What is Blockchain, Why is it so Popular, and Benefits and Challenges of Using it

What is Blockchain and what is a Distributed Ledger?

Not a day goes by without a media report on how a particular firm or entity as well as an upcoming governmental initiatives is thinking of using Blockchain technology for security, integrity, and consistency of data.

Further, anyone who has heard of Bitcoin would have definitely known that it is underpinned by the Blockchain technology and is perhaps the single most important reason for the latter becoming popular and vice versa.

Thus, what is Blockchain and what are the benefits and challenges of using the same in applications, whether they are private data stores or publicly held and managed databases. To start with, Blockchain in the simplest sense is a Distributed Ledger or a Distributed Database wherein multiple instances of data records are held in several places that can be accessed only through Cryptographic codes.

Before we discuss the last term in the last sentence, one might very well ask what is the Big Deal if multiple instances of the databases exist which is anyway the case with Distributed Systems.

The answer to this question lies in how such databases can be accessed using a combination of a Private Key and Public Key both of whom are encrypted using Cryptographic means. The Public Key is something that all users have access to and the Private Key is the specific pass code for each instance of the database.

Ensuring Data Integrity and Accuracy as Well as Reliability

Now, whoever wishes to update the database needs to have both the keys and each update to the database is reflected in the other instances through a consensus update.

Of course, one might think that each update requires all users to continuously update and accesses their data copies.

This is where the pioneering brains behind this technology came up with the necessary coding and the software that makes the database a seamless and transparent one across the nodes of the network.

Turning to the term, the nodes of the network, the beauty of Blockchain is that there is no centralized node or a central authority that commands and directs other users or nodes to do its bidding.

In other words, a Blockchain enabled application is completely decentralized and Democratic meaning that anyone with access to the right keys and with a consensus forming around them among the other nodes or users can participate in the same.

Real World Applications of the Blockchain Technology

To understand how the Decentralized Distributed Ledger has become so popular, think of a Bank which has your user and personal information in its database just like it has data pertaining to Millions of other users. In this model, no update to the data can happen unless the Bank desires or approves the same.

On the other hand, a Blockchain enabled system allows real time updates using the consensus algorithm which is modeled along the Democratic principles and the Decentralization norm.

Thus, there is no need for a controller or an approver and in this way, a truly P2P, or Peer to Peer network forms which does away with Intermediaries.

If you are old enough to remember the Birth of the Internet, then you would know that this disintermediation and decentralization were exactly the premises on which the Net was conceived.

The reason for mentioning this is that at this moment, Blockchain represents the same excitement that the internet first caused and it remains to be seen whether it would sustain the momentum or become yet another tech trend or fad that ran out of steam due to any number of reasons.

The Promise of Blockchain and Looking Beyond the Hype

As can be seen, there is much hype as well as some challenges around this technology. For instance, in the state of Andhra Pradesh in India, the government is looking at using Blockchain for everything from Driving License systems to DNA Sequencing Systems.

The underlying premise is that once such systems are made available, real time, distributed, decentralized, and empowered engagement and governance can be the norm.

Having said that, some experts point to how Data Integrity can sometimes be compromised in the Blockchain databases as well wherein hackers capturing a Majority of Nodes in the Network can simply corrupt the data and takeover the Distributed Ledger.

Moreover, the leading management consulting firm, McKinsey, mentions how despite the decentralization, there is scope for an “exert” node to spring up wherein such users would vouch for and act as custodians of the information.

For instance, when someone says that they are using Blockchain for Organic Food Supply Chains, there is a possibility that the validation and certification of such claims regarding the quality of the items can make a particular person the certifying authority and hence, lead to a form of centralization.

Indeed, this defeats the whole purpose of a truly transformative technological Innovation and potential game changer for all.

Conclusion

Lastly, no discussion on Blockchain is complete without mentioning Bitcoin. This alternative or cryptocurrency modeled using Blockchain has emerged from nowhere to the point where it is now being talked about as a genuine alternative to the Fiat Currencies or the Central Bank issued currencies.

If you remember the points made earlier, as Blockchain is all about Decentralization, Bitcoin is sometimes talked about as representing a Truly People’s Currency which has the revolutionary potential to change the way we use money.

To conclude, this article is intended to introduce the readers to the concept of Blockchain and how it has the potential to be a game changer.


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Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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