In preparation for a summer trip, 7th-grade student Dharani Purushotham engaged in the current rudimentary process of exchanging currency. A comment made by her dad drove her curiosity toward ‘Blockchain’. Diving deep into the subject, Dharani writes about Blockchain’s role in changing how transactions take place today.
Visiting new places, meeting new people, and enjoying local cuisines are activities I enjoy during my holidays. In preparation for our summer trip, I accompanied my dad to a bank to collect foreign currency.
I was intrigued by how the currency exchange works, and how we don’t usually carry dollar bills.
In the process of collecting foreign currency, my dad made a comment that made me curious.
Dad believes that I may not have to deal with such conversions, by the time I grow up.
In a passionate discussion, I learned about a technology called ‘Blockchain’. A technology that can completely change how currency works today.
What is Blockchain?
Think about blockchain as a special kind of digital notebook keeping a record. Instead of being just one notebook, it’s like a huge chain of notebooks (or “blocks”) linked together. Each block holds a bunch of information, such as transactions (exchanges of things like money). When one block is full, it’s connected to the next block, forming a chain of blocks. This is where the term “blockchain” comes from.
Interestingly, Satoshi Nakamoto is credited with being the founder of Blockchain technology, but his identity is still yet to be materialized.
Inner Workings
New information, such as purchasing with digital money, is first put into a new block. Before this new block can be added to the chain, ‘Miners’ will check to ensure the information is correct. Miners validate a block by solving a math problem. They can see if the new block fits with the previous one.
Depending on whether the block fits or not, the transactions are either validated by a consensus of miners and added to the chain of blocks, or they are canceled out and deemed invalid. Once the block gets added to the chain, the miners get rewarded for their efforts in cryptocurrency.
Each block is connected and dependent on the one before it, making a link of a chain (hence the name “Blockchain”).
The entire blockchain is stored on numerous computers around the world. Thus, if one computer fails or gets hacked, the blockchain continues functioning because of a decentralized architecture.
Access and utilization of blockchain requires the use of keys. There are 2 keys, a public, and a private key.
A public key is like your address, so, it can be shared with anyone you want. Your private key is more like your house key that you do not share.
Security and Accuracy
Blockchain can be deemed accurate and secure. As data blocks are linked with previous blocks after validation by multiple miners, the information is stored on numerous computers, making data tampering extremely difficult.
Secondly, information in the blockchain is always tracked and verified. Every party can view the information in the blockchain. This openness helps build trust as everything is transparent.
Lastly, blockchain supports decentralization. Instead of having a single central authority (like a bank) controlling the information, blockchain distributes control among many users. This reduces the likelihood of a malicious person who can disrupt the entire system.
Implications of Blockchain
As I researched Blockchain technology, I found that there are several drawbacks of it. That’s probably why my dad thinks it will take time to be an essential part of our daily lives.
One of the key issues is the high energy consumption. Imagine dealing with a billion transactions that need to be validated by multiple miners. That is billions of processes that computers would have to manage at instant speeds.
A large number of very powerful computers are required to make sure the transactions are complete, which means a lot of energy consumption having an impact on our environment.
Just like AI, Blockchain also needs a lot of computing power and there are sustainability concerns with such high levels of energy needs.
To meet the energy demands without further damage to our environment, companies are researching renewable energy and efficient hardware to support revolutionary technologies like this.
Another challenge Blockchain faces is global acceptance. I learnt in Social Studies that the concept of voting came about because there are differences in opinion. Something advantageous for one group may not be for others. Getting multiple countries to agree on something is not easy. Since Blockchain is relatively new and the law to govern it is yet to be established, there is uncertainty about how it will evolve.
Another problem with Blockchain is false positives. Although a blockchain proves high accuracy in validation, slip-ups and mistakes may take place. There isn’t a proper way to correct any mistakes that slip through validation. It is assumed that the transaction is accurate and there are never any mistakes. While errors may not have occurred or have gone uncaught, not having a way to fix them once the block is attached to the chain may be a drawback. Think about a typo in an essay. Honestly, I’d be very nervous if I couldn’t get a chance to fix a mistake I made. It turns out that many companies have the same fear so blockchain usage is still very limited.
Blockchain Today
Despite the challenges, this is a promising technology that many companies are applying to improve our way of daily living.
Cryptocurrencies (Bitcoin, Ethereum, etc.) and NFTs (Non-Fungible Tokens aka digital assets) are the most popular uses of Blockchain technology.
Financial institutions have implemented Blockchain for payment processing and money management/transfer. JP Morgan Chase’s Onyx, Visa, HSBC, and Barclays all use Blockchain technology.
Walmart is implementing Blockchain for inventory management and supply chain management. Tracking food products’ source to their management until they are sold ensures safety. Similarly, De Beers tracks diamonds from mines to stores, to ensure size and quality are maintained.
Singapore Airlines has used Blockchain to build its loyalty program and a few other airlines are exploring it to manage bookings too.
Propy is a Silicon Valley company that is changing how real estate deals are done by using smart contracts and storing all documents in Blockchain.
FDA is said to be working on using Blockchain to safeguard patient information.
Companies selling IoT devices (Internet of Things) such as smart home devices (doors, fridges, lights etc.) are implementing Blockchain technology to secure the communications between these devices.
Where am I Going with this?
With Bitcoin and other cryptocurrencies becoming household terms, I am confident that there will be innovation to overcome its current challenges. Soon, we will hopefully have a much better experience with accurate and fast transactions. One day, I will be able to travel to a different country without the hassle of converting my dollars to a different currency.
