Blockchain Use in Simplifying Payments

Blockchain Use in Simplifying Payments

Payment ecosystems are evolving at an accelerating pace to embrace new transaction processing methods and technologies. Let us understand how we can use blockchain use in simplifying payments.

The payment verticals of retail banking, merchant retail, transaction banking, billers, and digital banking that have traditionally operated in isolation are evolving toward a consolidated, real-time, any-to-any ecosystem.

Blockchain’s Impact

Payment ecosystems square measure evolving toward a period of time, any-to-any payments experience for consumers; blockchain is a fundamentally disruptive technology that will play a role in the evolution toward real time.

Blockchain has the flexibility to modernize a payment’s elementary imperative of transferring price between multiple parties, securely and with minimal operational or technical friction. Modernizing the fundamental imperative delivers substantial benefits in the future use of computing for banks, businesses and governments.

Recent rapid growth of peer-to-peer market exchanges for lending (Zopa, Lending Club and Funding Circle, etc.), accommodation (AirBnB) and taxi services (Uber) has demonstrated the potential of peer-to-peer architectures. Blockchain has the potential to accelerate and change such models in each new and existing markets.

The areas of application for blockchain stretch so much on the far side pure payments. Across the banking system, uses include post-trade settlement, asset management, securities, and trade finance. Beyond banking, blockchain interest includes insurance, government, identity management, and accounting services. Not only is this likely to generate new opportunities for payment providers, but also new entrants with disruptive business models, as new market areas become more practically addressable.


Blockchain technologies are immature and their ability to support the challenging non-functional requirements of payment services has yet to be proven.

Current blockchain proof-of-work algorithms require seven seconds on average to gain consensus; further technical maturity is required in this area to support consensus in under 25 milliseconds. Recent advancements leveraging a proof-of-stake approach hold promise to improve consensus performance. Technical advancements are being made toward maturity; technical maturity has accelerated over the past year, fuelled by increasing blockchain investments worldwide that exceed $1.5 billion.

Different types of uses in payment system:

  1. Value Transfer:
    The use case for transferring funds between parties is the major focus. Blockchain 2.0 technologies could be applied to a variety of different payment sceneries.

    In single currency domestic payment the impact could be to reduce or remove the need for central counterparty and the delays in setting transaction net or gross in real-time. Transfers in multiple currencies between countries cross border payments.
  2. Trade Finance:
    The use case for trade finance covers a single common record of the liabilities and obligations of parties in trade finance. Possible users of blockchain 2.0 include: invoice fraud prevention, process efficiency, service improvement.
  3. Reference Data:
    Enable the rapid, auditable and secure updating of records by any authorized participant and sharing the change across the network of users. Potential areas where these technologies could be used to streamline the update process and simplify integration into existing payments processing include hot card files, sanctions lists, routing records etc.

As real-time, open-source and trusted platforms that securely transmit data and value, they can help banks not only reduce the cost of processing payments, but also create new products and services that can generate important new revenue streams.

The biggest key to turning the potential of blockchain’s use in simplifying payments into reality is a collaborative effort among banks to create the network necessary to support global payments. Blockchain technology itself works—there’s no debate about that. Now it’s time for banks to seem at the larger image and work along and with non-banks—to facilitate outline the backbone which will underpin a universally accepted, ubiquitous global payment system which will remodel however banks execute transactions.

Blockchain Architecture: Simple Yet Complex

Blockchain Architecture: Simple Yet Complex

The blockchain serves as an immutable ledger which allows transactions to take place in a decentralized manner. Blockchain-based applications are springing up, covering numerous fields including financial services, reputation system and Internet of Things (IoT) and so on. Let us understand through this blog how does Blockchain Architecture work.

Overview of Blockchain Architecture

Blockchain systems can seem complex; however, they can be easily understood by examining each component technology individually. At a high level, blockchains utilize well-known computer science mechanisms (linked lists, distributed networking) as well as cryptographic primitives (hashing, digital signatures, public/private keys) mixed with financial concepts (such as ledgers).

Blockchain Architecture Concept | Parangat
How Blockchain Architecture works

  1. Hashes
    An important component of the blockchain technology is the use of cryptographic hash functions for many operations, such as hashing the content of a block.

    Hashing is a method of calculating a relatively unique fixed-size output (called a message digest, or just digest) for an input of nearly any size (e.g., a file, some text, or an image). Even the smallest change of input (e.g., a single bit) will result in a completely different output digest.
    Hash algorithms are designed to be one-way (known as being preimage resistant): it is computationally infeasible to find any input that maps to any pre-specified output. If a particular output is desired, many inputs must be tried by passing them through the hash function until an input is found that produces the desired result. Hash algorithms are also designed to be collision resistant (known as second preimage resistant): it is computationally infeasible to find two or more inputs that produce the same output.
  2. Transactions
    A transaction is a recording of a transfer of assets (digital currency, units of inventory, etc.) between parties. An analog to this would be a record in a checking account for each time money was deposited or withdrawn. Each block in a blockchain architecture contains multiple transactions.
    • Amount – The total amount of the digital asset to transfer.
    • Inputs – A list of the digital assets to be transferred (their total value equals the amount). Note that each digital asset is uniquely identified and may have different values from other assets. However, assets cannot be added or removed from existing digital assets. Instead, digital assets can be split into multiple new digital assets (each with lesser value) or combined to form fewer new digital assets (each with a correspondingly greater value).
    • Outputs – The accounts that will be the recipients of the digital assets. Each output specifies the value to be transferred to the new owner(s), the identity of the new owner(s) and a set of conditions the new owners must meet to receive that value. If the digital assets provided are more than required, the extra funds are returned to the sender (this is a mechanism to “make change”).
    • Transaction ID/Hash – A unique identifier for each transaction. Some blockchains use an ID and others take a hash of the specific transaction as a unique identifier
  3. Asymmetric-Key Cryptography
    A fundamental technology utilized by blockchain technologies is asymmetric-key cryptography (also referred to as public/private key cryptography). Asymmetric-key cryptography uses a pair of keys: a public key and a private key that are mathematically related to each other.
    The public key may be made public without reducing the security of the process, but the private key must remain secret if the data is to retain its cryptographic protection. Even though there is a relationship between the two keys, the private key cannot efficiently be determined based on knowledge of the public key.
    Asymmetric key cryptography uses the different keys of the key pair for specific functions, dependent on which service is to be provided. For example, when digitally signing data, the cryptographic algorithm utilizes the private key to sign. The signature can then be verified using the corresponding public key.
  4. Addresses and Address Derivation
    A user’s address is a short, alphanumeric string derived from the user’s public key using a hash function, along with some additional data (used to detect errors). Addresses are used to send and receive digital assets. Most blockchain systems make use of addresses as the “to” and “from” endpoints in a transaction.
  5. Ledgers
    A ledger is a collection of transactions. Throughout history, pen and paper ledgers have been used to keep track of the exchange of goods and services. More recently, ledgers have been stored digitally, often in large databases owned and operated solely by centralized “trusted” third parties on behalf of a community of users (i.e., the third party is the owner of the ledger).
  6. Blocks
    Users may submit candidate transactions to the ledger by sending these transactions to some of the nodes participating in the blockchain. Submitted transactions are propagated to the other nodes in the network (but this by itself does not include the transaction in the blockchain). The distributed transactions then wait in a queue, or transaction pool, until they are added to the blockchain by a mining node.
  7. Chaining Blocks
    Blocks are chained together through each block containing the hash of the previous block’s header, thus forming the blockchain. If a previously published block were changed, it would have a different hash. This, in turn, would cause all subsequent blocks to also have different hashes since they include the hash of the previous block. This makes it possible to easily detect and reject any changes to previously published blocks.

    A blockchain is simply a distributed data structure that is built linearly, over time and is independently verified and audited by all actors in the network.

In general, blockchains contain transactions packaged into blocks that are mined using significant resources and new “tokens” are created as a result of this mining.

The network-at-large cryptographically verifies that all transactions are legitimate and uses consensus rules to determine what the valid blockchain contains.
As a consequence, blockchains introduce a revolutionary new way to create systems that are free from reliance on any centralized trusted entity to dictate truth.

Blockchain Concept Simplified

Blockchain Concept Simplified

Blockchain is everywhere, literally. But not many people have a clear understanding of this simple, transformational technology. I say “simple” because if you understand its architecture and functionality, you will be marveled by how brilliant it is and in how many ways it can be exploited. Of course, there are complexities involved but they are at a micro-level. So, if you are looking for a jargon-free, not-so-technical explanation of the blockchain concept, this post is for you.

Another thing before you dive deep, blockchain finds many other applications apart from Bitcoin. In fact, Bitcoin is just one of the 700 applications that work on the blockchain principle. But since cryptocurrencies seem to be the flavor of the season, I will mainly talk about blockchain technology in the context of digital payments.

Why Blockchain Technology?

Historically, monetary transactions have relied heavily on intermediaries or middlemen for authenticating the transactions and maintaining records. They acted as a regulatory body to prevent frauds.

Digital assets are more vulnerable since they are easy to compromise and duplicate. They are generally files that can be duplicated if their source code is accessed. Therefore, permission had to be sought from banks in case of money) or intermediaries (for stocks, etc.) for completing a digital transaction. This process could take time but was important to prevent the problem of double-spending (spending the same asset more than once).

So, in 2008, someone called Satoshi Nakamoto released a whitepaper in which he detailed a revolutionary technology by which digital transactions could be verified, authenticated, recorded and completed, without any intermediary! In fact, all the checking and record-keeping was to be done by people themselves. But not everybody is equipped with special verification powers. This can be achieved by specialized people who can solve complex puzzles (miners) by a process called mining. The good news is that miners are normal people like you and me (peer to peer), not banks or middlemen. They use the processing power of super-powerful computers and software to solve big puzzles (like Sudoku, only tougher). Each puzzle has a definite answer and follows a complex algorithm. The puzzle gets harder as the network gets bigger. All miners in a network have to follow the network’s protocol strictly and they are rewarded for their services by Bitcoins. Once a transaction is verified and attached to the network, it is irreversible. Reversing, modifying or deleting a transaction would require manipulation of all previous transactions (remember, it’s a chain). This is practically impossible and thus blockchains are thought secure.

Blockchains have eliminated the need for a bank by fulfilling three of its roles- storing value, verifying identities and keeping transactions records. Hence, blockchains intrigue people more than other digital payment methods like PayTM that require tie up and verification from banks.

A network of value

Blockchain can be interpreted linguistically as a chain of blocks. A block being a bundle of transactions and the chain made up of many interconnected blocks. Miners compete with each other to verify all new transactions by solving complex puzzles. The miner who gets to the result first, attaches his solution (proof of work) and is awarded with a fraction of Bitcoins that are generated now. The other miners double-check his solution and if a majority is in agreement, the transaction completes (Consensus).

Verified transactions are bundled up with their proof of work and made into a block. The new block is time stamped and attached to the existing blockchain, in a chronological order. Now, everybody in the network knows that payment has taken place and it becomes impossible to spend the same currency twice.

Blockchain Concept Simplified process | Parangat

Since every block contains an encrypted link to a previous block, all transactions can be back-verified till we reach the origin of the first transaction. So, data that once enters a blockchain becomes immortal, a property it shares with internet!

Some people describe blockchain as the internet of value, and it seems fitting. In the internet, anyone can upload information and others can view it. A blockchain allows anyone to send Bitcoins (encrypted currency) anywhere but only the person who knows its unique address (private key) can access them. So, to transfer your Bitcoins you have to share your coins’ unique address with the recipient.

A distributed ledger

Blockchains not only have an auto-verification system, record-keeping is also automated. A copy of the entire blockchain is available to everybody on the system. Since blocks contain encrypted records representing receipt or payments of money (Bitcoins, in this case), blockchain is a type of virtual ledger. There is no central server that holds the record database or that gives permission to access the database. It is distributed and decentralized. As explained before, there is no need for an intermediary.

Blockchains can be private

Another revelation- blockchains can be private. I know, this essentially kills our favorite feature of blockchains- decentralization. But hold on; there’s more to this. Bitcoin blockchains are public, meaning anybody who has a computer and an internet connection and follows the rules of the blockchain, can join. Then he is given a copy of the entire database. A new transaction cannot be added to the ledger till all its associated previous transactions are verified. Once everything is found in order, the new entry is written and the entire database is synced and replicated to reflect new addition. As you can note, their process has built-in redundancy. This also makes the blockchain concept a bit sluggish.

Enter… private blockchains. They have rules governing who can access the network. They are mostly initiated by enterprises for their private use; something like an intranet. Private blockchains can be accessed by anyone who has been granted permission (invitation) by the starter of the network or who matches the protocol set by the starter. Since the number of participants in private blockchains is less, processing speeds are much faster and processing costs are lower than of public blockchains.

Blockchain Concept Simplified concept | Parangat

Aside from the access rights, public and private blockchains share similar features:

  • Both are decentralized. A copy of the entire blockchain is available with each and every participant.
  • Both have an access protocol (consensus).
  • Both are immutable and irreversible.

Public or private, the blockchain concept is intriguing. They have made digitization of assets possible and transfer of assets faster. Their encrypted, peer to peer mechanism has phased out the need for regulatory bodies and administrators. And while the blockchain concept purists might protest that private blockchains aren’t exactly permission-free, we say- better a devil known than a devil unknown!

Blockchains are made to go beyond Bitcoins

Although blockchain’s application in digital currencies and asset transfers is most widely documented and exploited, blockchains go way beyond finance. Blocks can store any kind of encrypted information. Bitcoins are also lines of code that hold a unique address.

Blockchain Potential Applications & disruption | Parangat

Apart from handling currency, the blockchain concept can be made to execute some actions (in the real and physical world) if they work in tandem with other technologies. Actions can be to fetch external data such as medical records, census information, intellectual property, weather reports, inventory details, etc. But here comes a problem. Not all participants in a blockchain trust each other. So, how can they filter who can access their data? This can be done using smart contracts. A smart contract contains sets of conditions that must be met by a user, for him or her to gain trust and enter a blockchain. Once a user meets all criteria, blockchain programs trigger and perform some action.

Consider an example. You must have heard of smart devices. They are regular appliances fitted with sensors and connected to the Cloud. These devices are programmed to operate in a predefined manner if certain conditions are met. For example, a smart glucometer keeps monitoring the user’s glucose level and triggers an alarm when levels rise beyond a certain defined limit. They might also send a message to the user’s physician if a low or high sugar situation arises. Now, add blockchain to this equation.

Suppose the physician stores all patient records in a blockchain and shares its private key with his patients. He will be controlling access to confidential records. Apart from securing his patients’ data in encrypted form, the blockchain will be governed by smart contracts that will control who can access the data. Suppose an invalid transaction is tried, the entire blockchain is alerted and doctor, as well as patient, gets a notification. A smart contract can set a protocol that if an input is valid, access should be granted. Programmed devices will be triggered to perform any action- increase insulin dose, contact emergency room, etc. incredible, isn’t it? No need for manual intervention, no hassle, no delay!
The Blockchain concept is more than a bubble. It’s an ocean of possibilities and opportunities. Take a dip and find out for yourself!

Hedera Hashgraph

Hedera Hashgraph

Hedera Hashgraph Future - Parangat

Hedera Hashgraph is the next generation distributed public ledger. The mechanism of the Hedera Hashgraph will be completely different from Bitcoin and Ethereum. Where Bitcoin and Ethereum are currently using the Conesus mechanism. Hedera Hashgraph will not be using the same technology, even they explored the new technique which will be ABFT (Asynchronous Byzantine Fault Tolerant).

Hedera Hashgraph Blockchain - Parangat

ABFT (Asynchronous Byzantine Fault Tolerant)

From past few years BFT (Byzantine fault tolerance) has been standard for security in distributed systems. Byzantine fault tolerance means that honest members of a network can be guaranteed to agree on a common consensus, even if malicious members (Byzantine nodes) are trying to prevent that consensus, or trick them into reaching different conclusions. A system is BFT if it can guarantee that there will come a moment in time when all nodes agree on consensus, and they know they’ve reached consensus, and it is always the same consensus.

BFT means achieving this even while allowing for a wide range of faults or attacks. Byzantine faults include behaviors like lying, collusion, and selective non-participation. Clearly it will be harder for a set of nodes to come to valid consensus under these sorts of errors, compared to simpler scenarios where nodes may just crash.

Hyperledger also used the same system for Fabric and other flavours of Hyperledger. And one of the famous mechanism is PBFT (Practical Byzantine Fault Tolerance) and RBFT (Redundant Byzantine Fault Tolerance).

Hedera vs Blockchain - Parangat

But above all the ABFT (Asynchronous Byzantine Fault Tolerant) is the strongest one. In a distributed system, Byzantine Fault Tolerance refers to the ability of the system to retain honest consensus in the network despite malicious nodes failing or manipulating with the false messages.  Asynchronous Byzantine Fault Tolerant means that it can achieve consensus even if malicious node control the network and start altering the transactions. The Hedera Hashgraph consensus mechanism does not use a leader format as with the round-robin system of practical Byzantine Fault Tolerance, which allows it to be resistant to DDoS attacks aimed at leader nodes or small subsets of nodes.

In ABFT the whole system will start identifying which transaction happened and when it happened. Through this they can achieve verify the transaction easily and in better fashion.

Another advantage of Hedera Hashgraph is Fairness. It means that every transaction will be broadcast to all the nodes which are participants of the Hedera Hashgraph network. And the transaction order and time-stamp will also be accurate. This means that it does not have the transaction pool where all the transactions are being saved and after a certain period of time they will be mined. And miner decides which transaction they want to calculate. If you’re providing lesser fees there are chances that your transaction will take time to get confirmed. But in Hedera Hashgraph the transactions are being calculated once they released or broadcasted to network the system does not allow to choose any particular transaction on the basis of time and execution cost. This makes this system faster than Bitcoin and Ethereum.

To perform this action Hedera Hashgraph is using a Gossip Mechanism. In Gossip Mechanism instead of broadcasting transaction message,  Hedera Hashgraph broadcasting the state to the network.

How does Blockchain Technology work?

How does Blockchain Technology work?

The purpose of introducing new technology is to upgrade our very own systems and elevating them to a better stance. We could use a stick to stir the pot, but why do that when we can have one large stirrer that could mix, collect and pour the soup out of the pot. Same goes with the way we trade. We need trust. We need records. We need accountability for every paper we sign and every currency we give or take. And that has a cost. Our financial transactions and every legal, formal record we keep need to have the intervention of an intermediary, absence of which, the assets become vulnerable to theft or fraud. That’s precisely why Blockchain technology is taken seriously in the tech world as the new foundation on how we develop and do business. It’s tough to break down the entire process of blockchain into layman terms. Let’s get technical on how does blockchain technology works.

Hash – The nuts and bolts of blockchain

First things first, Bitcoin is not Blockchain. However, it uses blockchain technology to function as a cryptocurrency. Blockchain Technology, on the other hand, is an open and public ledger. This ledger can also be distributed and kept as a copy. In this chain, each block has three major component. The data, hash of the current block, and the hash of the previous block. The first part of the block that is the data entirely depends on the type of the blockchain. In the case of Bitcoin, the blocks record and keep the details of the sender, receiver and amount of coins which is the entire transaction itself. A block has a hash that could be equated to a fingerprint of the block. It effectively recognizes the contents of the block and is always unique. The hash of a block is initiated into calculation as soon the block is created. If you alter or modify something inside the block, the hash changes. This behavior of blockchain technology makes it useful for detecting changes in a specific block. If the hash of the block alters, it is transformed into a new block. You also have the hash of the previous block in each block. All the infusing of these three crucial elements makes this a blockchain and precisely why it is so secure. The first block that results in a subsequent blockchain is termed as the genesis block. If someone tries to tamper with the second block in the chain, the hash changes again. It will be a stupid and a reckless move because the third block and all rest of the block will be invalid because they can no longer read the hash of the previous block.

Hash-The nuts and bolts of blockchain - Parangat
Hash is a unique code

Proof-of-work – The shield and saviour

But if you look at it, hashes aren’t the only shield against tampering. You have hackers and data frauds equipped with supercomputers that can count thousands of hashes per second. They can easily tamper a block by recalculating the hashes of every other block so that it can transform into a valid blockchain. In order to save the entire blockchain from this apocalyptic recalculation, we have Proof-of-work for every block. It is a super mechanism that steps in and slows down the whole process of recalculation and revalidation that leads to tampering. In Bitcoin, the stipulated time to calculate the proof-of-work is approximately 10 minutes. Only after the calculation, a new one is added. It is super arduous for anyone to calculate the proof-of-work for an entire set of blocks which in turn makes it difficult to tamper with the blockchain. The epicenter of blockchain’s security is the creative use of hashing and proof-of-work mechanism.

Proof of Work - Parangat
Secure like never before

Distribution – Open tight security

Blockchain technology has one more level of security that amps up the entire process of making the blockchain super secure from theft. The hero feature over here is distribution. Blockchain technology is famous because of the fact that it is a peer-to-peer network. This network of blocks allows anyone to join the network system which makes it open and transparent for users. When an individual joins this network, he/she gets the entire copy of the blockchain. The individual copy of the chain has nodes. The different segments which make up the whole data structure are called as Nodes. The node has the power to verify the order of the chain. When a new block is created, it is sent to everyone on an open network of the blockchain. The blocks are then verified by each node to check on the authenticity. If it’s verified, only then it is added to the blockchain. The foundation and objective of this whole process is Consensus.

They are the validators of each block. The automatic consequence of this will be the rejection of tampered blocks by the nodes. So in all, even if someone wants to tamper the blockchain successfully, they will need to control almost entire peer-to-peer network, recalculate the proof-of-work of each block and then tamper with every subsequent block in the chain. Only then can you succeed in entering the web of blockchain with your tampered block. And this my friend, is nearly impossible to execute.

Distribution of Blockchain-Open tight security - Parangat
The chain is open to distribution

Blockchain technology is revolutionary. It has a profound impact to the way we trade and transact, in the sense that we will have to rebuild our financial structures from the ‘Oldskool to the Newskool.’ The transition from the intermediary empire to the peer-to-peer free exchange would mark a glorifying change to fundamental ways we trade. Blockchain technology will be further used to store medical records, create E-notaries, or even to collect taxes. It is still taking baby steps to make its presence in the world. For those who might think that blockchain technology does not hold a future, a sheer look into Bitcoin will be enough to grasp the facts and benefits of blockchain and how blockchain technology works.