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Buzzword – “Blockchain Technology”
 carajeevjoshi
 | Finance
 01 Jan 2018
 9 Views
 0 comment

Introduction:
 The Internet has transformed the world. Of the several boons that Internet gave
us, two of them deserve to be accentuated, namely “World Wide Web” and
“Email”, which today are perhaps the most valued things of everyday life. Both
are remarkable innovations which have changed the manner in which we live,
work, communicate and do our businesses. The enabling infrastructure of the
Internet and the transmission of data has further enabled several other useful
applications and one such application is “Commerce On The Internet”.
 The world began making use of the internet for doing anything and everything
that is needed for creating and completing business transactions. Very soon the
buzzword “e payments” began humming in every dimension of business and
financial institutions began catering the role of trusted third parties in processing
such electronic payments. These “Trusted Third Parties” garnered significant
importance in every business process since they provided the needed comfort
for guaranteeing the authenticity behind the transaction. Failures on part of
these “Third Parties” resulted in corresponding business failures and caused
economic losses. It is this loophole in the system of over-dependence on “Third
Parties” that has caused invention of “Blockchain Technology”.

What Is Blockchain Technology:

 The Blockchain technology is probably the best invention since the internet
itself. Blockchain technology addresses the long-standing challenges related to
economic development and expands opportunities for exchange and
collaboration by reducing reliance on intermediaries.
 Let’s demonstrate the utility of Blockchain using a hypothetical example where
two people Mr.A and Mr.B bet for Rs 5 Lacs each on tomorrow’s day end NSE
Nifty Index. Mr.A is confident of the index to cross 11,000 mark while B
disagrees. Today we have three options to manage this transaction:
1. A & B can trust each other and the losing one will give Rs 5 Lacs to the
winner. But there is a risk which is at the end of the day one may not easily
pay the other.
2. We can have another option which is A & B enter into a contract. With a
contract in place, both parties will be more prone to pay, however, should any
 of the two decide not to pay, the winner will end into legal battles calling for
unwarranted legal expenses and further the verdict might take a long time.
3. We can also have a neutral third party. Each will gives Rs 5 lacs to a third
party, which will, in turn, give the total amount to the winner. But then again A
& B need to have trust in this third party!!.
 Time is proof to the fact that both “Trust” and “Contract” have their own inherent
limitations, which are that, we cannot trust strangers and, enforcing a contract
requires time and money. Here comes the utility of Blockchain technology which
is secured, quick and cheap. Blockchain allows us to write a program running on
the Blockchain, to which both A & B can send Rs 5 lac each. This program will
keep Rs 10 Lac safe and then check tomorrow’s day end NSE Nifty Index and
accordingly transfer the whole amount to the winner. Each party can check the
contract logic, and once it’s running on the Blockchain it can’t be changed or
stopped. It thus allows value exchange without the need for trust or for a central
authority.

Technology For Layman:

 One of the famous application of the Blockchain technology is “Digital
Currency”, like say Bitcoin which can be used to procure products and services,
just like United States Dollar (USD), Euro (EUR) and other currencies. Let’s use
this application of the Blockchain technology to understand how it works. One
Bitcoin is a single unit of the Bitcoin (BTC) (Like One Rupee is a single unit for
currency “Rupees”).
 To keep track of the amount of Bitcoins each of us owns, the Blockchain uses a
“Ledger”, which is a digital file that keeps track of all Bitcoin transactions. The
ledger file is not stored in any central entity servers, like a bank, or in a single
data center. Instead, the ledger file is distributed across the world via a network
of private computers that are both storing data and executing computations.
 Let us take a hypothetical example where Mr. C wants to purchase an antique
piece of jewelry from ABC Ltd and send 7 Bitcoins to ABC Ltd as a
consideration for the purchase of that antique piece. What Mr. C will do is he will
broadcast a message to the network. This message gives the command by
 which the amount of Bitcoins in Mr. C’s account would go down by 7 BTC and
the amount of ABC Ltd’s account would go up by 7 BTC. Each of these
computers represents a “node” of the Blockchain network and has a copy of the
ledger file. Each node in the network will receive the message and the ledger
maintained by a group of connected computers will be updated. Before
executing the transaction, the verifying node needs to ensure two things:
1. Mr. C owns the digital currency and,
2. Mr. C has sufficient digital currency.
 In contrast to routine Banking System where we only know our own transactions
and account balances, in Blockchain everyone can see everyone’s transactions.
Thus Blockchain creates a trusted public ledger which can be examined by
everyone, but which cannot be controlled by a single user. Participants
collectively keep the ledger up to date, it can be amended only according to
strict rules and by general agreement. This gives birth to a “Digital Data” which
is replicated, shared, synchronized and spread across multiple countries or
institutions geographically spread across the globe. The entire architecture
makes use of three prime things namely “Advanced Cryptography”, “Peer-To-
Peer Network” and “Consensus Algorithms”(process or set of rules). Thus no
trust is needed and security, reliability is obtained via special mathematical
functions and code.

Conclusion:
 In the Modern Time, Technology has got inextricably woven into the business.
In taking a plunge into any piece of technology, one may get deterred by
pretentious jargons which are part of the technology. However, the purpose of
any Technology at its core is to make the life for every species on this planet a
joyful journey. Above article is an endeavor to go beyond the jargons and make
readers, friendly to the concept behind the technology thereby facilitating
embracing the benefits which technology has to offer.