Blockchain is said to have an impact on modern society that could be described as a return of the Internet.
Let’s think about what blockchain is and whether it will change our society.
What is Blockchain?
The price of the virtual currency Bitcoin has been soaring day after day, causing a stir in the market. Why is Bitcoin, which has no physical form, starting to be recognized as a currency?
This is because there is expectation and trust in the blockchain technology that underpins virtual currencies. Since the paper on Bitcoin was published in 2008, people have gradually begun to pay attention to the amazing technology that underpins Bitcoin, called blockchain. It is now seen as a revolutionary technology that will dramatically change the way society works, and many people are investigating its uses.
So, what exactly is blockchain?
What is blockchain?
A blockchain is an open, public, distributed ledger.
I have no idea what you’re talking about. A ledger is a book that records transaction history. Until now, transaction records have been managed by a specific central organization, but the idea is to decentralize the same transaction records and have them managed by people all over the world online.
It is called a distributed ledger because the ledger is managed in a decentralized manner. Usually, data is managed by a single company, but Blockchain is a technology that distributes data and allows everyone to manage it.
Three characteristics of blockchain
Blockchain has three main features:
- Distributed
- Being public
- Data is connected in a single chain
Distributed
Blockchain is not managed by someone on a single server; rather, the same data is managed in a distributed manner across multiple computers around the world. It is based on a P2P (peer-to-peer) network in which individual participants exchange data directly.
Public
The blockchain is open and public.
In other words, anyone can see it. It’s a record of transactions.
Then people all over the world will verify that the data is correct.
Data is connected in a single chain.
The verified transaction data is compiled into a block at regular intervals. It is then connected to previous blocks in a single chain. Each of these individual characteristics of blockchain has existed in the technology world before, but it is the combination of these characteristics that makes blockchain revolutionary.
What’s so great about blockchain?
There are three main benefits of blockchain:
- High reliability
- Low cost
- High security
High reliability
Since data on the blockchain is distributed, it is difficult to rewrite it. There is a lot of the same data all over the world, and it is being monitored by everyone. In such a situation, even if data in one place is tampered with and rewritten, data that is different from other data will not be recognized as correct data. In addition, it uses an encryption technology called a hash function, which makes it impossible to go back and change past data. The difficulty of rewriting data in this way ensures the reliability of data in blockchain technology.
Additionally, the fact that blockchain is open and has no specific administrator means there is no need to trust anyone, which also increases its reliability. There is no longer a need to simply trust a particular company or government, as in the past; instead, open data is shared by everyone, making things more transparent and less likely to lead to fraud.
Low cost
(1) Omission of intermediate costs
Blockchains connect individual participants directly, eliminating the need for intermediaries. What I mean is, for example, when sending money.
Until now, banks had to act as intermediaries to transfer money, but with virtual currencies, money can be sent directly to the recipient’s address. Until now, many banks have used the bucket brigade method to send international remittances inefficiently, but by using virtual currency, it will be possible to send money directly and quickly to people in faraway countries.
Not only in remittances, blockchain has the potential to eliminate intermediaries that have existed until now in a variety of fields. And by eliminating the middleman, users can expect to receive services at cheaper prices.
Lower data storage costs
Until now, certain companies have been working hard to manage data. We spent a considerable amount of money operating a data center, taking thorough backup measures, and taking measures against hacking and disasters to avoid losing data. Distributed data storage using blockchain is expected to reduce these storage costs. Indirectly, users may also benefit from lower costs.
Excellent security
The data is available for everyone to see. Aren’t there any security or privacy concerns? You may be wondering, “Why is this necessary?” However, blockchain technology is said to have excellent security. First, because the processing is distributed, even if one computer is attacked, the unauthorized operations will not be reflected. When transferring money, encrypted data is exchanged using a technology called “public key” and “private key.”
These two measures prevent data from being tampered with. Some advanced countries, such as Estonia, are using blockchain technology to electronically manage citizen information. It also keeps a record of who has viewed personal information, which helps prevent the information from being misused. Blockchain itself has excellent security because it is resistant to attacks, and the transaction history is easy to track. Other issues exist, such as the hacking of exchanges where virtual currencies are bought and sold, and the security of wallets that store virtual currencies.
How will blockchain change the future?
What exactly can blockchain do? First, there is virtual currency, the star of blockchain. Even though it is data that does not exist in physical form. Its value as a currency is beginning to be recognized due to its high reliability.
Bitcoin, the creator of blockchain, Ethereum, the smart contract platform, Ripple, which specializes in international remittances, etc. There are now hundreds of coins in existence, including minor ones. Because virtual currencies are not currencies whose value is guaranteed by a particular country. If they become widespread, they will create an entirely new currency that is not subject to national control.
I think it’s a bit extreme to predict that it will replace fiat currency, but if it continues to spread and doesn’t collapse, it will certainly change the structure surrounding money. Next, there are smart contracts that use blockchain technology. A smart contract is a contract that is programmed and written on the blockchain so that it can be executed automatically.
This eliminates the need for manual work such as the exchange of complicated documents. For example, in trade transactions, letters of credit and shipping documents are exchanged between exporters, importers, forwarders, banks, etc., i a bucket brigade-like manner, but efforts are already underway to significantly improve the efficiency of operations by sharing documents using blockchain smart contracts.
IoT Technology
In addition, by combining it with IoT technology, various uses are possible, such as when checking in at a private lodging, the room door can be opened with a smart lock, and the contract can be automatically executed and the fee can be deducted at the same time.
In addition to those related to virtual currencies and smart contracts, many startup projects using blockchain have been born. The emergence of new currencies, the simplification of contracts and operations, and the elimination of unnecessary work.
Future challenges of blockchain
Along with AI and IoT technologies, blockchain technology gives us a glimpse of changes to the future.
We have only covered the positive aspects of blockchain, but of course, there are still many challenges ahead. Regarding virtual currencies, at present, all of them are viewed strongly as speculative investments, so I think the major goal going forward will be for them to move out of the speculative market and become generally accepted as currencies and put into practical use.
As things stand now, prices fluctuate too much and value is not stable, so we need to wait for the market to stabilize over time while we solve the technical challenges for each currency and have the market recognize its benefits. When it comes to smart contracts, rigorous verification is required on how they can be applied in the real world. For example, smart contracts cannot address problems that the original contract itself did not anticipate, and enforcing a smart contract may work against you in sensitive cases where human judgment is required. Linking it to IoT presupposes the widespread use of IoT devices, and there is also the risk that incorrect contracts will be concluded due to malfunctions or hacking of IoT devices.
