Nowadays many of the services are delivered in a centralized manner and are mostly under the control of one single entity. This approach, along with its advantages like increased quality and speed in delivering services, has some drawbacks like increased inequality and decreased transparency in delivering services. Decentralized systems can do away with these problems via providing a decentralized platform for supervising the delivery of services.
Designing a decentralized financial system is of high importance; because financial systems are inseparable part of every organization and it’s important that they function transparently and securely. For a long time, designing decentralized financial systems, with similar functionality to centralized systems, had faced some serious challenges but in 2008, a practical solution for developing such systems was proposed for the first time. In this year, an anonymous person under the name of Satoshi Nakamoto published a paper with the title: “Bitcoin: A peer to peer electronic cash system”. Some time later, Nakamoto released Bitcoin’s open source application on Github website so that other developers can continue developing and improving the application. Soon after the application was released, Bitcoin, as the first decentralized digital cryptocurrency, became quite popular. Bitcoin’s compelling features like transparency, resistance to attacks, being decentralized, and the ability to register new people without any problem, has attracted people to Bitcoin’s framework, i.e. blockchain. This innovative yet simple technology can be the fifth computing paradigm after supercomputers, personal computers, Internet, and social networks.
In its essence, blockchain is a universal database in which the data are inserted with a specific order that cannot be mutated in the future. The main advantage of this universal database is that all users can access it and if need be, insert new data to it via some specific methods. Furthermore, these data are visible to everyone in the exact same order and structure. Also, the already inserted data are practically immutable. Thus without the need for a single supervising entity and in an incorruptible way, blockchain offers a distributed, secure, and concordant database for all the participants.
Blockchain is a structure for saving data. In this structure, a chain of related blocks are produced, error-detected, and maintained collaboratively by the participant nodes. Change in one block makes subsequent blocks unacceptable. Every new block, in a competitive mechanism and by one of the participants, is prepared from the newly produced data and is added to the chain. The new blocks are accessible to other participants in the system for validation. If a block has some error, it’s detected by other network participants and is not committed to the chain. As long as more than 50 percent of the network nodes agree on the current chain, the chain is credible. Because of the chain structure and entangled relation of every block to previous blocks, changing the data accepted by the majority of the network nodes needs a great deal of computational power which practically cannot be prepared. This also makes the network resistant to cyber-attacks.
In the recent years a lot of blockchain-based startup companies with innovative ideas have been founded. There are more than 1400 crypocurrencies or tokens with different features to the date of this writing. Along with many startup companies that grow in number day by day, giant conglomerates like Microsoft and IBM have also started big blockchain based projects. Governments have also shown interest in this technology. The Chinese government has started using the blockchain technology in financial areas and is going to use it in its tax system. The Russian government is also preparing to start governmental centers for mining cryptocurrencies.
The vast usage of the blockchain technology is because it’s based on a database which is transparent, visible to all, secure, decentralized and distributed, and does not need any central entity or third party to be trusted. With the help of this technology and combining it with peer-to-peer networks, a decentralized payment system can be developed in which electronic money, regardless of geographical location, can be transferred in small amount of time and with very low fee. The applications of this technology are not limited to payment systems. It can be used in various areas like data storage, Internet of Things (IoT), cloud computing, social networks, energy, etc. Furthermore, the ability to write smart contracts on blockchain has changed the old-fashioned and inefficient mechanisms and solved a lot of problems for many companies. The Ethereum protocol, which was introduced by Vitalik Buterin in 2013, is a blockchain-based platform for developing decentralized applications with the help of smart contracts.
Blockchain, as a revolutionary technology, can be used in various areas. This vast spectrum of applications are due to the intrinsic features of this technology as a tool for increasing transparency, credibility, integrity, and simplicity of transactions.