Diving Into Blockchain - Get Fundamentals Right
Transformational technologies have redistributed wealth time and again. If history doesn't repeat itself, it surely rhyme with blockchain technology
The question is no longer if Blockchain will survive as a technology. The question is, if the people who are not learning it, will.
The fundamentals of blockchain and crypto-economics is very simple. It will create two classes: one that understands it, and the one that doesn't. You may say, that it will create the next generation of the Bourgeoisies and the proletariats in many sectors.
Transformational technologies have redistributed wealth time and again. If history doesn't repeat itself, it surely rhyme with blockchain technology.
Blockchain, at its core is essentially the combination of cryptography and distributed databases. Both technologies were around for a long time. So blockchain is not actually a new technology. It is the combination of these two technologies and its application in transferring currencies and assets that makes it a game changer.
Simply speaking, Blockchain allows a network to establish with very high certainty, that something considered to be of value, has been transferred from one party to another. Each block in a blockchain application, is cryptographically linked to the block that came before it, right to the first block. Network participants involved in validation, all have the same copy of the database of the complete blockchain transaction ledger. This combination of cryptographic linking of blocks and distributing a copy of the ledger to other network participants is what makes editing a blockchain database very difficult. If a blockchain is intercepted and edited with an unauthorized transaction, the network participants can validate it with their copy of the ledger and reject that transaction.
The bitcoin network is the genesis as well as the largest implementation of a public blockchain.
Private blockchain implementations typically involve a groups of banks and corporates that got together to form a blockchain network.
In the bitcoin blockchain anyone can join the network and become a miner or a validator of transactions. The identity of the miner in the real world is unknown to the rest of the network. The bitcoin network employs Proof-of-work to deter miners to add invalid or double spent transactions to the blockchain ledger. In the world of private blockchain the network participants are known to each other and are regulated entities.
Private blockchains typically do not employ proof-of-work for validation. In a private blockchain it is enough to know who in the network attempted to play foul. Private blockchains are guided by business policies which can levy a fine for a participant who attempts to add an invalid or double spent transaction.
In the bitcoin network, miners need an incentive to invest resources to validate a transaction. Miners have no clue as to who is transacting and what those transactions are for. In a private blockchain, participants of the network are incentivized by the goals set by the business network. If they think that by achieving multi-organization integration on a particular process will bring them cost reduction or operational efficiency, that is incentive enough for them to play their role on the network.
The debate of using a centralized databases with access controls instead of blockchain is commonplace today. The implementation of blockchain is most valuable when governance will pose challenge for different entities to share a centralized database. In a centralized database, organizations have to agree on who will own the data, who will be the central authority to edit the data, etc. Having a decentralized system where everybody has a copy and can only add new data validated by the members of the network helps the case.
We at ICICI bank started our blockchain journey 2 years back. ICICI bank has a history and culture of innovation and was the first in India to pilot run a cross border open account transaction in 2016 with Emirates NBD.
At ICICI bank we realize that global standards are quickly converging in the area of blockchain. In blockchain remittance we are collaborating with Stellar.org (hyperlink website) and their implementation partner Hashcashconsultants.com (hyperlink website) to implement a low cost, instant remittance solution for the India-Middle East corridor. Six banks and top three exchanges in the Middle East are excited to work with us and build this network. We welcome other banks in Middle East and India to join us.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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