What are Blockchains good for?
Prasobh V Nair
A blockchain can be referred to as a distributed ledger that’s maintained by a decentralized network. Every computer that’s a part of this network processes the transaction and stores a complete copy of the databases.
Why is decentralization important?
Decentralization simply means that the network is not controlled by a central authority. In comparison to decentralized systems, centralized systems tend to possess a number of risks as they depend on a central point.
The risks may include:
- Risks of cheating: changing the rules, tampering with data, shutting the system down
- Forceful cheating: doing all of the above-mentioned activities under pressure from another entity or regulator
- Extraction of rent: charging a very unreasonable and high fee
Since blockchains remove control from a central authority, all of the above-mentioned risks are mitigated. Decentralization could occur by including:
- Few known parties, such as two parties only
- Many known parties (between 10 to 1000)
- An indefinite number of unknown and known parties (such as in the Bitcoin’s network).
The greater the number of participants, the lower the risks.
What are the real-world applications for blockchain technology?
So, how can blockchain be put to good use?
There are quite a lot of blockchain use cases. Blockchain actually happens to be the one word that is used commonly in almost every industry today.
The most common use cases of blockchain and the areas that benefit the most include:
- Money and other digital assets: Specifically, this is what blockchains were initially invented for. The bitcoin network was primarily created to remove the risks of centralization, and to increase the value of the digital currency. For such purposes, blockchains prove to be a great tool.
- Credit: According to most of the experts, credit systems are bound to receive a great amount of benefit from decentralization. For credit systems to go global, a greater amount of censorship will be required. Hence, global system adoption may not happen without decentralization. However, in this case, full decentralization may not be necessarily required.
- DNS systems: A DNS system existing on a decentralized database is something of great excitement. It would drive adoption, as the risks of centralization will be fully removed.
- Land title registries: In many countries that have a corrupt government, there is often a big risk present with regard to land title registries. A corrupt government, for instance, may allow for tampering with data. This also applies to other authorities who could gain access to the data. In this scenario, a decentralized system could do wonders as it would remove all the risks of centralization. Hence, the dependence on a corrupt authority/government would not be required anymore.
Blockchains are indeed very fascinating. They, in fact, have several good use cases, but much of it is overhyped. In some ecosystems, centralized systems are a better choice. Nevertheless, the benefits of blockchain are innumerable in the areas to which they apply.
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