The blockchain is a kind of distributed ledger used to maintain a permanent and the temporry proof record of transactional information. A blockchain works as a decentralized database which is managed by the computer belonging to P-2-P (peer to peer) network. Every computer in the distributed network monitor or maintain a clone of a ledger to stop one point of failure and entire copies are validated and updated simultaneously. Previously the block chains were generally associated with bitcoin, and digital currencies specifically (Pilkington, 2016). Nowadays block chain used by many industries as a safe and cost-effective way in order to generate and maintain a distributed database and to manage the records for the online transactions of different types (Crosby, Pattanayak, Verma, & Kalyanaraman, 2016). The very first work on the cryptographically secured chains of the blocks was explained in 1991 by two-person named Stuart Haber and W. Scott Stornetta. The first block chain has been conceptualized in 2008 by Satoshi Nakomoto (Crosby, Pattanayak, Verma, & Kalyanaraman, 2016). In this particular report, the topics like the pros and cons of the blockchain, regulation of this technology in UAE and in the world will be discussed. Its impact on the economy and business and the legal issues and essential documentation involved in this will also be mentioned in this report.
The structure of blockchain consist of the main three components
Blocks
A block is the list of the transactions noted into a ledger over a specific time period. For every blockchain the size, period and triggering events of the blocks are different. All the block chains are not recording and securing the records of the transportation or movements of their cryptocurrency as their first objective. However, all the bock chains do note or record the movement of their token or cryptocurrency. For example, thinking of a transaction that is simply keeping the record the data. Now assigning any value to it is applicable to interpret what the data or information’s means.
Chains
A chain is defined as the hash that connects in the block to another, mathematically making a chain to link them together in a blockchain. This is considered as the most difficult concept of the blockchain. It can also be described as the magic glue that stuck or glues the block chains together and enable them to create a mathematical trust. The hash value in the blockchain is formed from the data that was present in the previous block. This has the fingerprint of this particular data and blocks in time and order (Zheng, Xie, Dai, Chen, & Wang, 2017).
Network
A network is the component of blockchain that is composed of full nodes. One can think of these nodes as the computer running the algorithm which is keeping the network safe. Each and every node contains a full record of all the transactions that were noted or recorded ever in that blockchain. The nodes are present in all over the over and can be monitored by anyone. However it is expensive, difficult and time-consuming to manage or operate, therefore people generally do not do it for free of cost (Underwood, 2016).
Blockchain as a system to record
Digital identity
The cryptographic keys in a person’s hands enable her or him for new ownership rights and the basis to make digital relationships. Blockchains can provide a chance to establish an unbreakable system for the digital identity. This is because it does not base on the accounts and the permissions that are associated with the accounts, it is type of push transaction, and because the ownership the private key is the ownership of the digital-asset. This can place a secure and new way to handle identity in the digital-world.
Tokenization
For authentication, a unique physical component is used to link the physical and digital world called token. These are useful to supply chain maintenance, anti-counterfeiting, detection of fraud, and intellectual property.
For governments
Governments are interested in all the aspects components of this technology. Primarily there are the ownership rights that are surrounded by cryptographic key possession, generation, revocation, and replacement. They are interested in who can act as the part of this blockchain network and blockchain protocols as they allow authorization of transactions.
For Audit trials
Block chains technology offers the feature to automatically generate a record of who has the information or records that are accessed, and to set binderies or controls to see the information in banks, large institutions and health care systems (Zhu, & Zhou, 2016).
Blockchain as the platforms
Use as a smart contracting
The largest banks and various insurance organizations led by a start-up wants to produce a platform in order to establish fresh digital relationships among the banks. This type of smart contracts seeking to apply the information and the documents recorded in block chains to support the complex legal documentation of agreements (Bahga, & Madisetti, 2016).
Uses in markets
The cryptocurrency can also be used as a digital bearers bond which means making a unique identity to control the code that can provide as special ownership rights.
Automation of regulatory compliance
Rather than only being a trusted platform of information this technology may enable regulatory compliance in the form of code. In other words, the way the blocks are made valid can be a transaction of the legal prose into the digital code for governments. In banks, this can be used to improve the efficiency in the anti-money laundering compliance. This technology can also be used in different things like permit transactions or transactions of reports of different types on the basis of rules and regulations (Yli-Huumo, Ko, Choi, Park, & Smolander, 2016)
The technology of block chains is originated from the creations of bitcoins. It described as that a group of people who never met or sees each other can work online within the system which was formed to de-sensitize to cheat other that was previously cooperating on a network. Bitcoin network was generated to secure the bitcoin cryptocurrency. There are 5000 full nodes in this system and it was used to trade bitcoin and to exchange values (Chapron, 2017). Because of its time-tested security feature and size it is also applicable to secure the smaller block chains and blockchain application. Ethereum network is the second evolution of the blockchain approach. It also has more than 5000 nodes. Factom network was considered as the third evolution of this technology which uses a lighter consensus system, stores more information and incorporate voting (Tellis, 2006).
Pros
Process identity: blockchain program is made in such a way that any type of block or transaction which adds to the chain cannot be altered or edited that ultimately can provide a strong range of security
Traceability: this technology can easily locate any type of problem and can correct them. It can also form an audit trail that is irreversible.
Security: this advanced approach is highly secure as is provides a unique identity that is linked to individual’s (who enters into the network of blockchain) account. This makes sure that the account holder themselves can operate the transactions. In the chain, the block encryption makes it stronger for any hacker to alter the traditional setup of the chain.
Faster processing: before this technology takes place the banking organizations used to take a lot of time ( nearly three days) to process and initiate the transactions, but after the implementations of this approach speed of these transactions has been increased (in minutes) at a high extent (Yli-Huumo, Ko, Choi, Park, & Smolander, 2016).
Cons
Power use
The consumption of electricity or power in this technology is comparatively high. For example, in a year the power consumption of the bitcoin miners was recorded higher than the per capita power use of 159 people countries. This is because it creates a fresh node every time in order to keep a real-time ledger (de Meijer, 2016).
Cost
The average cost of the bitcoin transactions accounts for $75 to $ 160. Most of this cost covered by power consumptions and there are very fewer chances that this cost can be reduced by the advancement in the technology.
Uncertainty in regulatory status
The modern money has been produced and controlled by the government all over the world. It became difficult for bitcoin to bet accepted by the financial institution
The United Arab Emirate (UAE) has introduced or launched UAE blockchain strategy 2021 by Sheikh Mohammed bin Rashid who was the vice president and prime minister of UAE, in April 2011, aiming to conduct nearly 50 % government transaction using this technology by 2021. To provide solidification to those vision regulations related to the use of crypto assets like cryptocurrency, have been issues recently in UAE. FRSA (Financial services regulatory authority) has become the first regulator of this approach in UAE to issues the comprehensive guidance and regulations on managing the activities relating to cryptocurrency (Aitzhan, & Svetinovic, 2018).
In European Union (EU) the firm stance has been taken on data privacy, implementing a regulation that has recordable implications for block chains. For different blockchains organizations, this right can contradict the immutability and decentralized that this technology provides their users. In East Asian nations have taken business first regulations later approach, according to which the blockchain companies are allowed to operate without any restrictions. In South Korea, the blockchain community has increased in recent years. Japan has adopted bitcoin but not ready to embrace other business powered by blockchain. In the US the applications of this approach have been restricted by regulations (Kiviat, 2015).
Blockchains can record the registered attestations that are important for supply chain participants, consumers, and procedures. This is because the blockchain allows representations of the business workflows housed with the smart contracts. Automated block chains and enforcement can help the entire nation to avoid humanitarian calamities caused by the economic transactions. Blockchains technology allows ensuring the trust between the business partners. According to world economy forum survey, ten percent of the worldwide GDP will be stored on the blockchain and the taxes will primarily be collected by using a blockchain by 2025. Ending technology enterprise is also heavily investing in the block chains, for example, IBM invested nearly $ 200 million in the blockchain powered IOT or internet if things (Sun, Yan, & Zhang, 2016)
Jurisdiction: Blockchain can cross the jurisdictional boundaries as the nodes on the blockchain can be present anywhere in the world. This may pose a number of complex jurisdictional problems which may require careful consideration related to the contractual relationship.
Service level and performance: the balance of the performance risk can be a key issue as there is no warranty regarding the performance of services
Liability: Blockchain poses various types of risks such as its inability to stop its functioning and control.
Data privacy: once data is stored it cannot be changed, this has clear implications for the data privacy, and specifically where the related data is metadata sufficient to expose someone’s secrets personal details (Yeoh, 2017).
Conclusion
The blockchain is the type of distribution ledger that is used to regulate a permanent and the temporary proof record of the transactional data. The first block chain was conceptualized by Satoshi Nakomoto in 2008. The structure of this technology includes blocks, chains, and network. The blockchain approach can be applied in digital identity, tokenization, for governments, for audit trails, as a smart contracting, automation of regulatory compliance and smart contracting. The main advantages of this technology are process identity, traceability, storing security, and faster processing. On the other hand, disadvantages include high cost, uncertain regulatory status, and high consumption of power. Blockchain technology has been introduced in UAE as “UAE Blockchain strategy 2021” in April 2011. It has been adopted in various other nations like Korea, European nations, Asian countries like China. According to world economy forum survey, 10 % of the total world GDP will be stored on this technology by 2025. The legal issues associated with this technology are liability issues, jurisdiction, and data privacy issues.
References
Ait Zhan, N. Z., & Svetinovic, D. (2018). Security and privacy in decentralized energy trading through multi-signatures, the blockchain, and anonymous messaging streams. IEEE Transactions on Dependable and Secure Computing, 15(5), 840-852.
Bahga, A., & Madisetti, V. K. (2016). Blockchain platform for industrial internet of things. Journal of Software Engineering and Applications, 9(10), 533.
Chapron, G. (2017). The environment needs crypto governance. Nature News, 545(7655), 403.
Crosby, M., Pattanayak, P., Verma, S., & Kalyanaraman, V. (2016). Blockchain technology: Beyond bitcoin. Applied Innovation, 2, 6-10.
de Meijer, C. R. (2016). The UK and Blockchain technology: A balanced approach. Journal of Payments Strategy & Systems, 9(4), 220-229.
Kiviat, T. I. (2015). Beyond Bitcoin: Issues in regulating blockchain transactions. Duke LJ, 65, 569.
Pilkington, M. (2016). 11 Blockchain technology: principles and applications. Research handbook on digital transformations, 225.
Raval, S. (2016). Decentralized Applications: Harnessing Bitcoin’s Blockchain Technology. Sebastopol, CA: ” O’Reilly Media, Inc.”.
Sun, J., Yan, J., & Zhang, K. Z. (2016). Blockchain-based sharing services: What blockchain technology can contribute to smart cities. Financial Innovation, 2(1), 26.
Tellis, G. J. (2006). Disruptive technology or visionary leadership?. Journal of Product Innovation Management, 23(1), 34-38.
Underwood, S. (2016). Blockchain beyond bitcoin. Communications of the ACM, 59(11), 15-17.
Yeoh, P. (2017). Regulatory issues in blockchain technology. Journal of Financial Regulation and Compliance, 25(2), 196-208.
Yli-Huumo, J., Ko, D., Choi, S., Park, S., & Smolander, K. (2016). Where is current research on blockchain technology?—a systematic review. PloS one, 11(10), e0163477.
Yli-Huumo, J., Ko, D., Choi, S., Park, S., & Smolander, K. (2016). Where is current research on blockchain technology?—a systematic review. PloS one, 11(10), e0163477.
Zheng, Z., Xie, S., Dai, H. N., & Wang, H. (2016). Blockchain challenges and opportunities: A survey. Retrieved from: https://www.henrylab.net/wp-content/uploads/2017/10/blockchain.pdf
Zheng, Z., Xie, S., Dai, H., Chen, X., & Wang, H. (2017). An overview of blockchain technology: Architecture, consensus, and future trends. In Big Data (BigData Congress), 2017 IEEE International Congress on (pp. 557-564). IEEE.
Zhu, H., & Zhou, Z. Z. (2016). Analysis and outlook of applications of blockchain technology to equity crowdfunding in China. Financial innovation, 2(1), 29.
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