Take for example; Ali want to buy a bowl of ‘laksa’ from Siti with MYR10. Siti has to trust that the MYR10 note she is receiving is legit and not a fake. If instead Ali decides to transfer money, or use and ATM to pay Siti, essentially what Ali is doing is sending money in form of a digital message.
This is where the importance of trusted banks come into play to facilitate these transactions. Traditionally, banks or a middleman maintain the role of ensuring that no one is cheating, or sending money they do not own, because they keep a record of how much money everyone has and deducts it accordingly.
Nevertheless, financial institutions and third parties tend to charge a small fee to process all the transactions. This can become very expensive when there are millions of transactions going on around the world every minute. And this is where blockchain technology is challenging the status quo.
If modern technology allows us to communicate directly via calls, messages and emails from point A to B, what if transactions could be the same? What if we could save costs and send money just like an email, and there was no need to pay for a bank or middleman to keep track of our transactions?
Hence, the idea of the blockchain was born.
Instead of relying on third parties to keep a record and verify our transactions, the blockchain is a community-based technology that enables the safe exchange of value. What the blockchain essentially is, is a record or ledger distributed through a peer-to-peer software technology.
Like its name suggests, blockchain is a chain of blocks that contains information. Each block holds some data, the hash of the block and the hash of the previous block, whereas the data stored inside a block depends on the type of blockchain.
For instance, a Bitcoin blockchain would store the details about a transaction (such as the sender, receiver and amount of coins).
(Side note: A hash is akin to a fingerprint. It is unique and identifies the block and its contents. Hence, if anything inside the block is changed, it will also cause the hash to change)
Each block contains a record of a change or transaction that is locked in in chronological order and secured by cryptography. Because each block contains a hash of the previous block, this effectively creates a chain of blocks and it is this technique that makes a blockchain so secure.
There is a popular belief that the blockchain was made exclusively by Satoshi Nakomoto, the designer of Bitcoin for the use of recording Bitcoin transactions starting from the year 2008.
In fact, the idea behind the blockchain had already been described by a group of researchers in the 1990’s, with the aim of timestamping digital documents so that it was not possible to backdate or tamper them.
Blockchain technology went by mostly unused until it was adapted by Satoshi Nakomoto to create Bitcoin.
The possibilities of the blockchain are endless. While its use may often be tied just to Bitcoin, the math and cryptography technology behind blockchain may be used for any transactions involving value; alternative cryptocurrencies, online signature services, voting systems, and many other applications in which its authenticity can be verified by the entire community. It can make it easier for foreigners to send money back to countries where access to financial institutions is limited; property deeds can be transferred with ease without the need for a third party; financial fraud will be significantly reduced as every transaction will be recorded on a public and distributed ledger which would be accessible by anyone who has an Internet connection. Blockchain can enable self-activating smart contracts, which means if a flight is delayed, passenger details are updated on a blockchain record, automatically triggering an insurance payment.
Blockchain does not just allow us to create safe money online, it lets us protect any piece of digital information. From banking, investment management, insurance, and the public sector, blockchain offers a world of opportunity and a step towards the future in our global economy.