Blockchain is known as the backbone technology behind Bitcoin, and it is one of the hottest and most intriguing technologies in the market today. Gartner estimates the current combined value of cryptocurrencies in circulation worldwide to be $155 billon and expects continued growth. Like the rise of the internet, Blockchain has the potential to truly disrupt multiple industries and make processes more democratic, secure, transparent and efficient. Entrepreneurs, startup companies, investors, global organizations and governments have all identified as a revolutionary technology.
Blockchain is a decentralized, shared public ledger that keeps a record of all transactions that take place across a peer-to-peer network. It contains the records of all the transactions or digital events executed and shared among all participating parties. Every transaction in the shared ledger is verified and linked in the system by the consensus of a majority of participants. All the records in Blockchain are decentralized, immutable and non-removable. This makes it a revolutionary way to authenticate and verify all the transactions that happened in the chain. By allowing digital information to be distributed but not copied, Blockchain technology creates the backbone of a new type of internet.
Blockchain and Bitcoin
One of the biggest myths is that Bitcoin and Blockchain are the same, which is most certainly not the case. Blockchain is the technology that enables the use of cryptocurrency, a medium of digital exchange that uses encryption methods to control the creation of digital currency and its circulation. The Blockchain is the shared public ledger on which the entire Bitcoin network relies. All transactions once confirmed and verified are linked in the Blockchain. The integrity and the chronological order of the Blockchain are enforced with cryptography. So, Bitcoin is an application of Blockchain, but Blockchain has potential applications beyond Bitcoin and cryptocurrency, which we will talk about in more detail further on in this article.
A network of nodes
A network of computing “nodes” collectively makeup Blockchain. A node is connected to a Blockchain network and performs the task of validating and relaying transactions for each block of data in a Blockchain. A copy of the entire Blockchain is automatically downloaded to the node when it joins a Blockchain network. Every node is an administrator of the Blockchain and joins the network voluntarily because each node has an incentive for participating in the network. Nodes compete with each other to solve computational puzzles (i.e., any transaction). Nodes begin “Mining” to find the decryption key to validate the transaction. Mining refers to the distributed computational review process performed on each block of data in a Blockchain. This allows for achievement of “consensus” in an environment where neither party knows or trusts each other. First conceived for Bitcoin, Mining is now recognized as being the first of many potential applications of the Blockchain technology. The Miners code provides the hash values that bundle time-stamped transactions into a block. There are an estimated 700+ cryptocurrencies already active or in development with potential adaptions of the original Blockchain concept.
A growing network of Blockchain nodes and emerging cryptocurrencies could be catalysts for the estimated increase in the banking and insurance industry’s demand for Interconnection. Based on the findings of a recent report, published by Equinix, “The Global Interconnection Index,” banking and insurance companies are expected to have the largest demand for Interconnection Bandwidth capacity by 2020, a 61% annual increase from 2016 to more than 955 terabits. Interconnection Bandwidth is a measure of the total capacity provisioned to privately and directly exchange traffic with a diverse set of counterparties at distributed IT exchange points, a critical factor in securely interconnecting Blockchain nodes and delivering fast data exchange between those nodes.
The idea of decentralization
Blockchain is a decentralized, but interconnected technology – anything that happens in a Blockchain network happens to the network as a whole. This has some important implications, for example making the traditional way of verifying the transactions unnecessary in other words, it is a more distributed rather than a centralized process. Since any new transaction is visible by all Blockchain participants, then that transaction will only be added to the Blockchain after the Miners are done verifying and authenticating it by consensus. This is accomplished via the wide array of nodes, mentioned above, that use Blockchain technology in collaboration to manage the database in which all the transaction records are maintained. These multiple networks of nodes are not managed by any one central authority, but rather operate on a peer-to-peer basis, in which the same database is replicated to every user, and the node of every user is capable of authenticating and validating any new transactions.
Security in Blockchain
The decentralized nature of Blockchain also means it does not have any single point of access or any central authority. That plays a vital role when it comes to cybersecurity. In a centralized network, hackers can perform cyberattacks like shutting down networks, tampering with data, spoofing identities, luring users into cyber traps, etc. They do these things just by targeting central repositories and single points of failure. The Blockchain decentralized approach to store and share information in a ledger is the way to bypass all the security threats. The same technology enables secure transactions with cryptocurrencies such as Bitcoin.
Applications of Blockchain
Here are several possible applications of Blockchain, by sector or topic:
- Financial Services – Faster, cheaper settlements could save billions of dollars in transaction costs, while improving transparency. Blockchain’s encryption properties allow insurers to securely capture the ownership of assets to be insured.
- Automotive – Consumers could use the Blockchain to manage fractional ownership in autonomous cars.
- Voting – Using the Blockchain code, constituents could cast their votes by phone/computer, resulting in immediately verifiable results.
- Healthcare – Patients’ encrypted health information could be shared with multiple providers, without the risk of a privacy breach.
- Decentralized Notary – Timestamping is an interesting feature of Blockchain. The whole network essentially validates the state of a wrapped piece of data (a “hash”) at a certain particular time. As a trustless, decentralized network, it essentially confirms the “existence” of a document or information at a stated time that is further provable in a court of law. Until now, only centralized notary services could serve this purpose.
- Smart Contracts – These are legally binding programmable digitized contracts entered on Blockchain. Developers implement legal contracts as variables and statements that can release funds using the Bitcoin network as a “third party executor,” rather than trusting a single central authority.
There are several widely accepted benefits of Blockchain, including:
- Disintermediation and trustless exchange: Two parties can make an exchange without the oversight or intermediation of a third party, strongly reducing or even eliminating counterparty risk.
- High quality data: Blockchain data is complete, consistent, timely, accurate and widely available.
- Durability, reliability and longevity: Due to the decentralized networks, Blockchain does not have a central point of failure and is better able to withstand malicious attacks.
- Transparency and immutability: Changes to public Blockchain are publicly viewable by all parties, creating transparency, and all transactions are immutable, meaning they cannot be altered or deleted.
- Ecosystem simplification: Adding all transactions to a single public ledger reduces the clutter and complications of multiple ledgers.
- Lower transaction costs: By eliminating third party intermediaries and overhead costs for exchanging assets, Blockchain has the potential to greatly reduce transaction fees. According to LTP and Fintextra online news agencies, “Blockchain has the potential to reduce infrastructure cost by up to $20 billion a year.”
How greater Interconnection powers Blockchain
Digital wallet transactions, such as those happening via Blockchain, require direct and secure interconnection. An Interconnection Oriented Architecture™ (IOA™) strategy enables successful digital wallet transaction as it is essential for companies in the digital wallet space to be as close as possible to their partners and dispersed digital wallet users.
An IOA framework, shifts IT infrastructures away from centralized to a distributed approach that increases proximity to all the elements needed to complete the highest-performing digital wallet transactions possible. As Interconnection Bandwidth capacity growth is increasingly critical banking and insurance firms, an IOA can enable them to maximize their ability to leverage performance, scalability and security when performing critical data exchanges such as Blockchain.
Read the Global Interconnection Index to learn more about how Interconnection is powering a number of industries worldwide.