A blockchain is basically a living list of records, called as "blocks". These blocks are connected to each other by the diverse cryptographic mechanisms. In the category of data structures, this can be related to the concept of a Linked List. In Blockchain, the initial block is known as the "Genesis Block". The data in the blocks cannot be altered and blocks can only be added to the chain but never removed— making a blockchain database highly secure. Now we know that the blockchain is a data-storing structure, let’s review what exactly the blockchain entails.
The three main pillars of the blockchain are:
Decentralization: This refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network. It means that the blockchain is autonomous and does not have a central governing unit.
Transparency: It means that blockchain has zero privacy to be exact when we talk about transactions, all the transactions are public and can be viewed by anyone on the network.
Immutability: It is the ability of a blockchain ledger to remain unchanged, unaltered and indelible. This functionality of blockchain technology ensures that no one can intrude in the system or alter the data saved to the block. means that once a transaction is pushed into blockchain it cannot be altered.
We see that transparency is an inherent property of the blockchain; I’m this article, we’re going to see how important this is in relation to DeFi and the Crypto space as a whole and how it has helped in the adoption of blockchain. We shall also take a look at a tool that is in the fore front on ensuring and improving transparency especially in the DeFi space of the blockchain.
Why Transparency is Important For blockchais
1) Accountability: As every transaction is recorded from genesis, all data can be accounted for. Users or participants in a DeFi project can monitor every single transaction and historical logs of that platform if provided with the best tool. There won’t be any room for falsification of records, omission of some parts of the records or manipulation of the records by the developers to suit their own needs. All these are eliminated by the transparency of the blockchain.
On the side of the developers (owners) of the DeFi platform, since they have a full record of all transactions, they can keep full account of their platform which can be used for improvement and
2) Regulation: In the financial world, regulation for companies is done by a centralized entity. The fees and regulatory burdens placed on public companies by these “Centralized Entities” has been on the rise and has caused deleterious effects. The American Bar Association concluded that “the average cost of completing an IPO (initial public offering) has been estimated to be approximately $4 million, on top of an average one-time fee of $1 million. Due to this extremely high cost of going public, companies are choosing to stay private longer.
The blockchain which is a free market and true to its nature has solved these problems. As every single transaction can be viewed, valuations can be placed explicitly on the company’s ability to responsibly manage assets, debt and equity, giving investors a trustable look into a company’s health. Transparency is, by far, the best regulator. It optimizes prices and the quality of goods and services, and it requires management to report its activities under the watchful eye of the public.
Solutions like security tokens are rooted in transparency. A security token represents an ownership share in a company, piece of real estate, art or other asset. The token is recorded on a blockchain, and all transactions regarding the underlying asset will be 100% transparent for any participant to view.
3) Trust: This is one of the main reasons investors invest in a company. This virtue is acquired through an outstanding long term performance by that company. Naturally, in the financial world, the investor will have to depend on the information provided by the company as regards to the full record of a company in order to make his decision to invest; unsure if this record is tampered with, complete or accurate.
The transparency of the blockchain has eliminated all these; all data records/history of a DeFi protocol or a company that uses blockchain technology is visible to the public through a tool like Covalent. The nature of the transparency of the data will determine the level of trust to be issued by an end user to the said DeFi protocol. DeFi companies would compete to be more and more transparent. The more transparency, the more investors and users. Most DeFi protocols now make sure that their blockchains are well maintained with a search function that allows any participant to view every transaction.
For example, in the context of agriculture, it could be more desirable to get your supply from a company that uses blockchain technology because every single transaction related to the exchange of a particular crop is visible to the consumer. This applies to any context that involves the flow of goods and services, including finance, insurance, medicine and so on.
4) Saves Cost: In traditional networks, each participant keeps their own ledger(s), which are updated to represent business transactions as they occur. This is expensive due to duplication of effort and intermediaries adding margin for services. It is clearly inefficient, as the business conditions – the contract – is duplicated by every network participant. It is also vulnerable because if a central system (e.g., a bank) is compromised due to an incident, this affects the whole business network. All these one way or the other incures huge costs upon the company.
The blockchain architecture gives participants the ability to share the ledger, which is updated every time a transaction occurs through peer-to-peer replication. So no need for duplication as every transaction is stored automatically which saves huge costs on the side of the company. The company only needs a tool to fetch these data
The ledger on the blockchain serves as the single source of truth for all transactions in the network, thus providing a full history of the transactions (provenance), transparency, traceability, and a non-repudiation process. The importance of the transparency of the blockchain is seen in the view of the end user or developer and the use case at that moment; as there vast use cases of the blockchain, so also there are vast importance of its transparency.