Shiv Kumar Bhasin, CTO, State Bank of India, gives a beginner’s guide to blockchain technology.
The disruptive potential of blockchain is widely claimed to equal that of the early commercial Internet. A crucial difference, however, is that while the Internet enables the exchange of data, blockchain could enable the exchange of value; it could enable users to carry out trade and commerce across the globe without the need for payment processors, custodians and settlement, and reconciliation entities.
Blockchain, also known as a distributed ledger technology, was originally created as a tracking database for Bitcoin transactions. It was developed to enable individuals and organisations to process transactions without the need for a central bank or other intermediary, using complex algorithms and consensus to verify transactions.
Decentralisation: Rather than one central authority controlling everything within an ecosystem, blockchain distributes control among all peers in the transaction chain, creating a shared infrastructure.
Digital signature: Blockchain enables an exchange of transactional value using unique digital signatures that rely on public keys (decryption code known to everyone on the network) and private keys (codes known only to the owner) to create proof of ownership.
Mining: A distributed consensus system rewards miners for confirmation and verification of transactions and stores them in blocks using strict cryptographic rules.
Data integrity: The use of complex algorithms and consensus among users ensures that transaction data, once agreed upon, cannot be tampered with. Data stored on blockchain thus acts as a single version of truth for all parties involved, reducing the risk of fraud.
Efficiencies and cost reduction: In addition to enabling trade, blockchain’s theft- and tamper-resistant model can also be applied to non-monetary transactions. Because it eliminates errors and duplication, blockchain is ideal for transforming a host of digital processes.
Key benefits of blockchain include:
- Reduction of settlement time to mere seconds by removing intermediaries.
- Replacement of trusted third parties with access by all participants in the value chain to cloud-based assets that verify each party’s identity.
- Significant security enhancement in areas such as payments and credit card fraud through a decentralised public transaction record that stores details of every transaction and undergoes continuous verification by miners.
- Material cost reduction through the elimination of expensive proprietary infrastructure.
- Elimination of error handling through real time tracking of transactions with no double spending.
- Full automation of transactional processes, from payment through settlement.
- Removal of documentation bottlenecks caused by duplication.
There are various technology platforms and frameworks for blockchain—Ethereum, Eris, Codius, Nxt, Namecoin, Colored Coins, Hello Block, Counterparty, Mastercoin, Corona, Chromaway, BlockCypher, etc.
Ethereum: Ethereum is a decentralised platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. The Ethereum Wallet is a gateway to decentralised applications on the Ethereum blockchain. It allows you to hold and secure ether and other crypto-assets built on Ethereum, as well as write, deploy and use smart contracts.
Eris: A smart contract application platform, Eris is free software that allows anyone to build their own secure, low-cost, run-anywhere applications using blockchain.
Codius: When two people transact, they could write the terms of their transactions into code, but neither of them might trust the other to run it. Codius allows a third party to run it and attest to the integrity of the exact code it received.
Colored Coins: Colored Coins is an open source Bitcoin 2.0 protocol that enables developers to create digital assets on top of Bitcoin blockchain utilising its functionalities beyond currency.
BlockCypher: BlockCypher is a simple, mostly RESTful JSON API for interacting with blockchains, accessed over HTTP or HTTPS.
Mastercoin: Alternative currencies have become a popular topic in the Bitcoin space. Rather than simply using the Bitcoin blockchain as a secure time stamping system to store its own blocks, Mastercoin uses the Bitcoin blockchain to store every transaction.
- User-defined currencies: Anyone can create their own currency on the Mastercoin network.
- Decentralised exchange: The Mastercoin network itself serves as a fully functional exchange between any two currencies in the Mastercoin network. Anyone can place an order on the blockchain to trade a quantity of one currency for another, and anyone else can match the orders and have the trade complete automatically without the order poster’s further involvement.
BitCoinJ: is a Java implementation of the Bitcoin protocol. For Java developers, BitCoinJ is an entry point to developing applications that interact with the Bitcoin network.
Blockchain Service on the Cloud: BlockApps, a startup providing Ethereum blockchain software for enterprises, has become the first certified offering on Microsoft Azure’s Blockchain-as-a-Service (BaaS) marketplace.
Shiv Kumar Bhasin is CTO at State Bank of India
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