Banking Article, Banking Finance 2021, Banking Finance November 2021

Block Chain Technology- A tool of digital transformation

Artificial intelligence, machine learning, Internet of Things, blockchain and big data hold potential to take India to new heights”

Introduction

Block Chain technology is a structure that stores transactional records. It is also known as the block of the public in several databases. This database is known as the “Chain” in a network that is connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘Digital Ledger’ because the Blockchain is a distributed database of records of all transactions or digital events that is executed and shared among participating parties. These transactions are verified by majority of participants present in the system.

Over the last few years, we have heard many times the term ‘Block Chain Technology’. It is imperative to understand that what Block Chain technology is, how it works and how it’s becoming vital in the digital world. Basically it is treated as the backbone technology of CryptoCurrency like BitCoin. It seems like Block Chain is a platitude but in a hypothetical sense, there is no real meaning that the layman can understand easily. So let us understand that what actually Block Chain technology is and how it works through definition and examples. Actually, a blockchain is a decentralized, distributed and public digital ledger consisting of records called blocks that is used to record transactions across many computers so that any involved block cannot be altered retroactively, without the alteration of all subsequent blocks. Here participants verify and do the audit of transactions independently with comparatively less expense.Here database is managed automatically through peer-to-peer network and a distributed timestamping server. It is authenticated by mass collaboration powered by self-interests. Its structure facilitates strong workflow where the participants feel secured because data security is high.

History of blockchain

  • First time Blockchain-like protocol was proposed by Cryptographer David Chaumin 1982 in his thesis “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups
  • Again in 1991, Stuart Haber and W. Scott Stornetta described further on a cryptographically secured chain of blocks.
  • In 1992, Haber Stornettaand Dave Bayer incorporated Merkle Trees to the design, which improved its efficiency by allowing several document certificates to be collected into one block.
  • The first Block Chain was objectified by a person or group of people using the name Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the CryptoCurrency bitcoin. The identity of Santoshi Nakamoto still remains unknown. The invention of the blockchain for bitcoin made it first digital currency without the need of a trusted authority or central server.
  • Actually Satoshi Nakamoto used the words block and chain separately in his original paper, but were eventually one single word “blockchain” became popular in place of separate word i.e. block and chain by 2016.
  • Further in May 2018, Gartner (Gartner, Inc, officially known as Gartner, is a global research and advisory firm providing information, advice, and tools for leaders in IT, finance, HR, customer service and support, communications, legal and compliance, marketing, sales, and supply chain functions. Its headquarters are in Stamford, Connecticut, United States) found that only 1% of CIOs (Chief Information Officers) indicated any kind of Block Chain adoption within their organizations and only 8% of CIOs were in the short-term “planning or (looking at) active experimentation with Block Chain”. For the year 2019 Gartner reported 5% of CIOs believed Block Chain technology was a ‘game-changer’ for their business.
  • Again Gartner listed blockchain as one of the top ten strategic technologies for 2020 in its report “Top 10 Strategic Technology Trends for 2020. It said public blockchains are presently too immature for enterprise deployment due to poor scalability and interoperability but expects the technology to overcome these issues by 2023.
  • However, it sees a current role for enterprise blockchain in digital transformation with “evolutionary and incremental improvements” in trust and transparency.

Working Mechanism of Blockchain

Blockchain is just like a shared digital ledger. It allows thousands of connected computers or servers to maintain a single, secured, and immutable ledger. Transactions here are done without involving any third-party intermediaries. So in order to do the transactions, everybody needs its wallet. This Blockchain wallet is nothing but a program which allows one to spend cryptocurrencies. Such wallets are secured by cryptographic methods (public and private keys) which is helpful in managing and keeping control over his transactions.When a user creates a transaction over a Blockchain network, a block will be created that represent that transaction is created. Once a block is created, the transaction request is broadcasted over the peer-to-peer network that consists of computers popularly knownas nodes, validate the transaction. The verified transaction can involve cryptocurrency, contracts, records or any other valuable information. Once a transaction is verified, it is combined with other blocks and it creates a new block of data for the ledger. Here it is important to note that with each new transaction, a secured block is created, which are secured and bound to each other using cryptographic principles. Whenever a new block is created, it is added to the existing Blockchain network confirming that it is secured and immutable. It can be also understood from the below flowchart

Advantages of BlockChain:

There are many advantages to using Blockchain technology compared to other traditional technologies.

  • Security: With BlockChain, Business process will be better protected with the help of a high level of security
  • Hacking threats: Hacking threats against the business will also be reduced to a greater extent.
  • Reduced cost: As Blockchain offers a decentralized platform. So there is no need to pay for centralized entities or intermediaries’ services. Hence costs are reduced
  • Accessibility: Enterprise Blockchain technology enables organizations to use different levels of accessibility.
  • Faster Transaction: Organizations can do faster transactions through Blockchain and can save time.
  • Automated reconciliation: Account reconciliation can be automated.
  • Transparency: The transactions done are transparent and hence, easy to track.

Disadvantages:

  • Blockchain is not a distributed computing system : In Blockchain network, there is lack of synergy, mutual assistance and paralleling for each transaction
  • Scalability is an Issue: Transactions are completed depending on the network congestion. This problem is related to scalability issues with Blockchain networks. In simple words, the more people or nodes join the network, the more would be the chances of slowing down.
  • Blockchain cannot go back Because the data is immutable (Fixed),Blockchain cannot go back
  • Blockchains are sometimes inefficient: There are many Blockchain technologies. The most popular ones bitcoin miner easily crossed 100’s GBs. So it is not efficient in data storage, which can lead to storage problems for multiple nodes who want to become apart of the network.This is one of the biggest disadvantages of Blockchain.
  • Not completely secured: Blockchain technology is more secured than other platforms but there are different ways the Blockchain network can be compromised e.g. (a) 51% attack: In the 51% attack, if an entity can control 51% or more of the network nodes, then it can result in control of the network, which can lead to security threats.
  • Cost and implementation struggle: Cost of implementing blockchain technology is huge. These are costs associated with hiring developers, managing a team that excels at different aspects of Blockchain technology, licensing costs if opted a paid Blockchain solution and so on.

Future of Block Chain (Prediction for 2021)

The global pandemic has given a formidable boost to trends that were already in place.

Under the present global pandemic situation and because of the many industries going through massive makeovers in response to the changes in the business environment, most of the enterprises are investing more in Research & developement projects for achieving blockchain initiatives. Blockchain can be proven a crucial player in driving the digital transformation. Since blockchain technology has been rightly touted as the technology of the future, it is important to focus on blockchain future predictions. Some notable trends that could dictate the Blockchain industry’s potential state in 2021…..

  • Blockchain and Governance applications will increase: One of the foremost trends that could dominate the future of Blockchain in 2021 is the integration of Blockchain in government agencies. South Korea has been successful in bringing more than a million of driver’s licenses on a Blockchain-based system. China is in the process of preparation to issue a completely virtual Cryptocurrency.
  • More Blockchain in Retail: 2021 will obviously witness a large-scale rise in Blockchain’s introduction in the retail sector for supply chain and inventory management capabilities
  • China may dominate blockchain space: The domination of China in the field of blockchain will also be one of the top predictions for the future of Blockchain in 2021. China has included Blockchain in the ‘new infrastructure’ initiative that focuses on the country’s digital infrastructure
  • Interoperability with traditional banking and financial organizations: The future of Blockchain in 2021 will also see the interoperability of Blockchain with conventional financial and banking organizations. Users are showcasing more trust in Blockchain as compared to traditional banks.

India’s stand on Blockchain technology

Digital Ledger Technologies (Blockchain) has a lot of promise to solve various issues faced in the path of sustainable development. For a country like India, this digital technology can play a very crucial role in creating a platform for effective local governance for a range of issues from decentralized energy storage to access issues for the disabled. In this connection, NITI Aayoghas launched India’s largest blockchain network usage in E-governance named IndiaChain.PM Sri Narendra Modi’s word on launch of “IndiaChain”

Artificial intelligence, machine learning, Internet of Things, blockchain and big data hold potential to take India to new heights”                                                – PM Sri Narendra Modi at the 2016 World Economic Forum

The main objective behind creation of this network is to speed up enforcement of contracts, boosting agriculture, reducing frauds, improving transparency in various sectors etc. Although, even after three years there is no concrete establishment that exists. In the working paper issued by the NITI Aayog in January 2020 titled, ‘Blockchain: The India Strategy’, IndiaChain is still under recommendation for implementation in the future, in order to establish India as a vibrant blockchain ecosystem. With these developments, not only the cryptocurrency market in India but even the blockchain technology startups will be benefitted. NITI Aayog is also in the process of developing a job portal to connect employers with workers who have returned to their home states due to nationwide lockdown due to covid-19 pandemic with the help of this technology.

Conclusion:

BlockChain technology is a revolution in digital world. The pace of using BlockChain technology is increasing so fast that it will make our life simple and safer. The Blockchain itself and its variants are now used to secure any type of transactions, whether be it human-to-human communication or machine-to-machine. Fraud, hacking, data theft and information loss is impossible under digital ledger because of the properties of its security and privacy nature. Its decentralized application across the global internet market is also very appealing in terms of ensuring data redundancy and survivability. The Blockchain has been specially identified to be suitable in developing nations like India, China, Brazil etc where ensuring trust is a major concern. Thus the invention of the Blockchain can be seen to be a vital and much needed additional component of the internet that was lacking in security and trust before. Still Blockchain technology has not reached its maturity and it is predicted that within next five years it will reach to the maturity level and will be implemented globally.

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