Imagine a world where we can send money to our friends or family wherever they are in the world without any centralized banks. A world where we can vote via our smartphone or where we don’t need to wait for approvals from authorities to avail of loans or to process insurance claims. In a world where we trust the data as-is and counterfeiting is not possible. With this series of articles, we will go through blockchain, its underlying technologies, ecosystem, and how it revolutionizes our world.
Blockchain is a way to store and secure digital data. It is an open ledger that several parties can access at once. One of its primary benefits is that the recorded information is hard to change without an agreement from all parties involved.
Blockchain helps in the verification and traceability of multistep transactions needing verification and traceability. It can provide secure transactions, reduce compliance costs, and speed up data transfer processing.
The data is recorded in chronological order. Also, once the data is recorded, it cannot be changed.
Several industry leaders like Unilever, Walmart, Visa, and Tech Mahindra leverage blockchain technology for greater data transparency, security, and traceability. Considering the benefits blockchain offers, it will revolutionize and redefine many sectors.
Here are a few case studies that helped us to kick start our Research and Development around Blockchain.
- Walmart uses blockchain to bring unprecedented transparency across their food supply chain network.
- Tech Mahindra's Digital Transformation of Abu Dhabi's Land Registry
- Trade and Finance
- India Explores Blockchain-Based E-Voting By 2024 General Elections
In the series of articles, we will be covering everything about Blockchain, Smart Contracts, and Web3 and will be working on implementing the following case studies.
- Supply chain management.
- Know Your Customer(KYC) chain.
In simpler terms, a blockchain is a digital list of data records, stored on a distributed database shared among the nodes of a computer network. These records comprise many blocks of data organized in chronological order and are secured by cryptographic proofs.
Since these records are stored on distributed networks, it guarantees the fidelity and security of a data record and generates trust without the need for a trusted third party.
The first practical implementation of a blockchain dates back to the early 1990s when computer scientist Stuart Haber and physicist W. Scott Stornetta applied cryptographic techniques in a chain of blocks to secure digital documents from data tampering. Their work inspired many other computer scientists and cryptography enthusiasts, which eventually led to the creation of the first decentralized currency, Bitcoin.
The Bitcoin white paper was published in 2008 under the pseudonym Satoshi Nakamoto.
Like Bitcoin, blockchain is an underlying core component of most cryptocurrency networks, acting as a decentralized, distributed, and public digital ledger responsible for keeping a permanent record (chain of blocks) of all confirmed transactions.
How Blockchain Works?
As a distributed ledger technology, blockchain allows information to be distributed but not edited. It is the foundation for immutable ledgers or records of transactions that cannot be altered, deleted, or destroyed.
Smart contracts are simple pieces of code stored on a blockchain that runs when predetermined conditions are met. Smart contracts are basically algorithms that can be proven, managed, and regulated by people worldwide. Hence, anyone can go to the blockchain and regulate it.
How Smart Contracts Work?
Smart Contracts work by following simple
if, else, then... statements that are written into a code in a blockchain. A network of computers, also known as nodes, executes these statements when predetermined conditions are met and verified. These statements could include actions such as transferring a fund, sending messages or notifications, registering users, and so on.
Once these statements are executed, the blockchain is updated, which means that transactions cannot be changed, and only the parties that have been granted relevant permissions can see the result.
How Smart Contracts are Different from Traditional Contracts?
Smart contracts are computer programs that automate the enforcement of terms. Traditional contracts are sets of agreed-upon terms which are enforceable by law and are described in a natural, human language.
Benefits of Smart Contracts
Speed and Accuracy - Since smart contracts are digital and automated, there’s no paperwork to process and no time required to reconcile errors that often result from manually filling in documents.
Trust and Transparency - Transaction records are encrypted to share over the network with participants and ensure no information is altered for personal benefit.
Security - Since each encrypted transaction record is connected to the previous and subsequent records on a distributed ledger, changing a single record requires the entire chain of transactions to be altered.
No Intermediaries - Smart contracts remove the need for intermediaries to handle transactions, since they are regulated by none.
Practical Applications of Smart Contracts.
There are several real-world examples of smart contract use cases, some of them are listed as follows:
Supply Chain Transparency - Companies across the globe are using smart contracts to resolve disputes with vendors and suppliers quickly. Through real-time communication and increased visibility into the supply chain, they build stronger relationships with suppliers, resulting in more time for critical work and innovation. Especially in the pharmaceutical industry.
International Trade and Finance - International money transfers usually come in the form of Paypal or wire transfers. These transactions include hefty fees ranging from $15 to $45 per transaction. With smart contracts, the blockchain knows no borders. As long as the recipient and sender can access the same blockchain that the transaction is using, the transaction can be made with only the fees associated with the blockchain.
Voting - Allegations of voting fraud arise even across stable democracies such as USA and India. Smart contracts can be used to validate a voter‘s identity and record their vote. Since the blocks within a blockchain are impossible to alter once they have been recorded, manipulation of this record would be next to impossible.
Property Ownership - Smart contracts can be used to record the ownership of all types of properties from buildings, lands, to houses within the property market.
Challenges facing Smart Contracts
Scalability - One of the major challenges facing smart contracts is scalability. For example, the Ethereum network can handle up to 30 transactions per second currently. However, as per Vitalik Buterin, Ethereum 2.0 will be able to process 100,000 transactions per second.
Execution Risk - Intrinsic errors or bugs in the contract can result in unintended behavior. Anonymous persons can exploit these loopholes and can kill the contract library.
Why Smart Contracts Will Change the World?
The simple reason is the blockchain community. People are sick of banks and banking regulations. Oligarchs in collaboration with banks are stealing money from the hands of their citizens. The blockchain community around the world is on a mission to solidify agreements and ensure that all agreements go through smart contracts.
Smart contracts maybe not be 100% foolproof but they are close, and they are putting more power in the hands of the citizens.
As we discussed above, blockchain is a growing list of records. These records are linked together using cryptography which is the heart and soul of blockchain. It is the underlying mechanism of how blockchain provides secure transactions and communications and safeguards personally identifiable information and other confidential data.
In the next article, we will look at cryptography and the various types used in blockchain.
This article is part of Research & Development work being done by Pushkar Kumar, Suresh Konakanchi, and Ruchika Gupta. We will be covering a series of articles along with open source projects around blockchain, smart contracts, and web3 in general. Here is the list of all the articles that you can follow to start with Blockchain and write your first contract: