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History and Significance of Blockchain

History and Significance of Blockchain
16 July 2024     1397

History and Significance of Blockchain

The history of blockchain begins in 1991 when Stuart Haber and Scott Stornetta developed a technology that ensured the secure storage of important documents, making them tamper-proof (e.g., preventing backdating). Haber and Stornetta created a computer system using cryptography, where documents were stored in virtual blocks. Each new piece of information was added to the system as a new block. If someone altered a part of a document, this would appear as a new block in the system, while the old one remained unchanged. The new and old blocks were interconnected, allowing users to view the entire history of the document.

In the following years, the system was further refined, enabling the simultaneous storage of various types of information in a single block. As a result, the blockchain system became more attractive by simplifying the collection of semantically related information in one place. For example, a company can create separate blocks for each supplier and store all necessary documents (purchase orders, delivery receipts, master contracts, etc.) in one location.

In 2004, Hal Finney created the digital money system "Reusable Proof of Work," a pivotal event in the blockchain industry. This system allowed each unit of currency (token) to have its owner. If the owner used the token for a purchase, the ownership would change. This means that the same token could not be used multiple times by the same person.

 

Key Features of Blockchain

Decentralization – Blockchain is a decentralized system, meaning no third party (e.g., bank, notary) is needed to execute transactions. The system relies on its members (nodes) to verify the authenticity of the parties involved in the transaction.

Security and Immutability – In blockchain, every action is transparent and immutable. Once a new action is added to the system, its encrypted record is automatically stored with all participants, eliminating the risk of tampering or deletion.

Transparency and Traceability – In blockchain, each new action is automatically linked to the previous one, creating a sequential chain of transactions. This chain is stored with each participant, allowing users to track the history of certain data from its origin to the present. This makes blockchain particularly useful for companies in supply chain or production management.

Smart Contracts – Smart contracts are agreements written into the blockchain system that automatically execute the contract terms. When the pre-set conditions in the agreement are met, the system automatically acknowledges the partial or complete fulfillment of the contract. This allows users to monitor the fulfillment of contract conditions without third-party oversight.

 

Types of Blockchain

Public Blockchain – Anyone can participate in this system without additional restrictions. Most cryptocurrencies operate using a public blockchain system.

Private Blockchain – The administrators of the system have varying degrees of control over access to stored data. Private blockchain systems are mainly used by organizations that store multifaceted and diverse information.

Consortium Blockchain – Consortium blockchain is a hybrid of public and private systems. Transaction verification is conducted by pre-selected nodes or groups of nodes. Such systems are primarily used by banks and government institutions, which have specific nodes designated for verifying each transaction.

 

Examples of Blockchain Implementation

Supply Chain Sector – Blockchain aids in managing the supply chain in a unified manner. Its characteristics minimize the risk of data loss, manual errors, or fraud. For example, Walmart, in collaboration with IBM, uses blockchain to verify the origin and condition of pork products shipped from China, ensuring the accuracy of information and speeding up distribution.

Healthcare – Blockchain technology ensures the secure and complete storage of patients medical records, facilitating data exchange between different medical institutions. For example, Medicalchain collaborates with various institutions in the healthcare sector to create comprehensive medical records for patients.

Banking Systems – Blockchain helps banks reduce the risk of fraud and cyberattacks. It simplifies the "Know Your Customer" (KYC) process, which involves verifying a clients identity and compliance with laws against money laundering. Blockchain systems, for instance, allow banks and other organizations to store KYC forms in a unified and secure manner.

Entertainment Industry – Blockchain offers various benefits in the entertainment industry. For instance, ticket sales through blockchain ensure a percentage of resale revenue is automatically transferred to the event organizers accounts. Additionally, Microsoft uses blockchain for managing gaming rights and royalties.

 

Threats and Regulations

The implementation of blockchain systems poses certain risks for governments, including the loss of supervisory mechanisms. Due to blockchains decentralization, it is challenging for governments to enforce financial laws against money laundering, tax evasion, and other illegal activities. Moreover, blockchain systems can be used for transactions without oversight, increasing the risk of funding terrorist and other illegal activities.

To mitigate these threats, governments need to develop regulations that encompass blockchain operations, including taxation, anti-money laundering measures, and other relevant issues. For example, in the US and the UK, cryptocurrency is regulated similarly to securities. Other countries, such as Japan, Singapore, and Australia, also have regulations in place for cryptocurrency.

 

Conclusion

The use of blockchain systems will continue to expand globally, requiring individuals, organizations, and governments to be prepared for the new challenges associated with its widespread adoption.

Givi

Givi

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