Blockchain has taken
a while to unravel its mysteries and full potential despite bitcoins having captured
imagination of the general public a while ago. There have been enough and more
discussions about what a blockchain is. What is more interesting is what it
does rather than what it is! Here is a recap for those who have so far managed to insulate
themselves from the rattling noise this blockchain.
The oft repeated
definition of the blockchain says it is a distributed ledger. And like a
traditional ledger it allows to maintain records of opening balances, closing
balances, debits and credits. But unlike
a traditional ledger which requires a single and “trusted third party” to make
those entries, blockchain provides for
multiple stakeholders or “nodes” to validate a transaction. Thereby
democratizing and making transparent the entire process of record keeping. There
are four most important characteristics of a blockchain which have potential to
make it the most transformational method of record keeping. Let’s now see why the ledgers will never be
the same again.
First is the
Consensus. Blockchain requires that a transaction or an event be accepted as a
valid record only if all – or the majority - of
the participants in that transaction have confirmed legitimacy of that
transaction. Mandating the consensus achieves two benefits. The validated transaction
can’t be repudiated nor can a transaction be inserted later into the chain
surreptitiously. Only a transaction so validated is allowed to be entered as a
record into the ledger or the blockchain.
Second is the Irreversibility.
A transaction can’t be reversed once it is accepted as a valid record. And this
record remains in the blockchain for posterity. Whenever it is warranted that a
transaction be reversed then the blockchain mandates creation of another
transaction in the reverse order. Thus recording both the event and its
“antievent”. All such transactions are then added into a block. Blockchain can
define a rule to allow a block of transactions to be created either after lapse
of fixed time or completion of a fixed number of transactions. Once such a
block is formed then a hash value of this block is created and added to all
subsequent transactions. This ensures that once created a block can’t be
tampered with. All these blocks are then added to a chain making the records in
the ledger irreversible.
Third is the Provenance.
This means a blockchain records not only the title but the entire history of
the title as it passes hands over a period of time. Blockchain ensures that a
person can’t transfer a title in an asset unless he owns it or transfer a value
unless he has the balance more or equal to that value.
Fourth and the
most important is the Transparency. Depending upon the rules defined upfront, a
blockchain makes available to the stakeholders of a transaction holding
necessary rights, auditors or investigating agencies the history of recorded
transactions.
Let’s see how a
blockchain will simplify say property registration transactions. Blockchain
will be useful for both sale of new as well as resale of pre owned properties. One
can create a workflow involving a node each for Property Registrar’s office; local
Municipalities; Advocates handling the sale and purchase of properties; Real
estate consultants; Builders and Developers; Architects and Civil
Engineers, Building Contractors and even
Income Tax Department etc. Rights of
each of these entities can also be predefined. The blokchain then will obtain
consensus of all or predefined majority of the nodes before allowing a
transaction to be added into the chain. It is apparent that each transaction of
sale of property has met all the four qualifying criteria of the Blokchain :
Consensus, Irreversibility, Provenance and Transparency.
It must be
obvious by now to even a casual reader that these tenets make a blockchain a
perfect way of handling a slew of transactions especially in matters of public
interest. Blokchain will have several useful applications in payments, banking
and any type of asset transfers. A few examples where a blockchain appears to
be the most apt way of keeping records are, land / property registration, cross
border remittances, handling of Letters of Credit, vehicle registrations,
inventory and supply chain management so on and so forth. Using blockchains in carrying
out such transactions will automatically eliminate need for a separate third party
to maintain a ledger and as a corollary its ability to tamper with records. It
is about time the meddling middlemen retired and gave power back to the people.
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very well explained article Rahul. As a seasoned banktecher you could bring right perspective. Yup Blockchain will certainly transform the way how businesses are working now. New business process disruptions and business model innovations will emerge and evolve. Land registry part is over simplified I guess.... especially in India scenario it is more complicated though... over all well articulated article...
ReplyDeleteInteresting post on Blockchain, undeniably a revolutionary technology - there's really no question about it.
ReplyDeleteInteresting. I think blockchain is definitely moving away from bitcoin to enable more efficient processes in many industries. This post surely highlights some key benfits for enterprises that adopt blockchain technology.
ReplyDelete