A for Apple, B for Blockchain – Blockchain and its potential

Written by - Vibhav Bhat and Yash Prashant Bhave

PGDM Finance- TAPMI, Manipal

There might be a future where our children learn B is for blockchain in pre-school. It all started in 1991 when research scientists, W. Scott Stornetta and Stuart Haber, developed a concept system of cryptographically secured chain of blocks. However, it took almost 18 years for the technology to grow and realize its potential.

In 2007 a mystery individual or group, Satoshi Nakamoto, took the first step to what we know as bitcoin today. Bitcoin is an application of the blockchain concept which gained immense popularity post its boom. Nakamoto published a whitepaper on Bitcoin code that was termed as work of a genius without any mistakes in The New Yorker. Since then, the application of blockchain has been realized in different domains including transactions, manufacturing and healthcare or research. This article outlines the working behind the technology, its potential and the pros and cons of any application.

How it works

Source: Software testing help

From the name we can realize it's made of blocks connected by chains. But what are blocks in this? Block contains data and hash. It has the hash of the previous block along with its own hash. Data in these blocks depend on the application. For example, in case of a transaction data or hash will have date, amount, sender, and receiver on a broader level.

This hash is like a fingerprint, it is unique in every case. Once the block is created a hash is generated automatically. Post this any changes in a block will create a new hash. Reading these hashes can help us trace back the original data and all changes made.

These hashes help to connect one block (data version) with the other and create a chain. The first block is called the genesis block. If one wants to change data into one of the blocks, they have to show the proof of work. This process takes approx. 10 min in the case of bitcoins.

A Block chain network is a P2P (peer to peer) network. Each individual in this P2P network acts as a node. If any new block is being introduced then every node (individual) has to verify the same. The block or update is added to the chain only if there is consensus on nodes.

The network has 3 levels of data security. If an individual wants to tamper with a block, he has to first find the hash for tampering, add proof of work for all the blocks in the chain and get consensus on the P2P disintegrated network for making it valid. In short it is extremely difficult if not impossible.

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Sector wise application

From the below graphs, we can observe the percentage changes in investment of at least US$ 5 million in blockchain by different sectors.

Fig: 2019-2020 sector wise investment in blockchain

Source: Deloitte report 2020

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The Potential

Fig: Potential sectors of application of blockchain

Source: reference used from the IBM report

Automobile industry can use it in the supply chain traceability and for securing their financial transactions. In financial services, it can be applied for making secure transactions and enhancing customer experience. In the case of the government, the same can be used to protect the citizen's private information available in the form of Aadhar card, PAN card or others.

Health care can streamline and aggregate the data across the organizations to increase the quality of the care. In case of insurance, blockchain can serve the purpose of transparency. In the media industry it can protect the unique content of an artist from getting copied by creating an ecosystem of trust. In retail and FMCG it can be used to increase operational excellence and nurture the relationship with customers.

In telecommunication, it can be used to increase operational efficiency along with customer satisfaction level. For travel and transportation by using blockchain you can do quick transactions while minimizing fraud.

IBM is one of many companies working on building such blockchain systems for different avenues to make businesses efficient and secure.

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Pros and Cons

All coins have two sides to it. Similarly, Blockchain has large potential to serve different sectors, security, reliability and improved transparency in transactions. Whereas on the other hand there are no strong rules governing the area, the transaction process in its nature is complex and the infrastructure to maintain this ecosystem in itself leads to high energy consumption and carbon footprint.

Fig – Pros and Cons of Blockchain Technology

The fig shows the two sides of the coin clearly. The motive of using blockchain might depend on the pros, but a thoughtful decision has to be taken weighing in all aspects and deciding whether the benefits really outweigh the drawbacks.

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