Revised Definition of Blockchain Technology

INTRODUCTION: 

The learning goal for this week’s assignment is to explain a technical term to someone without the technical background. Students should be able to differentiate parenthetical, sentence, and expanded definitions of a term, as well as understanding the appropriate definition to use in various situation.

SITUATION: The target audience for this definition is people who does not have any technical background in Finance nor Computer Science.

TERM: Blockchain

PARENTHETICAL DEFINITION

The core technology behind cryptocurrency is blockchain (non changeable record-keeping system).

SENTENCE DEFINITION

Blockchain is a record-keeping technology or a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.

EXPANDED DEFINITION

BLOCKCHAIN

What is Blockchain?

Blockchain is a secure, decentralized and transparent database (a computer system that stores structured information), that records financial transactions in a large, distributed ledger (record-keeping system). Transaction information is publicly visible and not fungible. The decentralized nature of recorded data makes it more secure and efficient, which differentiate it from the current technology in use.

What makes it different from a database?

The key difference between a typical database and a blockchain is the way the data is structured. A database is a computer system used to electronically store structured information. A blockchain collects information together in groups (or blocks), that hold sets of information. When Blocks have reached full capacity, they are chained onto previous filled blocks, forming a chain of data or the “blockchain”. In contrast, a database structures its data into tables (i.e. spreadsheet). The result of blockchain structure makes an irreversible timeline of data when implemented in a decentralized nature.

Why is it used?

The blockchain technology is mostly used in the financial system, which can potentially transform how money is exchanged worldwide.

The current financial system requires a money transfer to go through an intermediary (i.e. banks) and several stages of checks and verification to ensure legality. Since financial intermediaries hold a vast central reserve of customer data, this makes the system vulnerable to cyber attacks. It is also inefficient due to vast amounts of time and money going into processing a single transaction. In addition, the lack of accessibility to this system and the expensive broker fees make the current system even less attractive.

With blockchain, since it is not required for the merchant to know who the user is, there is no need to share personal data. Furthermore,  the absence of transaction intermediaries eliminates the problem of inefficiency and high transaction cost. Last but not least, the inclusivity nature of blockchain opens up investment and securities trading opportunities to anyone in the world.

This figure below illustrates how blockchain is used in a financial transaction.

Figure 1 Transaction Process – Blockchain Explained

Source: Adapted from Investopedia, https://www.investopedia.com/terms/b/blockchain.asp

Is blockchain technology secure?

Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain, making it very difficult to alter the contents unless the majority reached a consensus to do so.

For example, if a hacker ever wants to alter the blockchain and steal Bitcoin from other people, the hacker have to alter their own single copy, which makes the ledger no longer align with everyone else’s copy and that hacker’s version of the chain would be cast away as illegitimate. Such action is only possible when the hacker control and alter 51% of the copies of the blockchain simultaneously, which is extremely expensive to do and will most likely be noticed.

Works Cited

Conway, Luke. “Blockchain Explained.” Edited by LULIUS MANSA, Investopedia, Investopedia, 31 May 2021, https://www.investopedia.com/terms/b/blockchain.asp.

“How Blockchain Technology Can Disrupt Financial Services.” Consultancy.eu, Consultancy.eu, 24 June 2021, https://www.consultancy.eu/news/6384/how-blockchain-technology-can-disrupt-financial-services.