Why Is Blockchain Important?

9 minute read

Blockchain has been around since 2009, along with its first application, Bitcoin. Many people think of cryptocurrency when they think of blockchain. However, its role has expanded to many other industries — this is why blockchain is important to understand. Because it’s so safe and transparent, some experts believe blockchain will be the foundation of the next version of the internet, called Web 3.0

Blockchain Technology 101

Before we get into the importance of blockchain, let’s go over some basics about what it is and how it became so popular. 

What Is Blockchain Technology?

Blockchain technology is an extremely secure method of recording transactions. 

It gets its name from its structure — a series of unchangeable blocks controlled by its users. These blocks are packets of data that usually contain a collection of transactions, although it can be any type of data. Once a block reaches its data capacity, it’s given a cryptographic code and closed. 

After the closed block attaches to other blocks in the chain, it’s tagged with the code of the previous block. This backward link validates the integrity of the chain. If a hacker tampers with any of these blocks, the code will change and break the chain. The block then becomes invalid, maintaining the chain’s security. 

Information in a blockchain doesn’t sit in one place. It gets copied across many linked computers. You can join a public network or be invited to join a private network as a user, a node, or a miner. 

If you’re connected to the network as a user, you can make transactions.  If you join your computer to the network as a node, your computer will keep a copy of the entire blockchain. Miners work behind the scenes to validate transactions and create blocks. Almost any computer can act as a user, but you’ll need a more powerful computer to be a node or miner. 

Every time someone makes a transaction, that action is recorded in the digital record on every computer node in the network. This built-in security helps everyone trust that their transactions are safe and accurate.

The Evolution of Blockchain

Blockchain started with a person — or group of people — called Satoshi Nakamoto in 2008. They published a white paper introducing Bitcoin under this pen name, and no one has been able to find who was behind it. 

Soon, people saw that blockchain could do more than just record Bitcoin transactions, so they started adopting blockchain for other purposes. There are now different kinds of blockchains. Some are open to anyone, some are just for certain groups, and some are private. Each kind has its own level of security and rules.

The next big breakthrough in blockchain technology was Ethereum, which launched in 2015. It introduced smart contracts, which contain agreed-upon contract terms directly in their code. When one of the parties meets the contract terms — which can be anything digital and verifiable — the system automatically takes action. 

For example, if you want to create a smart contract to sell tickets to a concert, you can create one in Ethereum. Once the buyer pays for a ticket, the system sends it to the purchaser’s email address. After you set up the contract’s rules, you don’t have to do anything else.

We’re now seeing blockchain deployment pop up in many places, not just in economic circles. People are using it to track items they order, supplies in hospitals, and even for voting — though not in public elections. 

Fundamentals of Blockchain

Blockchain solutions use ledger technology to keep a record of transactions. For instance, here’s how you’d go about sending a friend digital money using blockchain: 

  • You’d start by opening your digital wallet, an app for managing digital assets. Then, you put in the address of your friend’s digital wallet and how much you want to send.
  • To make sure it’s really you sending the coin, your wallet will use your private key to create a digital signature. This is a code that proves it’s your transaction without showing your password to anyone.
  • After you sign it, your wallet sends your transaction to the blockchain network. This announces to the computer nodes in your network that you’re sending a transaction and need them to validate it. 
  • Before they validate it, the nodes will check your transaction. They use special rules set up by the blockchain developer to ensure your signature is correct and that you have enough coins to send.
  • Once the blockchain verifies the transaction, the system groups it in a block with other transactions and adds it to the chain. Blocks that aren’t full can be added to the chain, but if a block reaches capacity before your transaction is added, you’ll have to wait for another block. This process can take anywhere from a few seconds to several minutes. 
  • Multiple nodes do complex math problems to attach this new block to the blockchain. The first one to solve the math problem wins and gets the associated fee. 
  • Your friend’s wallet sees the transaction after the system adds your block to the chain. The coin moves from your wallet to theirs. It’s official, and everyone on the network has a record of the exchange. 

There are different types of blockchain platforms. Anyone can join a public blockchain, while private blockchains are limited to specific uses. Permissioned blockchains combine elements of both — anyone can join provided they have permission from the administrators. 

The Importance of Blockchain

Blockchain technology is important because it solves major problems with a lot of digital technology. It’s open, yet secure. Everyone involved can see what’s going on, but no one can make changes once the system adds a block to the chain. 

Security and Trust

The benefits of blockchain for security and trust include: 

  • Cryptography: Blockchain keeps transactions safe by using special codes that scramble the information, making it hard to change any data. 
  • Consensus protocols: These rules help everyone on the blockchain agree on what’s true. The network nodes check and approve all transactions before adding them to the network. 
  • Decentralized network: Blockchain spreads its data across many computers, so hackers can’t gain anything from attacking one single place. The network also eliminates the need for a middleman. This decentralization makes transactions more transparent and trustworthy. 

Transparency and Immutability

Within a blockchain, transactions are open for everyone to see. This provides a level of transparency and permanency that’s lacking in other forms of financial transactions.

Because everything happens in the open, anyone can check the transactions. However, no one has to know the true identity of anyone involved. As a result, users can trust the system.

Blockchains are also immutable. Once they record a transaction, nobody can change it unless everyone else on the network agrees. This means it’s obvious if someone tries to cheat or change a transaction.

Efficiency and Cost Savings

Blockchain can make things run smoother and save money by cutting out middlemen. Specifically, it can lead to:

  • Streamlined processes: Things can move faster without third parties to handle transactions. For example, smart contracts automatically complete transactions once someone performs a pre-defined triggering event. 
  • Reduced costs: Organizations can save money because they don’t have to pay fees to middlemen. Also, because everyone shares the same data within a blockchain, it can cut the costs of keeping up different sets of data records.
  • Faster transactions: Normal bank transfers, especially international ones, can take days. Blockchain does it in minutes, and at any time, day or night.
  • Accuracy and less human error: The need for agreement from the network means there’s less chance of mistakes or cheating once someone makes a transaction.

Blockchain Across Industries

Blockchain technology has the potential to change many industries by enabling trust, providing transparency, and reducing obstacles that slow down business processes. 

Blockchain in Banking and Finance

In addition to digital money applications like Bitcoin, blockchain is useful for a lot more in the world of money and banking, including:

  • Cross-border payments: Sending money to another country using blockchain can be faster and have fewer fees than traditional international transfer methods. That’s because it skips the usual middlemen, such as banks. 
  • Fraud reduction: Blockchain is good at protecting financial transactions. This protection is essential when banking involves complex systems that are easy targets for fraud.
  • Clearing and settlement: Blockchain helps to finish trades quickly. Smart contracts ensure trades go through almost immediately, as there’s no need for a central authority to check them.
  • Tokenization: This is when you take something tangible, like a building, a painting, or gold, and create a digital version of it on the blockchain. This can make selling parts of that property to different buyers easier. Objects become more saleable while letting more people own a piece of them.
  • Credit and loans: Blockchain can show someone’s history with money, which can help banks figure out who is likely to repay a loan. This can lead to better loan conditions for borrowers.

Blockchain in Medical Records

Blockchain in healthcare protects patient privacy and makes it easy to share medical records. It does this through:

  • Interoperability: With blockchain, hospitals and doctors can share medical records safely with each other without compromising private information.
  • Data security: As more hackers try to steal sensitive information, blockchain can help keep private health details safe. Developers can create blockchains that follow strict privacy rules, such as the Health Insurance Portability and Accountability Act (HIPAA).
  • Patient-centric records: Blockchain lets you manage who gets to see your health records. You can decide who checks your info, keeping your privacy in your hands.
  • Research and clinical trials: When scientists test new medicines or treatments, blockchain can help by securely tracking every step and protecting data along the way. This way, everyone can trust the results.

Blockchain in Logistics

Blockchain-based systems make it easier to track and manage the way things get from Point A to Point B, especially in supply chain management. Blockchain supports logistics with:

  • Provenance tracking: With blockchain for supply chains, a company can follow a product’s path from where manufacturers produce it to where it ends up. This helps prove the product is genuine and meets all regulations.
  • Counterfeit prevention: Blockchain makes it harder for fake products to enter the market. The nodes record each step of a product’s journey securely, making it easy to spot if something’s wrong.
  • Smart contracts: Automatic agreements make the process of moving goods smoother and eliminate the need for human intervention. For example, when a supplier delivers a product, the buyer can pay for it instantly through the blockchain. 

Leverage Blockchain Technology for E-Signatures

When it comes to electronic signatures, Consensus Cloud Solutions leads the way. With this blockchain application, when you sign a document online, the blockchain encrypts your signature with a unique code. The nodes then record this code on the Consensus blockchain network.

With Consensus, your electronic signatures can’t be tampered with or altered, and they’re extremely safe. This means the electronic signatures of everyone with whom you do business are trustworthy proof of their unalterable agreement. Sign up for a demo today to get started.