Blockchain technology is an advanced database mechanism that enables the open exchange of information within a business network. A blockchain database stores data in blocks linked together in a chain. The data is chronologically consistent because you cannot delete or modify the chain without consensus from the network. As a result, you can use blockchain technology to create an immutable or perpetual registry to track orders, payments, invoices, and other transactions. The system has built-in mechanisms that prevent unauthorized entry of transactions and create consistency in the overall representation of those transactions.
What is the importance of blockchain technology?
Traditional database technologies pose a number of challenges in accounting for financial transactions. Consider the example of a real estate sale. After the money is transferred, the title of the property passes to the buyer. Both the buyer and seller can record the monetary transactions themselves, but neither party can be trusted. Upon receiving the money, the seller can easily claim that he did not receive it, and the buyer can claim that the money was sent even though it was not.
To avoid potential legal problems, a trusted third party must monitor and validate transactions. The presence of this central authority not only complicates the transaction, but also creates a single point of vulnerability. Breaches in the central database will affect both parties.
Blockchain anticipates such problems by creating a decentralized, tamper-proof system to record transactions. In the case of a real estate transaction, blockchain creates a single registry for the buyer and seller. All transactions must be approved by both parties and automatically updated in their registries in real time. Any discrepancy in the transaction history will be reflected in the entire registry. These properties of blockchain technology have made it popular in various sectors. For example, they were used in the creation of the digital currency Bitcoin.