Blockchain : The Enigma

Blockchain : The Enigma

Today, there are very few names which come in front when it comes to security domain. Though there are big names in the game, Blockchain is the leading one. Even the CEO of IBM, Ginny Rometty, has said that, “What the internet did for communications, blockchain will do for trusted transactions”. Blockchain is an undeniably ingenious invention. Except the fact that there are many myths about blockchain, I think it’s very simple if you understand it from the very basic.

Let’s illustrate by comparing a blockchain with a bank. Your bank maintains a central database( “ledger”) of all their customer details. This may store account numbers, balances, transactions, and more. Whenever you interact with your account for your financial transactions, the account details in the database are updated. Only the bank has access to the ledger, so if they decide to make a change, there’s not much you can do about it. This shows some lack of transparency between the bank and the user. Now imagine if a hacker gained access to this database. They could change balances, delete transactions, and more. It’s hard to take action against this kind of activity because bank is a central entity. Again there are security restrictions for bank to maintain a system which is not prone to hacking because it is a single authority and have only one central database. Bank also charges high transaction fees for providing the service. The stats shows that JPMorgan Chase, Bank of America and Wells Fargo earned more than $6 billion from ATM and overdraft fees in 2015. If we observed above problems of current system, we repeatedly notice the term “Centralized System” . So, can we think of a better solution?

Here, blockchain comes into the picture with its “Decentralized Nature”. Bitcoin is a cryptocurrency build on blockchain architecture. It doesn’t charge any transactional fees in the service. Blockchain is a decentralized public database. Everyone who is connected in the blockchain network is called as a peer. As it is a public database, each peer has separate local copy of blockchain. The blocks are connected to each other with unique hash. The hash is calculated from applying cryptographic algorithms(e.g.SHA-256, SHA-512) on the digital information present in the block.  Blockchain consists of blocks which contains digital information about transactions like, in case of bank, sender’s account number, receiver’s account number, amount, timestamp, hash of previous block and the hash of that particular block. Blockchains are immutable i.e. we can’t update or delete any information in the block once it is created.


In blockchain, the hash of previous block is stored in each block for validation of blockchain. Suppose there is a blockchain of 100 blocks, and now, a new block(101th) is created, it is broadcasted to each and every peer in the network. At each peer, the value at previous hash field of 101th block is matched with the hash of 100th block. If the hashes are being matched, the peer sends a confirmation that the block is valid. While taking Consensus, if system gets successful confirmation from more than 50% peers, the block is added to the blockchain. Peers who send negative response will get to know the fact that there are malicious activities done on their blockchain copy. That particular peers request the adjacent peer who sent positive confirmation to share its blockchain copy, so that it will get valid blockchain copy, this concept is called as Byzantine Fault Tolerance. If successful confirmation percentage is less than 50%, the block is not added to the chain and the transaction should be attempted again. Now, we will see the significance of validation through matching of hashes. If a hacker enters in our decentralized network and manipulated some transaction information in 70th block in the blockchain copy of 2nd peer. The hash of 70th block will be changed only in the blockchain copy of 2nd peer. As hash of 70th block is used as previous hash in 71th block, the hash of 71th block is also changed. Like this, change in 70th is transmitted to 100th block. In other words, if hacker changes any transaction in any block, the changes are reflected in the most recent block in the chain. So, while validating the blocks through hash we will immediately detect the manipulation. In this way, with the decentralized nature, public distributed ledger, cryptographic functions, banking system with blockchain is always an upper hand to current banking system.

Now, it is time to think where blockchain is being used or can be used. Upto this, we only discuss blockchain use in banking domain, although it isn’t restricted to this domain only. Blockchain has so many use cases as following:

• Bitcoin, the biggest cryptocurrency of the world, is running on blockchain. Bitcoin is like digital gold. Today, the price of 1 bitcoin in Indian currency is 6.5lakhs.
• Election voting system with blockchain.
• Blockchain healthcare use cases: to stop counterfeit drugs, to improve access to medical reports.
• Supply chains.
• Blockchain in cloud storage.
• Insurance: Claims processing - The blockchain provides a perfect system for risk-free management and transparency.
• Blockchain technology in energy sector.
• Smart contracts use in land registry and sales.
• Blockchain may make selling recorded music profitable again for artists by cutting out music companies and distributors like Apple or Spotify. 

Upto this, we have seen only good things about blockchain, but how can it be possible that there are no limitations to it. As every coin has two sides, blockchain too has some limitations. Bitcoin currently has notable transaction costs after being touted as ‘near free’ for the first few years of its existence. As of late 2016, it can only process about seven transactions per second. It requires high computational power for generation of specific hash(Proof Of Work). That’s why blockchain should be implemented where the need of data security is very big such as in voting system, in banking system, etc. There have been many attempted over bitcoin and other popular blockchains, but not a single attack has break security of blockchain. There is one notable security flaw in Bitcoin and other blockchains: If more than half of the computers working as nodes to service the network tell a lie, the lie will become the truth. This is called a ‘51% attack’. Though there is possibility to penetrate the system, it seems just like a theory, because there are millions of peers in bitcoin network all over the world and to hack the system, one has to manipulate 51% of peer at the same instance of time which is impossible at this point.

Blockchain is ruling the world in security domain. Research and development are at good pace in this field. There is huge scope for more development on issues raised on blockchain. I recommend everyone to read more about blockchain and think for any new and more secure features you can implement.  Happy Learning, Happy Blockchain ;-) .