When someone talks about blockchain technology, bitcoin often comes to mind. Many of us misunderstand it as the blockchain is all about cryptocurrencies like Bitcoin, Ethereum, Solana, etc. But this is not true. Cryptocurrencies like Bitcoin and Ethereum are just one application of blockchain technology. In simple words, the underlying technology behind Bitcoin is blockchain. There are many blockchains out there, including Bitcoin, Ethereum, Solana, Polygon, Aleo, etc.
So, in this blog, we cover a basic understanding of blockchain, its features, its types, its use case in Nepal, and more information about it.
An Overview of Blockchain Technology
Imagine a bank using a ledger to track customer’s transactions. The bank controls the ledger. Only the bank can see and update the ledger as per their choice. We have to trust the bank. So, this is a centralised system. The central authority (Bank) becomes the most powerful entity.
But, the blockchain is a tamper-proof, distributed digital ledger. This ledger is transparent, immutable, and decentralised. No single party owns or controls this ledger. All the participants of the network have a copy of this ledger. And there is no single point of failure.
Blockchain = Block + Chain = Blocks are linked together to form a chain
Blockchain is a distributed, immutable ledger that enables secure transactions across a peer-to-peer network. It is one type of distributed ledger technology. In simple words, blockchain is a secure database shared across a network of participants globally. The participants are known as nodes (computers). Each node has an up-to-date replica of the database.
There are special types of nodes called miners. Whenever any transaction occurs in the network, these miners verify transactions and mine new blocks. The transaction details are stored in that block and added to the chain. Once a block is added to the chain, it becomes immutable. It is impossible to change the data of that block. Finally, all the participants across the network synchronize to be identical.
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Disadvantages of Centralised System
In human civilization, centralised systems have played significant roles in transitioning the world toward the development and prosperity of society. We rely on centralised systems like government, financial institutions, education institutions, social media, etc. The disadvantages of these centralised systems are as follows:
1. Single Point of Failure
In a centralised system, a single party has full control over the system. If that party fails to operate the system properly, the system may crash. And this makes it vulnerable to failure. For example, if a bank’s system crashes, all of us are unable to access our funds or make transactions.
2. Lack of Transparency
In centralised systems, we do not have access to the algorithms of the protocols we are using. These systems can modify the rules for their own profit. For instance, we do not know the algorithms used by TikTok or Facebook.
3. Vulnerable to Attack
Since all the sensitive data and infrastructure are located in one place, they are vulnerable to cyber-attacks. For example, the Nepal government’s main server was hacked, leading to disruptions of hundreds of government websites across the country.
4. Lack of User Control
In centralised systems, users have less control over their own data. Tech giant companies like Google and Meta collect our data. Later, they use this data to show ads for their profit.
5. Trust Factor
All the working mechanisms of centralised systems are hidden from the public. Users have very little control over their data, and their data is not safe. Someday, we might even see our data for sale on the dark web. All these factors lead to trust issues among the public.
6. Scalability Challenge
As the number of users of centralised systems grows, the systems become more complex. It becomes a challenge to handle all these users. The centralised server becomes slow in handling all the user requests. And this leads to reduced efficiency of the system.
Features of Blockchain Technology
We discussed the drawbacks of centralised systems. Many of these issues of centralised systems can be solved by blockchain technology. In this section, we discuss the key features of blockchain technology.
1. Decentralisation
Decentralisation is one of the fundamental aspects of blockchain technology. Blockchain operates in a distributed manner. All participants of the network have a copy of the ledger. The central party is fully eliminated. The nodes in the network maintain, verify, and update the ledger.
2. Transparent
The distributed ledger contains the record of each and every transaction that took place on the network. All participants in the network have access to the identical ledger. Nodes can view all transaction details, including the sender, receiver, and amount. This transparency allows anyone to track transactions and reduces fraudulent activities.
3. Immutability
Cryptographic algorithms are used in blockchain technology to provide strong security and immutability. Through cryptographic hashes, blocks are linked together to form a chain-like structure. Immutability is the ability of the distributed ledger to remain unchanged or unaltered. Once data has been recorded in the shared ledger, no one can change or tamper with it. If someone tries to tamper with or modify a block, every subsequent block would also have to be modified. This is computationally infeasible. So the blocks in the shared ledger are immutable.
4. Consensus
Consensus is the validation process within the group of active nodes in the network for decision-making. To record any transaction in the blockchain, the majority of the nodes must give their consent. Miners use consensus mechanisms to validate transactions. Proof of Work (PoW) is a consensus mechanism used in the Bitcoin network. Similarly, Ethereum uses Proof of Stake (PoS) and Proof of Authority (PoA) consensus mechanisms.
5. Trustless
There is no need for third parties in blockchain technology. We don’t have to rely on any third party to validate our transactions. Network participants (miners) validate the transactions upon gaining consent from the majority of the nodes.
6. Authority
In the blockchain network, we have full ownership and control over our data. We can spend our funds whenever we want. Additionally, privacy-preserving protocols like Zero-Knowledge Proofs provide privacy and control over our data.
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Key Components of Blockchain Technology
There are some components that serve as the backbone of blockchain technology. These components are as follows:
1. Distributed Ledger technology
Distributed ledger technology is a shared database. All participants (nodes) in the blockchain network have a copy of this database. The ledger contains an immutable record of all transactions that took place on the blockchain.
2. Smart Contracts
Smart contracts form the foundation of the blockchain network. Smart contracts are digital agreements (terms and conditions) signed and stored in the blockchain network. These smart contracts execute automatically when the terms and conditions are met.
3. Public Key Cryptography
Public key cryptography provides the feature to identify participants in the blockchain network uniquely. This mechanism generates a set of keys for all nodes. One is a public key, and another is a private key. These keys are used to unlock the data in the ledger.
Working on Blockchain Technology
The underlying working mechanism of blockchain technology is complex. Here, we explain the workings of blockchain in the following steps:
1. Initiating A Transaction
Initially, a participant in a blockchain network initiates a transaction. The participant performs a transaction, which can be a transaction of assets, uploading a document, or transaction of data.
2. Gain The Consensus
Miners start verifying the authenticity of the transaction. A consensus mechanism is used to verify the transaction. Miners solve complex mathematical puzzles to create a new block. Once the majority of nodes agree that the transaction is legitimate, the transaction is verified.
3. Link The Block
Once the transaction is verified, it is written into a block. The newly formed block is then linked together with the previous block using cryptographic hashing protocols. Each block is time-stamped with the time it is added to the blockchain.
4. Share The Ledger
The verified transaction is broadcast to all participants. Then, nodes update their ledgers. Miners are rewarded for validating transactions with the blockchain’s native currency.
Types of Blockchain Networks
There are mainly four types of blockchain networks out there, which are as follows:
1. Public Blockchain Networks
Public blockchains are permissionless blockchains. Anyone across the globe can participate in the network and become a node. All nodes in the blockchain have equal rights to read, write, and validate transactions.
2. Private Blockchain Networks
Private blockchains are permissioned blockchains where one organisation controls the entire network. The organisation has authority over who can join the network and participate in the consensus protocol. They are partially decentralised networks.
3. Consortium Blockchain Networks
A group of organisations control a consortium blockchain. These organisations maintain decentralisation, privacy, and trust among a selected group of participants. These pre-selected organisations can decide who can submit transactions and access the data.
4. Hybrid Blockchain Networks
Hybrid blockchains combine features of both public and private blockchain networks. Generally, hybrid blockchains are set up by a single organization. There is a public blockchain on top of a private blockchain. In a hybrid blockchain, an organization can decide which transactions should be posted from the private to the public blockchain.
Benefits of Blockchain Technology
There are several benefits of blockchain technology. Some of them are as follows:
1. Security
In a centralized system, there is always the risk of cyber attack. However, in the blockchain network, the blocks are linked together by cryptographic hashes. None of the participants can tamper with these immutable blocks. Also, the consensus protocols used in the network make it more resistant to fraudulent activities.
2. Decentralisation
In the blockchain network, all participants have the same copy of the shared ledger. There is no need for any third party to validate our transactions. The shared ledger runs on every node. If one node is compromised, it does not affect the operation of the network. So, there is no single point of failure.
3. Efficiency
In centralised systems, it often takes more time to settle financial transactions. However, blockchain solves this problem. In a blockchain network, transactions can be executed more quickly and efficiently.
4. Transparency
In a blockchain network, all nodes have equal rights to read, write, and validate transactions. Participants can track transactions and view their origins. The workings of the underlying protocol are publicly available.
5. Lower costs
In centralised systems, financial institutions often charge higher fees for performing financial transactions (cross-border money transfers). However, in a blockchain network, there is no need for intermediaries. As a result, we can send funds with lower transaction fees. This can make financial services more accessible and affordable.
Use Cases of Blockchain Technology In Nepal
There are many fields where blockchain technology can be implemented. Here are some advantages of blockchain technology in Nepal:
1 Blockchain In Supply Chain Management
Agriculture is one of the major sectors in Nepal. More than 80% of the population is engaged in it. Blockchain technology can be implemented in the agricultural supply chain to improve transparency and traceability. The involvement of middlemen between farmers and retailers is a problem. But integrating blockchain can remove the middlemen, allowing farmers to receive a fair price for their products. This technology can also be used in logistics within manufacturing industries.
2. Blockchain In Education
Blockchain technology can be implemented in education to issue and verify academic certificates. This technology can create secure and immutable records of certificates that are stored on a blockchain. No one can tamper with these records. This reduces the risk of fraud and simplifies the sharing of educational records across different institutions.
3. Blockchain In Digital Identity Management
Blockchain technology can be implemented to issue the National Identity Card. A blockchain-based national identity management system could provide immutable and verifiable digital identities to all citizens. These digital identities can be used to receive services from public and private institutions.
4. Blockchain In Intellectual Property Rights
Blockchain technology can also be used to register intellectual properties like art, music, and literary works. It gives full ownership to the original creator through Non-Fungible Tokens (NFTs). NFTs allow creators to create an immutable record of their work. This technology can also be used to process the ownership of real-life assets, such as real estate, vehicles, etc.
5. Blockchain In Voting System
The Nepal government spends significant funds to conduct fair voting. Traditional voting systems have many drawbacks. These drawbacks can be addressed by a blockchain-based voting system to enhance transparency, security, and integrity. This system also reduces costs and eliminates voter fraud.
6. Blockchain In Telecommunication
Blockchain technology can also be integrated into the telecommunication industry. This integration helps enhance various aspects of telecommunication services by optimising processes, transactions, and security measures.
Current State of Blockchain Technology In Nepal
Blockchain and cryptocurrency gained attention after Satoshi Nakamoto published the Bitcoin whitepaper “A Peer-to-Peer Electronic Cash System” in 2009. Bitcoin entered Nepal in 2013 when very few people were aware of blockchain and cryptocurrency. In 2017, the Nepal Rastra Bank issued a notice declaring that involvement in cryptocurrency trading and mining is illegal in Nepal.
Nepal Rastra Bank is also planning to launch its own central bank digital currency (CBDC). Research is ongoing to implement blockchain technology in various sectors. Nepalese are prohibited from conducting transactions involving virtual currencies or cryptocurrencies. However, blockchain technology itself is not banned in Nepal. We have seen significant growth and adoption of blockchain technology in Nepal. There are thousands of blockchain engineers out there. Several tech companies in Nepal are developing blockchain-based products.
Conclusion
Blockchain technology is in an immature stage. The vast potential of blockchain technology is yet to be fully realised. Blockchain has the power to eliminate middlemen in various sectors. Imagine financial institutions without intermediaries, social media without censorship, and online surfing without tracking software. All of these are possible with blockchain technology. Web 3.0 is revolutionising the way we interact with the internet. Therefore, adopting blockchain technology and leveraging its advantages is crucial to today’s needs.
To stay informed about the latest technological trends and deepen your understanding of technology, visit some of our other blogs at TopInfosMania.
FAQs on Blockchain Technology in Nepal
1. What are the benefits of blockchain in Nepal?
There are many benefits of blockchain technology in Nepal. Some potential advantages of integrating blockchain technology are as follows:
- Blockchain In Supply Chain Management
- Blockchain In Education
- Blockchain In Digital Identity Management
- Blockchain In Intellectual Property Rights
- Blockchain In Intellectual Property Rights
- Blockchain In Voting System
- Blockchain In Telecommunication
2. What is the main purpose of blockchain?
The main purpose of blockchain technology is to remove intermediaries from centralised systems. It provides more transparency, trust, ownership, and full control over users’ data.
3. What problems does blockchain solve in Nepal?
In Nepal, blockchain can address farmers’ issues through a blockchain-based supply chain management system. It can also solve problems related to cross-border payments and money laundering. Besides these, blockchain technology can be implemented in several fields, including transportation, tourism, healthcare, cybersecurity, IoT, banking and finance, and many more.