Blockchain detailed explanation
What is blockchain technology?
Blockchain technology is an advanced database mechanism that allows transparent information sharing within a business network. A blockchain database stores data in blocks that are linked together in a chain. The data is chronologically consistent because you cannot delete or modify the chain without consensus from the network. As a result, you can use blockchain technology to create an unalterable or immutable ledger for tracking orders, payments, accounts, and other transactions. The system has built-in mechanisms that prevent unauthorized transaction entries and create consistency in the shared view of these transactions.
Why is blockchain important?
Traditional database technologies present several challenges for recording financial transactions. For instance, consider the sale of a property. Once the money is exchanged, ownership of the property is transferred to the buyer. Individually, both the buyer and the seller can record the monetary transactions, but neither source can be trusted. The seller can easily claim they have not received the money even though they have, and the buyer can equally argue that they have paid the money even if they haven’t.
To avoid potential legal issues, a trusted third party has to supervise and validate transactions. The presence of this central authority not only complicates the transaction but also creates a single point of vulnerability. If the central database was compromised, both parties could suffer.
Blockchain mitigates such issues by creating a decentralized, tamper-proof system to record transactions. In the property transaction scenario, blockchain creates one ledger each for the buyer and the seller. All transactions must be approved by both parties and are automatically updated in both of their ledgers in real time. Any corruption in historical transactions will corrupt the entire ledger. These properties of blockchain technology have led to its use in various sectors, including the creation of digital currency like Bitcoin.
How do different industries use blockchain?
Blockchain is an emerging technology that is being adopted in innovative manner by various industries. We describe some use cases in different industries in the following subsections:
Energy
Energy companies use blockchain technology to create peer-to-peer energy trading platforms and streamline access to renewable energy. For example, consider these uses:
Blockchain-based energy companies have created a trading platform for the sale of electricity between individuals. Homeowners with solar panels use this platform to sell their excess solar energy to neighbors. The process is largely automated: smart meters create transactions, and blockchain records them.
With blockchain-based crowd funding initiatives, users can sponsor and own solar panels in communities that lack energy access. Sponsors might also receive rent for these communities once the solar panels are constructed.
Finance
Traditional financial systems, like banks and stock exchanges, use blockchain services to manage online payments, accounts, and market trading. For example, Singapore Exchange Limited, an investment holding company that provides financial trading services throughout Asia, uses blockchain technology to build a more efficient interbank payment account. By adopting blockchain, they solved several challenges, including batch processing and manual reconciliation of several thousand financial transactions.
Media and entertainment
Companies in media and entertainment use blockchain systems to manage copyright data. Copyright verification is critical for the fair compensation of artists. It takes multiple transactions to record the sale or transfer of copyright content. Sony Music Entertainment Japan uses blockchain services to make digital rights management more efficient. They have successfully used blockchain strategy to improve productivity and reduce costs in copyright processing.
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