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A blockchain is basically a growing list of secure records or transactions, in a decentralized network of P2P (Peer-to-Peer) computers known as nodes. The ‘block’ here is your POW (Proof of Work) which is actually the documentation/invoice/billing or digital ledger of the transactions in which each transaction is recorded chronologically or in the order of events or transactions occurred.
Blockchain in laymen term – A simple example
In layman terms, let’s look at a very fundamental transaction to understand the ‘block’ and how the ‘blockchain concept’ works. Let’s assume that a goat trader goes to a village to buy goats and after meeting a few farmers he finally finds the goat of his choice. He buys the goat for $1000 after some bargaining and in this way the transaction is completed. He notes down the transaction on a piece of paper and takes the farmer’s signature on it as proof that payment has been made and the transaction has been completed. Then he goes to the village market where he finds a buyer for the goat and sells it for $1500, and this time the buyer notes down the transaction on a piece of paper and gets the trader to sign on it.
We can assume this rough paper recording of transaction as ‘Record’ – Single or Multiple transactions recorded, becomes one block. In a village, sales recorded on such pieces of paper are good enough as proof that the deal has been completed to the satisfaction of both parties. However, when we come to the hi-tech world of e-commerce, the same transaction would be recorded in a lot more detail. The concept of Blockchain is based on these simple village deals where transactions are recorded on the supply chain – from the farmer to the trader and from the trader to the buyer. In the village the number of transactions is limited, but in e-commerce, it runs into millions and hence, recording transactions safety is absolutely important.
How the Blockchain works
The blockchain is quite different from other user interfaces on the internet such as your email account or your net banking account that is connected to a centralized server. The other important thing to note about a blockchain is that you will need internet to access your specific block/s on the P2P network. This means, you still can’t call it the ‘new internet’ that some folks insist on calling it. Blockchain has been in operation since 2009 when it was intended to be used for the digital currency, Bitcoin or Cryptocurrency but now its potential seems to have taken the market by storm.
Just like you have a user ID and a password for every personalized interface that you use on the internet, you will have a couple of unique ‘Keys’ to access your blockchain network – a public key and a private key. The public key, which is a long number generated randomly, is your ID while the private key is the equivalent of a password that allows you access to your assets on the blockchain network. If you want to make a transaction in your P2P network, both the e-commerce marketplace as well as the merchant, from whom you want to make the purchase, should also be on the same blockchain network.
Stock Trading on Blockchain
Stock trading refers to buying and selling of commodities such metals (gold, silver, and copper), energy resources like oil and coal, food stock such as grain and vegetables and much more.
You begin by requesting the particular product that you want to buy, on your specific node in blockchain network, much like the way you would place a ‘Buy’ or ‘Sell’ ad in Quikr or Flickr. Immediately, your transaction request gets broadcasted across the entire network of P2P nodes that will validate the transaction request and your status, using some standard processes. This way the transaction is verified by your network, and it could involve the use of cryptocurrency and smart contracts as well as other information. Once the transaction is completed, it will be stored in your node as a new block or POW, which is permanent and unalterable and is accessible only to you.
Application Of Stock (Commodity) Trading on Blockchain
Faster Transactions – Fast Buying And Selling Decisions
The commodities market is less volatile as compared to the equity and bond markets regarding the rise and fall of prices in the commodity market that is not as steep as they are in the equity and bond markets. However, the price fluctuations within a limited range are almost on par with the equity and bond markets. Hence, trading in commodities requires fast buying and selling decisions, but unfortunately, the present online trading system based on centralized servers is not suited for faster transactions. This is where blockchain technology can come in handy with its decentralized network of P2P nodes that will allow Instantaneous trade confirmations means intermediaries such as a clearinghouse, auditors, and custodians get eliminated from the process and resulting into much faster trading as opposed to taking three or four days for clearing.
Transparent and Secure Transactions
The broker is a vital component in the commodity trading market, and all traders are required to be registered with a broker. Based on your financial details, the broker will decide whether you have the compatibility to trade in commodities and he will then approve you for trading. Therefore, it is essential that there should be a P2P network of brokers offering their nodes to customers for trading. When you open an account with any one of the brokers on the P2P network of commodity trading brokers, you can follow the standard procedure of announcing your wish to buy stock of a specific commodity your broker will broadcast the request across the P2P network and thereafter a seller from any of the nodes will contact you through his broker.
Last, but not least, you could say that the potential uses of this technology are immense and it is anticipated, that, more and more industries will find ways to put this in proper use, in the near future.
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