So, let’s start with the definition of the blockchain. In simple terms, blockchain is a technology with the distribution of information at its core to reduce the risks and regulations to be adhered to by centralized systems. And no, blockchain is not synonymous with bitcoins or any specific digital currency; the currencies are just the tip of the iceberg.
Technically, a blockchain can be defined as the model of state-machine replication, where a service maintains some state and clients invoke operations that transform the state and generate outputs. It emulates a “trusted” computing service through a distributed protocol, run by nodes connected over the Internet. The service represents or creates an asset, in which all nodes have some stake. The nodes share the common goal of running the service but do not necessarily trust each other for more. Blockchains can be of two types — permissionless and permissioned.
In a “permissionless” blockchain such as the one underlying the Bitcoin, anyone can operate a node and participate through spending CPU cycles and demonstrating a “proof-of-work.” In a permissionless world, one does not have to prove his/her identity to the ledger. As long as one is willing to commit processing power to be part of the network and extending the blockchain, one is allowed to partake.
Blockchains in the “permissioned” model control who can participate in validation and in the protocol; these nodes typically have established identities and form a consortium. Permissioned blockchains do not have to use the computing power based mining to reach a consensus since all of the actors are known; They end up using consensus algorithms like RAFT or Paxos or other PBFT algorithms without PoW mining. By eliminating the trust-related friction it will dramatically increase economic activity as well as drastically reduce inefficiencies by cutting out middlemen who act as trust intermediaries. Permissioned blockchains aim to advance blockchain technology by identifying and realizing a cross-industry open standard platform for distributed ledgers, which can transform the way business transactions are conducted globally.
Distributed ledger, as is the consensus in the market, is the technology of the future in which decentralization of information will be at the core and along with big data, AI, VR, ML and IoT will frame the backbone of the future technologies. Higher security, faster transactions, no central reliability, interoperability and transparent supply chains are the clear advantages of applications of blockchain in cross-border financial transactions, healthcare record management, logistics, education, agritech, e-commerce, etc
But every great thing has some limitations and faces some hurdles, and blockchain is no exception.
- The different algorithms of PoC, PoW depend upon consensus in the blockchain and without any regulatory body the rule of majority works which leads to discrepancies.
- Though the level of security is high, public blockchains are susceptible to hacking — cases of more than a billion dollars of cryptocurrencies have been reported globally; which shows a chink in the security armour.
- The response of the different governments has been varied on virtual currency trading, ranging from governments taking their ID management on blockchain in Estonia to countries like China and India who have banned crypto trading, this has led to smaller countries take advantage and create niche market as safe havens for such companies.
- Lastly, blockchain applications require high storage and processing expenses to store huge amounts of data as required for decentralized record management in healthcare, education which will jack up the costs. The current solutions in the blockchain for ID management address only keeping the access permissions and view formats on the blockchain, but for the data storage they require a central database or have to incur high costs to maintain it on the blockchain.
I firmly believe, though some issues may be faced in the early iteration of blockchain applications — which is the case with all disrupting technologies, it will be imperative to adopt them as the advantages will outnumber the shortfalls along with the hurdles being cleared out.