Blockchain – A forward step to secure transaction
What is Blockchain
Security is paramount in financial transactions. Software outsourcing companies have witnessed that cyber breaches are advancing at higher rate than technology advancements. Blockchain is seen as a next big thing for safe and secured financial transactions. Blockchain is known as a backbone technology of bitcoin, a digital currency revolution. Blockchain allows making and verifying transactions on network instantaneously without any central authority.
Blockchain is a data structure that maintains growing list of records called blocks and each block contains a link to previous block similar to Linked-list and a timestamp thus creating a digital ledger. Blocks are secured from revision and tampering. Cryptography is used to allow each participant on the network for ledger manipulation in a secured way without any help from central authority.
A blockchain consists of blocks that hold batches of valid transactions. Each block includes the hash of the prior block in the blockchain, linking the two. Following diagram is an overview of underlining technology and architecture.
Blockchain not only provides a way for secure transaction but also makes it easy to recover corrupt data as every node inside a blockchain has copy of data/block. Data loss chances are also minimal as every node has copy of data. Blockchain is a technology that can be integrated into multiple areas. Some of areas where Blockchain is useful are payment system and digital currency, cryptocurrency, permission distribution like distributed voting system and share power of voting system.
Security feature in blockchain
There is no centralized “official” block copy that exists. If any person wants to change its own database copy, it will be reflected until it is verified by verifier. This reduces the chances of hacking or security breaches.
Blockchain uses public key and private for encryption. Private key are known only to user and it is not stored anywhere. During transaction, only scriptpubkey is shared. Scriptpubkey contains a public key and network address in encrypted format. So sender does not know about public key and network address making it highly secured way of transaction compared to other technologies. Following diagram depicts the transaction flow.
Workflow Of Blockchain
Let us understand how blockchain technology works with an example. Person A wants to send some bitcoin (digital currency) to person B. Person A requires wallet account and also should know digital address of Person B. Following are the steps involved in this transaction.
Step 1: Person A initiates a transaction and includes digital signature inside transaction
Step 2: Transaction is sent to miner. Miner is one type of verifier that verifies all transaction of connected nodes
Step 3: Miner broadcasts transaction as block to all connected nodes if transaction is valid
Step 4: Node inside network accepts block if all transaction inside it are valid and not already spent. After ownership of block inside network and transaction is transferred into target account inside block is sent to person B
Step 5: Person B gets money (digital currency)
Disadvantages of Blockchain
There is tradeoff for using Blockchain technology. It does offer additional security however one should consider following disadvantages.
- Blockchain requires more storage space as it stores all transactions.
- Complete transaction takes more time compared to other technologies as transaction verification process is longer and we are dependent on Miner for verification. On verification by Miner, transaction is broadcast to all node as Block
- This is comparatively costly technology. Miner charges per transaction for verification
Blockchain technology is gaining popularity among financial institutions as this is highly secured way of doing transactions. Software outsourcing companies in India are experimenting the usage of Blockchain technologies in various ways through various vendors.