What is blockchain?

Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible or intangible. The blockchain market is likely to grow from $5 bn in 2022 to $24 bn in 2025 at a CAGR of 46%, according to Beinsure Media research 3 Key Elements of the Blockchain Technology. Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved. Blockchain continues to be a hot topic in the business world and news. Many people have heard of blockchain but may not be familiar with what it actually is. Blockchain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members. According to Beinsure, almost 90% of financial services firms globally, especially the more traditional ones, fear FinTech challengers will chip away at their revenues. The insurance industry is dominated by traditionalism and entrenched in bureaucracy. How blockchain helps the Insurance Industry? Many insurers remain oblivious to the opportunities that technologies such as the blockchain can open up for them, and those that are aware often have to cut through a lot of red tape for change to be implemented. Insurers who wish to remain current or start innovating to stay ahead should experiment with the many ways blockchain can simplify and streamline the way they do business.

Blockchain is a database for storing and transferring digital assets. In other words, this is a registry that is shared between the nodes of a computer network and does not have a centralized external control. At the same time, blockchain digital assets can be very different - from finance and stocks to all kinds of works of art. 

 

For example, an artist wants to digitize their work. But on the Internet, it is sometimes extremely difficult to prove that you really are the author of a particular work - "traveling" through the expanses of the network, a picture or photograph often does not imply attribution. Internet users post a work on the pages of their social networks or blogs, but rarely consider it necessary to indicate the name of its author. Blockchain technology allows you to protect your intellectual property, and hence its value.

 

The main meaning of the blockchain in this case is that this database allows you to assign authorship to a real author - while authorship will really remain with him, without the threat of theft or hacking.This is possible thanks to the main innovation of the blockchain, which is based on a 100% security guarantee when recording and storing digital data. And such a guarantee does not require the participation of a trusted third party. How it works is described below.

How Blockchain Works

The second name of blockchain is “distributed ledger technology”. This is no coincidence, since the blockchain is such a base in which data cannot be changed in any way - they cannot be destroyed, deleted, or even partially edited. That is why blockchain technology is directly related to the phenomenon of bitcoin and various other cryptocurrencies, as well as non-fungible tokens (NFTs) - everything that we hear so often about, but do not always understand well. Let's try to understand the technology.

How transactions are carried out on the blockchain

In order to carry out a transaction, you first need to connect to the blockchain network. Further, a kind of virtual wallet is created in it, to which funds must be sent. Data about the sent money transfer is entered into the database and encrypted. At the same time, information about the transfer at this moment becomes available to absolutely all participants in the blockchain network - hundreds of thousands and millions of people.

What is decentralization in blockchain

A person who is not fully familiar with blockchain technology, at the moment of reading about the availability of information, is likely to tense up and think - is it safe? This is the meaning of the blockchain decentralization system - it is possible to change, steal and delete data only if there is access to all computer servers in the network at the same time - for example, to a million computers, which is not possible. 

 

Blockchain transparency

The transparency of the blockchain network is due to the decentralization system discussed above. Absolutely all network users have access to information about all shipments. This can be clearly demonstrated by the example of bitcoin. If desired, it is quite possible to track the entire history of sending each bitcoin - for example, using a personal network node. The latter is often defined as a "node" - a server with certain software in the form of a computer or other gadget connected to the blockchain network. At the same time, each node has a copy of the entire chain - being in a permanent update as new chain links are added and confirmed.

 

Is blockchain secure

Blockchain security is based on the principle of a chain, with which you can reach someone who wants to, for example, steal cryptocurrency from other participants in this chain. Each user of the blockchain network has a copy of the network on their computer, and the total number of such copies can reach millions (according to the total number of network users).

 

It is obvious that an attempt to hack (with a concomitant change in all blocks of the chain) will cost unimaginable costs and, most likely, will turn out to be pointless, because the economic motivation for participating in the network vastly exceeds the motivation for attacking it. Hacking will not go unnoticed - network members will be able to immediately see radical changes in it. Next, the chain members will fork into a new version of the chain, unaffected by the change that accompanies the hack. This will entail a sharp collapse in the value of the attacked version of the token, the digital virtual unit of the blockchain. Thus, as a result of this, the attacker will control a worthless asset, which will lead to the pointlessness of such an undertaking.

 

Blockchain and bitcoin

Despite the fact that the blockchain technology was first described in 1991, which is already far from us, it found its first real application only in 2009 - since the launch of Bitcoin.

Bitcoin uses the blockchain as a means of transparently recording the ledger of payments. However, as noted above, blockchain technology is not limited to the Bitcoin cryptocurrency. Other cryptocurrencies also work on the basis of this technology, and it is also used for commodity inventories, counting votes in political elections, storing documents and many other actions. And this is not surprising, because blockchain technology minimizes the risks of encountering various types of fraud.

 

Banking system and blockchain: differences

It is not difficult to guess that over the past ten years, blockchain technology has been the main competitor of the banking system, its destructive and in many ways much more powerful counterpart. Let's look at the main differences between these two systems.

 

The main difference between the blockchain and the banking system is the phenomenon of decentralization of the system. The banking system always has a fairly clear centralized structure. At the heart of any banking system is the central bank, which exercises control over the activities of other banks. In fact, the central bank is the authority in the banking system, whose main tasks are regulation and supervision within the financial sector.

 

This difference entails others. For example, the blockchain network is available for operation at any time of the day and year, unlike banks, which, as a rule, work at strictly allotted time for this. The difference is in the cost of the commission for transactions. The bitcoin commission varies on average from 0 to 50 dollars, while the size of the commission is also influenced by the users themselves, who can independently determine how much commission they are willing to pay. Commission for bank transfers depends on the bank card and is not paid directly by the user. There is also a significant difference in the speed of transactions: bank transfers can “reach” for days, and bitcoin transactions take from 15 to 60 minutes, depending on the network load. 

This difference entails others. For example, the blockchain network is available for operation at any time of the day and year, unlike banks, which, as a rule, work at strictly allotted time for this. The difference is in the cost of the commission for transactions. The bitcoin commission varies on average from 0 to 50 dollars, while the size of the commission is also influenced by the users themselves, who can independently determine how much commission they are willing to pay. Commission for bank transfers depends on the bank card and is not paid directly by the user. There is also a significant difference in the speed of transactions: bank transfers can “reach” for days, and bitcoin transactions take from 15 to 60 minutes, depending on the network load. 

 

The confidentiality of a bank account directly depends on how secure the bank's servers are (bank account information is stored on private bank servers) and how carefully a private user protects his information. The principle of cryptocurrencies is completely opposite: for example, you can track the entire path of each bitcoin, but it is impossible to determine who exactly it belongs to if it was bought anonymously - there is such a possibility. 

 

The principle of security is also revealed in these systems in different ways. In the context of the banking system, the situation is similar to confidentiality - information about a bank account is protected exactly as much as the bank's servers are protected (provided that the bank's client himself takes all the necessary security measures in private). The security of bitcoin depends on how global the network itself is: the larger the network, the more secure it is.

 

Where and how is blockchain used?

In addition to cryptocurrencies, blockchain is used in many other areas. For example, in medicine - for storing medical records of patients. In public administration, many state-owned corporations and banks are actively implementing this technology. Based on the use of blockchain technology, votes are counted in elections and protected from cyber attacks. It is also used in the art environment - for the purchase and sale of works of art.

 

Blockchain pros and cons

Among the obvious advantages of the technology, it is worth highlighting, first of all, decentralization in the data storage system - this nullifies the possibility of hacking or stealing information. The advantage of the blockchain is that all network data is transparent, which makes it easier to track information about transactions. The absence of intermediaries, and hence the minimization of commission fees for transfers, is another undoubted plus.

 

However, blockchain is not convenient for everything. For example, it is impossible to cancel a transaction - sometimes this can happen by mistake. There is also the risk of attacks - however, only if one user owns 51% of the chain or more - in which case the integrity of the network is compromised. An obvious disadvantage is the principle of operation of a special hash key that provides access to your account. If it is lost, it will be extremely difficult, and sometimes even impossible, to restore the money.