We live in a world where we generate tons of data every day. The picture of your family you took with your smartphone during Christmas, those thoughts you put on your Facebook wall, the important documents on your PC, the content on your favourite blog, those YouTube videos you love to watch, your search history on Google, your financial statement in the bank, In fact, every single thing you create with a computing device is data.
Have you ever wondered how these data are stored?
They’re stored on central servers! – piles of computers stored in a warehouse (data center). These computers contain the information that is displayed to you when you request them e.g. Searching for your favourite YouTube videos, checking your account balance on your banking mobile app, etc.
They’re made available to you in a split second, you’ll never guess something of such is happening in the background.
However, these central servers are vulnerable to hack.
Blockchain is a digital ledger that comprises voluntary participants that store data on their computers. It’s a distributed database where every participant’s computer on the network is acting as a database or server. This allows data to be transparent and much safer.
When was blockchain invented
In 2008, the world had just recovered from a global financial crisis that exposed the flaws of the monetary system. A system designed to keep much of the world population under control while the rich enjoyed the benefits.
Shortly after, an unknown person or group of people with the alias Satoshi Nakamoto invented Bitcoin – a peer-to-peer electronic cash system, at the center of bitcoin is a decentralised database – blockchain – which stores bitcoin transactions in a manner that makes the records unchangeable.
Bitcoin was the first real-world application of blockchain and paved way for people to see the potential of this technology.
Ethereum is another example of a blockchain. It allows users to build decentralised applications with its smart contract enabled features.
How does a blockchain work?
Imagine a class of 100 students connected to a peer-to-peer file-sharing network, all the 100 students are working on the same assignment. Whenever one student types a sentence the other 99 students see the sentence and if over 51% of the 99 students agree that the sentence is correct, it becomes saved forever and cannot be reversed, this is how the blockchain works.
As a distributed database, blockchain is more secure because it’s a network of computers connected to each other. Unlike centralised servers vulnerable to hack, attempting to hack a blockchain means hacking everyone’s’ computer taking part in the network which is almost impossible.
As the name sounds, Blockchain is a chain of blocks that grows as new blocks get added to the chain. A block is a folder containing records, files, transactions.
If you’re familiar with Microsoft Word, whenever you type, and a page is filled, a fresh page is automatically generated.
Think of those pages as blocks and what you type as transactions/records carried out on a blockchain network.
Each record stored on the blockchain is time-stamped and assigned a digital identity called ‘hash ID’ that can easily be traced.
The working principle of a blockchain
Blockchain is an ever-increasing line of records. Before new data can be added to the blocks, most of the participants on the network have to agree, meaning they have to reach consensus. There are two major ways through which they can reach consensus. They are
Proof of work (PoW)- which is a consensus mechanism where participants on a blockchain network attempt to validate a transaction and add it to a block by dedicating some computing power to the process to show he/she worked for it.
While Proof of stake (PoS) on the hand is a way the network reaches consensus whereby participants on the network stake a sizeable amount of coins to validate his/her commitment and add transactions to a block.
Blockchain has 3 fundamental characteristics that allow its use cases to span across several sectors which includes
Blockchain applications remove the importance of a third party and drive peer-to-peer interaction between parties in a fully trusted manner without the need to worry about fraudulent acts.
Today, blockchain application has spanned into various sectors exceeding financial records. Let’s look at two sectors in which we can apply blockchain, especially in Africa.
Governance & voting
Most African countries are suffering from bad governance at some levels and the viability of the democratic system being practised has been questioned a million times. Electoral practices are still paper-based and usually ends with lots of casualties. Blockchain-based voting systems allow for total transparency as each vote is immutably recorded and time-stamped.
This ensures a free & fair election. In a mobile-driven continent where internet penetration is growing exponentially, citizens of each country can easily participate in elections from the comfort of their homes with the assurance that each vote is trustfully accounted for.
Blockchain removes the figures representing people’s interest as they can put decisions to a vote and the result is enacted. This is the true power of democracy – power in the hands of the people.
Remittance forms a major part of the African continent’s GDP. People send money back home to their families & loved ones. Reports show that in 2018 over $25 billion was the remittance inflow into Nigeria alone, a figure exceeding the total crude oil sales.
This signifies how large the remittance market is valued. However, there are giant corporations who feast in this market. International money transfer operators including Western union, MoneyGram, Azimo, etc. charge ridiculous fees as high as $20 per each $200 transfer.
Hold on, some transfers take days/weeks to process before arriving at the receiving destination.
In a world where the internet connects everyone, communication is as fast as light, money should be able to move as fast and cheaper.
Blockchain-based currencies such as Bitcoin, Litecoin, and Dash allow the transfer of value within seconds at a low fee regardless of the distance of the receiver and volume being sent.
This allows for cross border transfer of money as fast as a text message with a negligible transfer fee. There are companies using blockchain to settle cross border remittances, including Bitsika and BitPesa amongst many others.
Other applications of blockchain include; crowdfunding, land registry, data storage, supply chain management, smart contracts, etc.