How Blockchain Could Improve Business Performance and Create Smart Economy. Part 2. Trust and decentralization.
Blockchain technology as the solution to the absence of trust between parties
Blockchain technology solves the issue of trust and this is what the revolutionary nature of the technology is about. In the past, parties that did not know each other or did not trust each other needed a third party in order to have a transaction.
A real estate transaction is a great example because homes are expensive assets. When a person was buying a home, he or she would typically have a real estate agent, a real estate attorney, a bank with its own attorneys underwriting a mortgage, an insurance company, home inspectors and more. Essentially, all these parties were a part of a real estate transaction because two parties, the buyer and the seller, did not trust each other. If the buyers trusted everything the sellers were saying about a home, there would be no need for attorneys or inspections, which is theoretically possible with blockchain.
For example, if records about all home inspections and repairs were to become a part of a blockchain, then there would be no need for due diligence because prospective buyers would have access to all the records and would know that the records are true because it is impossible to alter them. The same applies to many other industries and is especially important for industries with a high level of lack of trust, such as the industry of used car sales and used car repairs. Information about car repairs could be on a blockchain and when you are buying a used car, you could check its history knowing that the history is true and the seller didn’t alter it. Records about the performance of auto mechanics could also be on a blockchain and when choosing a mechanic you’d be able to go with one that has a verified stellar record. And, because blockchain is a technology and not a manually done process, the costs of operations of a blockchain network are much less compared to the current system of having to hire multiple third parties every time you want to conduct a transaction in a safe manner.
Decentralization property of blockchain technology
In addition to being immutable, with blockchain technology a ledger has multiple copies. If a number of the copies of a blockchain were to be destroyed, the blockchain would be able to restore itself even if just one copy is left. This is also known as the decentralization property of blockchains.
Here’s how it works with Bitcoin: any person at any time can download a full copy of the Bitcoin blockchain. The copy will contain a record of all the transactions that have happened on the network since it went live in 2009. To participate in transactions on a blockchain network, a computer or a user may not need to have a full copy of the blockchain. For example, on the Bitcoin network it is possible to transact in Bitcoins after downloading a digital wallet compatible with the network and after generating a set of digital keys that consists of a public key and a private key.
On some other networks you may need to download a full copy of a blockchain. A computer on a blockchain network that has a full copy of the blockchain is called a node. You can see how many nodes the Bitcoin network has as you are reading this article and where the nodes are located in the world by visiting https://bitnodes.earn.com/
With most cryptocurrency networks, copies of their blockchains are available to anybody, which does not have to be the case with every blockchain network. A blockchain network can be private, meaning that the records would only be viewable by a number of parties and not be available to the public. For instance, a cargo shipping network could be available to senders of cargo, shipping companies, and recipients of cargo. This way, all participants of transaction or members of the industry would have access to the information they need, but the information would not be available to any unauthorized parties.
The decentralization property of the blockchain technology adds yet another level of security to the technology. It protects blockchain networks from both human errors and from attacks. With human errors, if someone somehow makes a mistake and damages a copy of a blockchain, the blockchain would be able to restore itself because it would have other copies.
For cyber attackers, blockchain networks are much harder to attack than regular computers or regular networks. This is because a regular network has either a central server or a group of servers that is relatively small compared to the size of the network. With blockchain, there is no such thing as a central server. All copies of a blockchain are equal and the same, which means that to successfully take over a blockchain network, an attacker would need to take over the majority of the nodes (which is most cases is 51% or higher).