Blockchain technology – what you need to know

With the current trend – amplified by the ongoing coronavirus pandemic – being towards online transactions, electronic communications and a cash-less society, the question is: how safe is the internet for dealing with such transactions? Today’s internet security solutions are very good, but there is always a chance that they can be breached. Is there anything available that is better? Could Blockchain be the answer?

The word “blockchain” has recently become synonymous with the banking, investing and cryptocurrency industries, though this is not its only potential application. A common definition of blockchain is a “distributed, decentralised, public ledger”.

Blockchain is currently one of the most prevalent buzzwords being used in the IT sector. Its applications could be game-changing in so many areas of our lives, and yet, due to its technological complexities, it is a difficult concept to grasp for the uninitiated.

Here at SA1 solutions, we pride ourselves on a jargon free approach to help you get the most out of our services. So, in this blog, we will endeavour to give you a concise explanation of blockchain technology, along with its potential advantages and disadvantages.

What actually is Blockchain?

Put simply, blockchain is digital information (the “block”) being stored in a public database (the “chain”)

The block side of things consists of digital information, with three specific parts:

Blocks store transactional information, such as date, time and the currency amount of customer purchases
Blocks store information surrounding each particular customer, detailing what was purchased, and who exactly purchased it
Blocks use unique codes called “hashes” to make each block unique. Every single transaction can be identified individually through the distinguishing hash code.

How does Blockchain work?

“Blocks” are added to the “chain” when a new data block forms. 4 distinct steps happen to achieve this:

Transaction – when you make a purchase, that specific purchase will be grouped with thousands of other transactions, forming its own block.
Verification of transaction – a network of computers checks out your transaction, ensuring there are no issues. The transaction will then be confirmed, highlighting transaction time, date, item purchased, and purchaser name.
Each Transaction is stored in a block – once the transaction is verified, it will be then group with hundreds or thousands of similar transactions, allowing a block to be formed
This block is given a hash – each block features its own unique identity code, which then allows this block to be added to the blockchain.

Blockchain can be viewed by anyone. Many businesses choose to connect computers to the blockchain network as ‘nodes’. This allows each computer to have a copy of the blockchain, which is automatically updated following the addition of new blocks.

Blockchain is considered very secure in a number of ways:

Cryptography- Blockchain transactions are also secured by cryptography. Each transaction is signed with a private key and then can be further verified with a public key. If transaction data changes, the signature becomes invalid. As a result, the block is ignored and won't make it to the chain.

Decentralisation- Most blockchain networks are decentralised and distributed. A system without a single point of failure is much harder to corrupt, as a hack into one part of this system will not affect another
Consensus- Each blockchain works through a consensus model that verifies that a transaction has happened and is legitimate. Common consensus protocols include proof-of-work, proof-of-stake, proof of authority, and more.

Benefits of Blockchain:

Accuracy of the Chain – transactions are approved by networks of computers, seeing minimal human involvement and error.

Cost Reductions – eliminates the need for third-party verification and associated costs. i.e. bank or credit card fees.

Decentralization – Instead, the blockchain is copied and spread across a network of computers, reducing the need of a central location for information. This also means that no one person or corporation owns the data.

Efficient Transactions – Transactions can be completed in about ten minutes and can be considered secure after just a few hours- ideal for cross-border trades.

Private Transactions – Although users can access details about transactions, they cannot access identifying information about the users making those transactions.

Secure Transactions – Once a transaction is recorded, its authenticity must be verified by the blockchain network.

Transparency – With multiple computers on the blockchain network at any given time, there is constant monitoring allowing changes/suspicious activity to be flagged up quickly.

Disadvantages of Blockchain:

Slow Process – when lots of users are on the network, blockchain can slow down and become inefficient

Not entirely secure – there are certain ways in which blockchain can be compromised- for example, if hackers can gain 51% of the network nodes, they are then able to control the full network.

Cost and Implementation issues – pursuing blockchain requires a large investment associated with hiring developers, licensing, and employing a team proficient in the aspects of blockchain technology. There are also ongoing maintenance costs.

Maturity – Blockchain technology is only 10 years old. Therefore, some time is still needed to confirm how successful its wider usage will be. There will, undoubtedly, be many changes and improvements to blockchain technology as the years progress, leaving a great deal of uncertainty surrounding its current effectiveness.

Blockchain technology has the potential to change many areas of our lives, with considerable benefits, particularly involving business transactions. But its usefulness doesn’t end there. In fact, its potential future applications are yet to even be conceived – the sky (or cloud) is the limit.

If you or your business need help with any IT issues, contact us at SA1 Solutions on 01792 439087 or email info@sa1solutions.com