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The Blockchain technology (BCT) is recent; however, its potential to significantly impact how we interact with each other is immense. As Bitcoin prices dramatically rose in 2017, interest in the technology (blockchain) underlying it and other cryptocurrencies increased. BCT however, has applications beyond cryptocurrencies. A blockchain is a database, register or ledger of transactions (both financial and non-financial) in the past and present. This ledger has no central authority or organisation responsible for managing, storing and processing the information it contains, making it a decentralised system. Furthermore, the ledger is shared with or available to everyone participating on the network, hence a blockchain is referred to as a ‘decentralised, distributed ledger.’
The technology was originally conceived of by Satoshi Nakamoto (an unknown person/persons), as the backbone of the cryptocurrency Bitcoin. Although cryptocurrencies are currently the most important application of the technology, there are many other possible applications. So, what gives the BCT so much appeal? It’s the ability of the technology to infuse trust into situations where interactions and exchange may not have occurred.
A blockchain is underpinned by cryptography, game theory, time stamping and peer to peer (P2P) network theory. Cryptography uses hashing, private and public keys, to secure information and make it difficult for unintended participants to access, view and share the information on the chain. P2P allows computers (nodes) to communicate with each other without the need for a central server. Each node contributes to the processing, storage, and security of information on the network. Game theory is used to incentivise participants to join, make use of and secure the network while time stamping ensures that transactions are recorded in sequential order.
Transactions on the blockchain are called blocks and they are secure. Every block is identified by (i) header (ii) timestamp (ii) target hash and (iii) nonce. A blockchain starts with a Genesis block (the first-ever block on the chain). All subsequent blocks are linked to the Genesis block and each other. The linking of a transaction in this way ensures that each transaction can be uniquely traced back to its origin. Also, transactions on the chain are not easily susceptible to change because the data exists on every node on the network. Assume individual A wants to send money to individual B. A would have to have the appropriate software (app). To make the transaction, A would need his private key and B’s public key. The transaction is then broadcast to every node on the network. Miners (individuals and companies) then validate the transaction before it can be added to the blockchain. They are incentivized or motivated to do so because they are rewarded with newly minted cryptocurrencies or transaction fees. Different blockchains take differing times to validate a transaction. For example, it takes 10 minutes on the Bitcoin blockchain and 15 seconds on the Ethereum blockchain. After verification, the money moves from A to B. There is now an immutable record, available to all nodes on the network, of the transaction between A and B. For anyone to change a validated transaction, they must have control of 51% of the computing power of the network.
Generally, blockchains can be either private or public. For public (permissionless) blockchains, anyone can make and view transactions on the chain. All you need to do is download the appropriate software (which is generally open access) and you are instantly part of the blockchain’s network. On the other hand, a private (permissioned) ledger requires consent -which can be tiered- from developers and those already on the network, to view and/or participate in transactions on the blockchain. Those on a permissioned blockchain can be from the same organisation or different organisations in the same industry. On a public blockchain, anyone can validate transactions but on a permissioned blockchain, a transaction validator has to be accredited and known to everyone on the system. An example of a permissioned blockchain is Ripple. Other blockchains are Ethereum (permissionless), Hyperledger and Stellar.
The ability of the blockchain to introduce ‘trust’ into a system through its distributed nature, transparency, secure and difficult to change transactions, means that it can significantly affect how African countries tackle issues of underdevelopment. It can improve interactions in areas where there are inadequate or low levels of trust and transparency. Currently, there are many opportunities for adoption and applications of the technology in industries and the provision of services in Europe, Asia and the US. There is limited application of BCT on the African continent, although companies such as SureRemit and BitPesa have taken the lead in exploring its potential for cross-border financial payments and trade, respectively while it is applied to the agriculture sector by Agrikore in Nigeria and Bitland Ghana for land registry in Ghana. Adoption of BCT implies that governments, businesses, regulators and the people must understand what this technology is, its potential, challenges and impact on African economies.
Disclaimer: The contents of CryptonomicsAfrica.com provide general as well as detailed information on cryptocurrency and blockchain technology. This should not in any way be treated as investment, business or legal advice. Users are encouraged to verify the information provided before acting on same. CryptonomicsAfrica.com would not be liable for any loss to any individual or entity occasioned by a reliance on the information provided as same is done solely at the risk of the individual or entity in question.
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