Have you ever heard of Block chain before? What exactly is Bloch Chain? How does it work?
Most people automatically associate Block Chain with Bitcoin. In reality, Bitcoin is just a subset of Block Chain – that is, Block chain is the platform that enables Bitcoin and other crypto currencies to be exchanged.
In its elemental form, Block chain is a decentralized database system. Ledgers that store transaction data, are distributed across many nodes.
For example, think of a bank branch as a node. When you visit your local bank and deposit a sum of money, a transaction occurs. The bank verified the authenticity of the payment, records the transaction, and updates your account.
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Whenever you would like to engage in some form of trade and transfer ownership of an asset to another party, both you and the recipient must go through the bank to collectively approve of the transaction. The bank is the only (centralized) database storing your account information — it is a necessary third party for trades to occur. While banks have rules in place to control and govern the handling of money, it is difficult and costly to audit and prevent manipulation from happening. In essence the current system is slow, prone to errors, and liable to system tampering.
Block chain removes the need for a third-party intermediary to facilitate transactions of value, while also adding a layer of anonymity. When I engage in a transaction, my asset ownership information is already stored under a pseudonym. The network of Block chain nodes verifies my account, checking to see if my proposed transaction is in fact legal and feasible. When a valid transaction takes place, a series of mathematical principles cryptographically sign the data, providing a permanent stamp of approval. This data is then "hashed" onto the node's ledger, thus forming an immutable "chain" of transaction records.
If I try to engage in fraud, or transfer money that I do not own, the nodes will instantly recognize this and halt the transaction.
How do Nodes Verify Transactions?
The truly disruptive potential of Block chain lies in its ability to provide a universal truth. When an individual node confirms a transaction, it will then notify every other node in the Block chain system, leading to every node's database being updated to account for the most recent transaction. This is why Block chain is often referred to as a distributed ledger system; each node contains the most up-to-date history of transactions. When all nodes in a system are agreeing with each other, there is only one source of truth.
Why is this significant?
Block chain is essentially impervious to fraud and corruption. If you tried to hack a specific node and change the details of a transaction (redirecting payments to another account, double-spending your money, or increasing the amount of money transferred), you'll find the task is near impossible to accomplish. Never mind the technical complexities of hacking a node. The reason you cannot change a transaction once it has been hashed, is that all decentralized nodes contain the same version of the (public) ledger. If there are 1000 nodes in a Block chain system, and you managed to hack one node, any revisions you make would automatically disagree with the ledger information stored in the other 999 nodes. If the nodes fail to reach a consensus, the proposed transaction is automatically stopped, thus drastically reducing fraud risk.
A New Age of Transparency?
Block chain is the harbinger of transparency. With all transaction records displayed in public, money laundering and fraudulent activities can be seriously reduced. This may have major implications for corporations and governments, as corruption would easily be exposed. A public ledger truly democratizes knowledge and may lead to more efficient markets.
This is an important, albeit small subset of what Block chain can accomplish. Any transaction that involves an exchange can theoretically utilize Block chain; from capital markets to healthcare and voting, the possibilities are limitless.
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