In the last few years, blockchain technology has received a lot of media coverage. Here we
will explain the concept of blockchain technology in a simple language.
What is Blockchain?
Before getting into the technicalities of this technology, let’s first understand the
meaning of blockchain.
“Blockchain is a database consisting of blocks of transactions linked together with
cryptographic hashes maintained by a distributed network of peers who all agree
on the same version”.
Confusing, right? Let us break it down into relatively simple parts. Blockchain is a
digital database containing information, for example, records of financial
transactions, that can be simultaneously used and shared within a large
decentralized, publicly accessible network. It is known as “Blockchain” because
this technology comprises of a series of blocks linked together with a chain,
and each block contains records of transactions.
Blockchain is also referred to as Distributed Ledger Technology (DLT). Blockchain is a decentralised ledger of transactions which is dispersed across different locations and people. Since there is no central location, it becomes difficult to hack as the information is stored in multiple places at the same time. Blockchain technology is based on peer-to-peer (P2P) network.
Blockchain is divided into Public and Private blockchain. The main difference between the two is that in public blockchain, anyone is free to participate and does not require permission. Bitcoin is an example of public blockchain. The private blockchain requires permission to access.
When the blockchain technology was initially developed, it was predominantly used for bitcoin and other cryptocurrencies. In the past few years, its use has spread to other sectors such as accounting, finance, insurance and healthcare. According to PwC’s Global Blockchain Survey in 2018 of 600 executives from 15 territories, 84% of the respondents claimed they had some involvement with blockchain technology. In the same survey, 46% of the reported blockchain use cases related to financial services. [Source: PwC’s Global Blockchain Survey 2018]
How does blockchain technology work?
Let’s understand this process without getting into the jargons.
The architecture of blockchain is based on the use of internet. Every transaction is added to a block. Every block gets distributed across the P2P network. The synchronised data is agreed on the same version among the network peers. The blockchain network reaches an agreement on the validity of transactions. The block is then added to the chain which creates a permanent record. All the blocks together form a chain. Since this is a man-made technology, the initial transaction is required to be manually added in the block.
William Mougayar, author of The Business Blockchain, describes it below:
“Imagine two entities (e.g. banks) that need to update their own user account balances when there is a request to transfer money from one customer to another. They need to spend a tremendous (and costly) amount of time and effort for coordination, synchronization, messaging and checking to ensure that each transaction happens exactly as it should. Typically, the money being transferred is held by the originator until it can be confirmed that it was received by the recipient. With the blockchain, a single ledger of transaction entries that both parties have access to can simplify the coordination and validation efforts because there is always a single version of records, not two disparate databases”.
The application possibility of blockchain is endless. This technology continues to have a major impact on different industries. According to the PwC report, blockchain will generate an annual business value of more than US $3 trillion by 2030. It’s possible to imagine that 10% to 20% of global economic infrastructure will be running on blockchain-based systems by that same year.
Square Mile Global Consulting offers accredited e-learning courses on Blockchain, Cybersecurity and Data Analytics fundamentals to finance, audit and accounting professionals.
These courses are accredited by the American Institute of Certified Public Accountants (AICPA). All courses come with Certificate of Completion from the AICPA and a Digital Badge is offered on completion of the Certificate courses.
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