Reasons for applying blockchain tech

What is blockchain tech?

Anyone with even the slightest interest in digital technology has probably heard the word ‘blockchain’. If not, you have at least heard of ‘cryptocurrencies’ or so-called ‘coins’. Blockchain is the underlying technology that makes cryptocurrencies or coins work. However, not many people can easily answer the question of what blockchain is.

Definition of blockchain tech

In a nutshell, ‘blockchain’ means a distributed ledger system that stores and manages data identically among network participants. Blockchain is named because data is stored in blocks and chained one after another.

Characteristics of blockchain technology

Compared to existing data management systems, it is easier to understand the characteristics of blockchain. In general online services, a database is managed by a single organization with exclusive authority. In some cases, data is backed up to cope with failures, but basically, the service is operated with single data storage. For example, when money is transferred through an online banking service, the transaction details are processed by the bank’s server and stored in a database.

On the other hand, blockchain is a network system composed of multiple data storages. Whenever data is entered into the blockchain, the information is copied and stored identically on the computers of network participants. Taking ‘Bitcoin’, a typical blockchain service, as an example, when a bitcoin remittance transaction occurs, the transaction details are propagated to all networks so that all participants store the same information.

The reason why blockchain uses a rather inefficient data management method is that there is no single management entity like a traditional ‘bank’ in a blockchain system. It is a structure in which all the network participants perform their roles on an equal footing. In other words, the Bitcoin network is not owned by any single company or individual.

Key reasons for applying blockchain tech

There are IT systems that have been used quite well so far, so why do we need to use blockchain technology? Blockchain can be useful in two main situations.

First, when the existing centralized data management system is unreliable or requires excessively high costs. Bitcoin was created as a resistance to modern financial capitalism, where wealth is monopolized by a few vested interests. People who believe that the value of assets is influenced by the central bank’s interest rate policy, or who think that the fees charged when using the existing banking system are too high, prefer using blockchain-based cryptocurrencies.

Second, blockchain can be an effective solution when efficient data exchange and linkage between ecosystem participants are required. In the past, each service provider operated separate data standards and policies, so a lot of effort and cost had to be involved in linking services. However, when using a blockchain system, ecosystem participants must follow a common data standard, enabling seamless data and service linkage.

Conclusion

Some argue that blockchain is inefficient and difficult to apply, making it less useful than expected. If you take a look at the current blockchain technology, this argument is half right. Nevertheless, the data management structure that blockchain aims for has advantages that current IT systems cannot provide. Considering the fact that blockchain has only been known for about 15 years, it is still too early to make a definite conclusion.

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