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Blockchain | What is Blockchain Technology?

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Blockchains are incredibly popular nowadays. 

One of the world’s biggest accounting firms PwC (PricewaterhouseCoopers)reported in late 2020 that blockchain technology can add a staggering $1.76 trillion to the global GDP (gross domestic product) by 2030.

In a 2019 research report, MarketsandMarkets expects the global blockchain market will grow by a staggering compound annual growth rate (CAGR) 67.3% from 2020 to 2025. Moreover, by the end of 2020, the market will have a value of $3 billion and grow to $39.7 billion by 2025.

What is a blockchain?

Like the name indicates, a blockchain is a chain of blocks that contains information. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents. So that it’s not possible to backdate them or to tamper with them. Almost like a notary. However, it went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin.

Blockchain | What is Blockchain Technology?

How do they work? 

A blockchain is a distributed ledger that is completely open to anyone. They have an interesting property: once some data has been recorded inside a blockchain, it becomes very difficult to change it. So how does that work? Well, let’s take a closer look at a block. Each block contains some data, the hash of the block, and the hash of the previous block. The data that is stored inside a block depends on the type of blockchain. 

The Bitcoin blockchain, for example, stores the details about a transaction here, such as the 

  • sender
  • receiver
  • amount of coins 

Hash:

A block also has a hash. You can compare a hash to a fingerprint. It identifies a block and all of its contents and it’s always unique, just as a fingerprint. Once a block is created, its hash is being calculated. 

A hash is a function that meets the encrypted demands needed to solve a blockchain computation.

Changing something inside the block will cause the hash to change. So in other words: hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it no longer is the same block.

Blockchain | What is Blockchain Technology?

The third element inside each block is the hash of the previous block. This effectively creates a chain of blocks and it’s this technique that makes a blockchain so secure. Let’s take an example. Here we have a chain of 3 blocks. Each block has a hash and the hash of the previous block. So block number 3 points to block number 2 and number 2 points to number 1. Now, the first block is a bit special, it cannot point to previous blocks because it’s the first one. We call this the genesis block. 

Now, let’s say that you tamper with the second block. This causes the hash of the block to change as well. In turn that will make block 3 and all following blocks invalid because they no longer store a valid hash of the previous block. So changing a single block will make all following blocks invalid. But using hashes is not enough to prevent tampering. 

Proof-of-Work:

Computers these days are very fast and can calculate hundreds of thousands of hashes per second. You could effectively tamper with a block and recalculate all the hashes of other blocks to make your blockchain valid again. So, to mitigate this, blockchains have something called proof-of-work

It’s a mechanism that slows down the creation of new blocks. This mechanism makes it very hard to tamper with the blocks because if you tamper with 1 block, you’ll need to recalculate the proof-of-work for all the following blocks. So the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism.

In Bitcoins case: it takes about 10 minutes to calculate the required proof-of-work and add a new block to the chain. 

When someone creates a new block. That new block is sent to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to its own blockchain. All the nodes in this network create consensus.  

Peer-to-Peer Network:

But there is one more way that blockchains secure themselves and that’s by being distributed. Instead of using a central entity to manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join. When someone joins this network, he gets the full copy of the blockchain. The node can use this to verify that everything is still in order.  

They agree about what blocks are valid and which aren’t. Blocks that are tampered with will be rejected by other nodes in the network.  So, to successfully tamper with a blockchain you’ll need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer network. Only then will your tampered block become accepted by everyone else.  This is almost impossible to do. 

Blockchain | What is Blockchain Technology?

Smart Contracts:

Blockchains are also constantly evolving. One of the more recent developments is the creation of smart contracts. These contracts are simple programs that are stored on the blockchain and can be used to automatically exchange coins based on certain conditions.

What problems do they solve and how can they be used?

  • Blockchain is a data structure that represents a ledger programmed to record and track anything of value. Unlike a standard database, Blockchain is distributed, secure, transparent, immutable, and accessible. Standard databases have a centralized structure that revolves around a central point of authority. Once it is corrupted, the whole system fails. 
  • On the other hand, Blockchain has a distributed structure and no central point of authority.  This protects the system from corrupted nodes. Blockchain is made out of digital blocks which contain information of every transaction ever made on the system. Once part of the data is hacked, the system rejects the tampered information and remains secure. This makes the data immutable. 
  • Data can’t be changed, and whenever an update takes place, a new block is created. So, many people buy products without knowing their origins. On the other hand, Blockchain allows consumers to access the whole history of a product throughout its supply chain, from manufacturing to distribution. 
  • Last but not least, Blockchain is accessible allowing different parties to share information, ensuring a smooth and fast flow of data. So, whenever you hear about Blockchain remember it’s not just a standard database! It is distributed, secure, transparent, immutable, and accessible.     

Blockchain Companies in the World

Blockchain Companies

Revenue

Company’s History

Blockstream (Private)

Estimated at $7.8 million annually.

 

A Canadian company founded in 2014.

 

Binance coin   USD

(CCC: BNB-USD)

 

Estimated at $179 million annually. 

Founded by Changpeng Zhao and Yi He in 2017.

 

Intellectsoft (Private)

(Known as Intellectsoft Blockchain Lab)

Estimated at $11.43 annually. 

A software solution development firm which was established in 2007.

It has partnerships with the London Stock Exchange, The World Bank, Ernst & Young, and Nestle.


Conclusion:

The creation of blockchain technology peaked a lot of people’s interest. Soon, others realized that the technology could be used for other things like storing medical records, creating a digital notary, or even collecting taxes. So, now you know what a blockchain is, how it works on a basic level and what problems it solves.


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