What is meant by blockchain technology?
Blockchain technology is an advanced database mechanism that allows for transparent information sharing within a business network. A blockchain database stores data in blocks that are linked together in a chain. The data is time-consistent because you cannot delete or modify the chain without consensus from the network. As a result, you can use blockchain technology to create an immutable or permanent ledger for tracking orders, payments, accounts, and other transactions. The system has built-in mechanisms that prevent unauthorized transaction entries and create consistency in the shared view of these transactions.
Why is blockchain important?
Traditional database technologies present many challenges regarding the recording of financial transactions. For example, consider the sale of a property. Once the money is exchanged, the ownership of the property is transferred to the buyer. Individually, both the buyer and the seller can record the cash transactions, but neither source can be trusted. The seller can easily claim they did not receive the money despite having it, and the buyer can similarly argue that they paid the money even if they did not.
To avoid potential legal issues, a trusted third party must oversee and validate transactions. The presence of this central authority not only complicates the transaction but also creates a single point of security vulnerability. If the central database is hacked, both parties may suffer.
Blockchain mitigates these issues by creating a decentralized and tamper-resistant system for recording transactions. In a real estate transaction scenario, the blockchain creates a single ledger for both the buyer and the seller. All transactions must be approved by both parties and are automatically updated in each party's ledger in real-time. Any corruption in previous transactions would compromise the entire ledger. These characteristics of blockchain technology have led to its use in various sectors, including the creation of digital currencies like Bitcoin.
How do different industries use blockchain?
Blockchain is an emerging technology that is being innovatively adopted by various industries. We explain some use cases in different industries in the following subsections:
Energy
Energy companies use blockchain technology to create peer-to-peer energy trading platforms and simplify access to renewable energy. For example, consider these uses:
Blockchain-based energy companies have created a trading platform to sell electricity between individuals. Homeowners with solar panels use this platform to sell excess solar energy to neighbors. The process is highly automated: smart meters create transactions, and the blockchain records them.
Through blockchain-based crowdfunding initiatives, users can fund and own solar panels in communities lacking access to energy. Funders may also receive rent for these communities once the solar panels are established.