com/company/cryptocurrency-blockchain-infographics/about/