What is Blockchain - The Omnipresent Database


Whereas Bitcoin and other crypto-currencies have become popular and (in)famous, most people are still perplexed when it comes to understanding Blockchain. In a previous post on this blog, I did mention that it is one of the most important pieces of technology to focus upon for the millennials and Gen Z.

The 1970s signalled the ‘Information Age’ and the past few decades have seen massive changes in Technology. From basic gadgets and digital instruments to Immersive Technologies, Virtual Technologies and various digital platforms. This article is an exposition by a non-technical person and an endeavour to explain Blockchain in as simple a manner as is possible.

Although it sounds incredibly complex to most people, a Blockchain is just another database. According to Wikipedia, ‘a database is an organized collection of data, stored and accessed electronically’. So, a Blockchain, like any other database, collects and organizes data and can be accessed electronically. However, where a normal database stores the data in one central location, a Blockchain records transactions in all the computers of a participating network. It is therefore de-centralized.

A Blockchain is a ‘distributed ledger’ that usually (although not necessarily) contains financial transactions, is replicated across a number of systems in the participating network in real-time and uses digital signatures or cryptography to enforce read/write access, to provide identity and authenticity and to validate transactions. One other inherent characteristic is that a Blockchain makes it extremely difficult to delete or modify historical records; at the very least it makes it easy to detect such attempts, thereby creating a powerful audit trail.

My latest book was about metaphorical thinking which aids comprehension, so let me use an analogy to explain. Let us presume you are playing chess with your computer. When you use your mouse (or finger) to move a pawn from its original place to e4, you are sending an electronic message to the computer. Likewise, the computer responds my moving a pawn to e5. Your second move is to shift the knight to f3. And the computer makes the second move too in response. These ‘moves’ are transactions in the ‘blockchain’.

(Source: Wikimedia)

Both the computer and you agree on the state of the chess board before you start the game. If you do not agree, you cannot play the game. The moves were the transactions in the blockchain resulting in a new state of the chess board. Both participants are aware of the sequence of the moves and therefore they can reconstruct the state of the board before and after. Both have to agree on the history (original state of the chess board), the transactions (moves) and the present (current state of the chess board).

Likewise, the Blockchain has a distributed system which agrees on the original state and the revised state, has a history of all individual transactions (although encrypted). No one can go back and change the history or erase it; the current state is a statement of truth. The blockchain is the trusted arbitrator, just like a bank would be in a financial transaction. Now that we have a blockchain, we do not need the bank at all!

Data in a Blockchain is stored in fixed structures which are called ‘blocks’. The block comprises of the header and the content. The header has a unique (encrypted) reference number, the date and precise time it was created and a link back to the previous block. The content is a validated list of transactions made, their values and the address of the parties to those transactions. One block after a set of transactions leads to the next block. Since a blockchain database retains the complete history of all transactions right up till the original state, it can be audited and validated; it is verified and secure.

Let me use another analogy to make it clear. Most readers would be familiar with Google Docs. You are aware that multiple people can work on the same spreadsheet from different locations. The file is stored on the ‘Cloud’ by google. Unless specifically given the rights to do so, no person would be able to erase history nor delete the document. Even if one were to do so, all others would be aware. By saving past versions of the document, Google can create a history which can be viewed by everyone.

A Blockchain is similar, except that there is no central server. The ‘chain’ is the ‘database’. So data does not exist centrally on one particular server or ‘cloud’, but exists everywhere on the network and yet in no particular location. Like God, it is omnipresent – everywhere and nowhere at the same time.

Although any party to the transaction should ideally be able to review previous entries as well as to record new ones, most of the Blockchain networks have complicated rules for the addition of new blocks (groups of records) to the chain of previous records. The content within the blocks as well as the blocks themselves stand protected by superior cryptography techniques to ensure that historical transactions can neither be deleted nor tampered with.

(Source: Wikimedia)

It may sound almost revolutionary, but Blockchain by itself is truly a mechanism to bring everyone to the highest measure of accountability. No more missed transactions, human or machine errors, or an exchange without the explicit consent of the parties involved. The easiest way of understanding this is to use an analogy to a Google Docs spreadsheet, which everyone can simultaneously alter, edit and embellish but cannot destroy and is not stored on a central server.

Blockchain became famous for its role in the rise of digital currencies like Bitcoin in the past few years. The Blockchain technology allows a digital currency to maintain a trusted transaction network without relying on a central authority, a role that has traditionally been carried out by one or more banks. There are however many other uses for this technology, digital currency is just one of them. In fact, Blockchain has the capacity to disrupt and unsettle several industrial sectors, viz., those which have to do with financial Transactions, banking, supply chain, securities trading, healthcare, cloud systems, crowdfunding, etc.

Whereas the promises that Blockchain can fulfil are enticing to many who would push for its accelerated adoption, there would be regulatory and other factors like scalability, talent pool, resistance from industries, threat of encrypted transactions amongst those groups with malicious intent, etc., which could delay if not derail the process. Yet, cross border transactions can happen at a fraction of the cost that exists today plus the next decade could usher in smart contracts, identify management and supply chain efficiency.

Stay tuned to this blog for more to come. Meanwhile, if you are one of those keen to know more about this revolutionary technology that is all set to leapfrog over the next decade, here is some additional reading for you (all available on Amazon).

#blockchain #finance #technology #bitcoin

Copyright © Rajesh Seshadri, 2020
Created By Prakrut Rajesh
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