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Today, banks have enhanced the security of transactions, especially commercial sales and digital contracts, in the fight against threats such as data leaks and fraud. Blockchain was initially designed in 2008 for Bitcoin but has now grown to be a safe and decentralised tool that does away with middlemen that may be a threat.
Illustration by The Geostrata
The transparent and tamper-proof architecture of blockchain safeguards the integrity of data, and hence it is highly applicable in financial transactions, smart contracts, and digital asset protection. It is valuable in management and governance processes because it aids in supply chain management through transparency and trust.
WHAT EXACTLY IS "BLOCKCHAIN"?
Blockchain technology works on a shared ledger across many computer networks, like Bitcoin, but securely records transactions. Information can be kept in cryptographically linked blocks, which guarantees that it cannot be modified once it is entered; hence, there is no necessity for an intermediary like the auditor since data integrity at entry will be ensured.
It was conceptualized by Stuart Haber and W. Scott Stornetta who first got mainstream recognition with the launch of Bitcoin in January 2009. It has been used since then throughout decentralized finance, NFTs, and smart contracts, promising innovative solutions in lots of industries.
HOW BLOCKCHAIN WORKS FOR SECURE TRANSACTIONS?
A blockchain system works in the following pattern of operations meant to make every transaction safe. First, it starts with transaction initiation where one party, often participating through an entry, shall submit information including recipient name and details and amount and their digital signature. Following this, a transaction is broadcast throughout the network to enable nodes to be aware and participate in validating such a transaction.
The validity of transactions is carried out by blockchain networks through mechanisms known as Proof of Work or Proof of Stake. Here, nodes solve complex problems to verify the legitimacy of the transaction, but at a high energy cost.
Once validated, transactions become a group to form a block that is then permanently appended to the blockchain, which cannot be altered. Various consensus protocols help balance between speed and security, though faster confirmations are less secure.
The immutability of the blockchain makes the record fully tamper-proof; once a transaction is entered, it can only be modified through validation on the network as a whole, ensuring reliability in keeping records for some time.
TRANSACTION PROCESS OF BLOCKCHAIN
Blockchain transactions vary from one system to another. In Bitcoin, a transaction is added to the memory pool until picked up by miners. The miners collect the queued transactions and form blocks to compete in solving complex mathematical problems by incrementing a nonce until they find a valid hash, proving "work" done. Bitcoin's energy-intensive proof of work process takes around an hour to be confirmed finally with five subsequent blocks.
Ethereum, on the other hand, uses a proof-of-stake mechanism that is more energy efficient where a validator is pseudo-randomly chosen from users who have staked. This leads to faster confirmations. Each blockchain has its unique methods of validating transactions to ensure the security and integrity of digital transactions.
SECURITY FEATURES OF BLOCKCHAIN
A few features are included in blockchain technology which ensures strong security. This system uses cryptography, a set of keys- a public and a private one that no person can breach with privacy and integrity. Due to its distributed nature, it is replicated across a node, hence there isn't any requirement of some central authority whose validation should be sought to verify any transactions; thereby it helps minimize single points of failure.
Due to this consensus mechanisms used for transaction validation avoid fraud. Although modification is quite impossible for the ledger since it's immutable, each transaction has traces in case of transparency. This can also facilitate the creation of security tokens for traditional assets so that ownership records and overall financial security are improved.
IS BLOCKCHAIN SECURE?
The blockchain relies on the properties of transparency, immutability, consensus mechanisms, and cryptography for its security. Blocks are added in chronological order, creating an immutable record. Any change to the data within one block results in the hash being different; consequently, any following blocks also change their hash, making it impossible for the network to accept such data.
Although blockchains cannot be considered fully impervious to attacks like 51% attacks, routing attacks, phishing, and Sybil attacks. The smaller blockchains are easier to attack: for instance, a 51% attack allows controlling more than 50% of network power, capable of rewriting the transaction history. On the other hand, larger networks, such as Bitcoin, boast over 640 exahashes per second and nearly cannot be attacked.
BLOCKCHAIN USE CASES FOR SECURE TRANSACTIONS
Blockchain gives a tamper-proof decentralized platform for transactions while also enhancing transparency and traceability of fraudulent activity. Blocks of data need to have consensus within the network before it can be added to the chain of blocks; they cannot be amended once on the chain, hence their security is maximized.
Smart contracts utilize pre-existing conditions that transactions execute automatically once met; this eradicates human error and the involvement of middlemen as well. Blockchain serves more than finance; it acts as a platform for the user to exchange personal data and digital assets, taking power back from users and revolutionizing transactions online.
FUTURE OF BLOCKCHAIN FOR SECURE TRANSACTIONS
Blockchain technology goes beyond cryptocurrency and touches many sectors by improving decision-making, corporate governance, healthcare, and agriculture. In business, blockchain can improve governance by standardizing information sharing among participants and storing data securely across platforms, thus creating interoperability for algorithms used in decision-making. Validation tools reduce risks like data manipulation, hacking, and miscommunication while minimizing errors by reducing human intervention.
Image Credits: Bloomberg
Blockchain can be used in healthcare, supporting real-time health monitoring through smartwatches and saving lives. AI and IoT can analyze data from wearers to give them timely, personalised care.
In agriculture, blockchain helps enhance supply chain management by connecting farmers, wholesalers, and retailers, reducing global food waste through efficient practices. In general, blockchain ensures secure data management, transparency, and operational efficiency in multiple industries.
PROS & DRAWBACKS OF BLOCKCHAIN
Open access is available to all, and no permission is needed. A decentralized model is applied where data access is through zero-knowledge proofs and securely preserved across a node without compromising data safety. Since no one controls the blockchain, it is censorship-resistant.
The validation of transactions is secured through hashing algorithms such as SHA-256 through consensus protocols and smart contracts. This transparency eliminates the intermediaries and thus boosts efficiency and speeds up transactions while lowering costs due to a sense of trust in each other.
Blockchain technology has advantages but major disadvantages. Every block can only be 1MB, limiting the number of transactions that can be processed. As of 2018, blockchain verification accounted for only 0.3% of global electricity consumption. Slow mining processes, because of complex calculations, slow down transaction speeds in fast-paced industries.
Legal challenges also exist, with some countries banning cryptocurrencies for environmental and regulatory reasons. Increased data replication among nodes creates storage issues, while outdated regulatory frameworks impede widespread adoption.
In conclusion, Blockchain technology is making changes happen in transactions that promote efficiency, security, transparency, and decentralization while assuring tamper-free records along with cost-saving implications-it is of most benefit among finance, assets management, and supply chains and presents immense potential for overall international scope in terms of developing protection and efficiency.
BY VAIBHAV PANDEY
TEAM GEOSTRATA
Intricately detailed, well written!