Have you ever been interested in Bitcoin? Have you heard of the concept of blockchain, which allows Bitcoin to function? Have you always wished to know more about how it works?
Maybe you've barely scratched the surface in terms of research, or perhaps you've thrown yourself headlong into researching the intricacies of cryptocurrencies and its blockchain backbone.
Blockchain technology is thought of by many people as being overly complicated and difficult to understand. In reality, this is not the case. It is merely a digital chain of blocks which stores information digitally in a public database.
This article aims to inform you of everything you should know about the blockchain. Follow me for the information that you need.
Blockchain is the technology that allows Bitcoin (and other cryptocurrencies and applications) to use its database to follow the large number of transactions carried out and keep them secured.
It has been in use since 2009, made up of "blocks" which hold a record of time-stamped transactions. Every block is linked using cryptography to the last one, which forms a chain.
The blocks on the chain consist of three parts of digital information. These are:
The above is a pretty simplified example; in reality, one block on the chain might include thousands of transactions, all recorded separately. Several third world countries have adopted blockchain technology to form national currencies. These include Tunisia, Senegal, and Ecuador, among others.
Cryptocurrencies and, thus, blockchain, are being seen as a practical choice for emerging markets, and even the mighty China is planning to launch a digital Yuan.
Several significant charities are utilizing blockchain technology as a way to connect to those people who don't have bank accounts. A "Digital Dollar" proposal was in an early draft of the recent Coronavirus relief bill in the USA for that very reason - the ease it would allow the Federal government to release funds to every citizen via an electronic wallet.
Blockchain is a technology that has a long road of development ahead. For one thing, it has the possibility of creating exchanges and transactions with no chance of fraud, arming it with a wide range of potential future uses outside of Bitcoin and other cryptocurrencies.
Moreover, the potential for Smart Contracts is vast and could be used practically anywhere throughout the business world. It is a digital protocol that can enforce, verify, and facilitate the performance of a contract. These transactions are carried out without third parties and ensure a guaranteed transaction while being irreversible and trackable.
It is appealing to many areas such as financial institutions, automobile insurance, real estate, etc., and it could potentially lead to the redundancy of lawyers when negotiating contracts.
Blockchain has gained popularity in recent years and is used by R3, which has created a Blockchain useful for banking institutions.
Hyperledger is also another primary user of blockchain. It is an open-source collaboration between various industries founded by the Linux Foundation. It has the aim to increase the popularity of Blockchain-based ledgers.
IBM has also announced its Blockchain service, which will allow clients to build secured Blockchain networks. Another significant impact that blockchain has had is when the London Stock Exchange adopted it as a way to improve unlisted businesses' ability to share information transparently.
It is all fascinating for the future credibility and development of blockchain.
Whenever a block receives and stores new information, it gets added to the blockchain. For this to happen, several things need to occur:
Once this new block is added to the blockchain, it is available to be viewed by anyone. Your personal information will be hidden through your digital signature, but anyone can see the transaction time, who added it, and where it took place.
Blockchain provides every computer in its network with its own copy. In the example of Bitcoin, it means millions of computers with copies of the blockchain.
It has identical information, but the fact that it is so spread out over such a vast computer network makes it hard to manipulate.
There is no one record of events, so a hacker would have the challenge of altering every copy. This is sometimes referred to as a distributed ledger. It is, however, private, as you can see the transaction information, time, date, amount, etc. but not the personal information of who is carrying out transactions.
It is not entirely anonymous, but your username or digital signature hides your private information.
The protocol of Bitcoin is built upon the blockchain. The purpose of the blockchain is to have digital info distributed and recorded without the possibility of it being edited.
Although the blockchain has theoretically been around since the early '90s, it's first real application came with the invention of Bitcoin.
The mysterious Satoshi Nakamoto, who is known as the creator of Bitcoin, referred to it as "an electronic system that is fully peer-to-peer without any trusted third party."
In simple terms, it works like this: There are many millions of people around the world who own Bitcoins, or a part of a Bitcoin. Whenever they decide to spend some to buy something, the blockchain comes into play.
Bitcoin is different from regular currency, as there is no central authority overseeing it. For printed money that is usually a government or central bank.
In the case of Bitcoin, transactions are overseen by a network of computers, which is why people describe Blockchain and Bitcoin as being "decentralized." Computers on the Bitcoin network verify the Bitcoin purchase. This is achieved by running a complex mathematical problem, known as the aforementioned, "hash."
Bitcoin and other users of the blockchain reward those that can successfully verify blocks with payments of cryptocurrency. This is often referred to as mining and has been a way for people to earn crypto since the beginning of Bitcoin.
In the minds of many people, Blockchain and Bitcoin are always linked. What other purposes can blockchain be realistically used for in the future?
In its essence, blockchain is an encrypted database of agreements. It is a way to ensure arrangements are kept and can't be changed. It serves as an incorruptible ledger, bypasses censorship, and is entirely transparent.
Potential uses could be to help the refugee crisis, creating ways to get money to the most impoverished people on the planet, preventing voter fraud, and even making the government run more efficiently.
The potential uses are endless, and it makes for a fascinating topic to study.
Blockchain has many supporters, convinced that its technology will herald the next digital revolution. They mention its ability to cut out intermediaries; its durability, and transparency.
As with other technologies, it is not perfect. It has a share of disadvantages along with the advantages.
So that we can understand it better, and whether it is suitable for the applications that you are considering, I will run through some of the pros and cons of blockchain technology.
The fact that nobody can alter the blocks after they are verified makes blockchain secure and extremely efficient at fighting off attempts to hack it.
An excellent example of this is investing in the Securities market directly, rather than through a bank.
Blockchain gets rid of intermediaries and stops them from getting a cut of payments. It also means there is no scope for dishonesty or human error.
It will become more apparent when Smart Contracts through Blockchain become more frequently used.
The rules are fixed and can't be changed to benefit one side or the other, which means it will offer viable business solutions in the long-term.
Directly sending money overseas from a bank to a loved one can take days. However, using the blockchain means a transaction can be over in seconds. It also offers far lower transaction prices than the more conventional means.
These are all compelling advantages offered by using blockchain, but to be balanced, we should take a look at some of the disadvantages.
It is due to every node of the blockchain being informed of every update to the system and given a copy. The same process is undertaken over and over again.
Rules and regulations will need to be made more explicit if it is to be more widely trusted and used.
Step-by-step, blockchain is being more widely used, but it still faces challenges to be accepted.
On balance, the disadvantages seem to be relatively minor and straightforward to overcome with time. It seems likely that the blockchains hour has arrived, and we can expect to see it more widely used.
If you would like to learn some more about hack-proof ways to protect your cryptocurrency assets, please look here.
We have seen global economic turmoil caused by the unprecedented disruption caused by the Coronavirus. Blockchain can be useful during these tough times in several ways, but there are two which are apparent.
Nobody knows where we are heading, and how much worse things might get, but blockchain systems could be used in relatively short order to put together a way to distribute financial assistance to the neediest.
It is a sad fact that in the USA, in 2020, there are still those people who don't qualify for bank accounts, which complicate distributing aid payments. Digital wallets using blockchain technology is the obvious answer.
Blockchain is the system used by the most popular cryptocurrency - Bitcoin. It has the advantage of not being under direct government control, so your assets would be safe in a Bitcoin wallet during a worldwide catastrophe. There is little risk of an account being frozen as there might be with a bank account.
It would mean you would have easy access to your funds pretty much wherever in the world that you head.
Blockchain is a technology that is still in its infancy. There is always a wide range of areas that can always adopt it.
Although Bitcoin has been an exciting ride for investors, the long-term looks positive with some experts predicting a massive increase in value to $500k by 2030. It means it is safe to say that Bitcoin will be using the blockchain for a long time to come.
The blockchain industry in 2020 appears to be in a similar place to the dot.com boom in the 90s. Everything is in place for it to become widely accepted and used.
We should remember that many people became millionaires seemingly overnight and figure out ways to use blockchain to achieve similar results now.
It seems there is an infinite array of possibilities with only a few minor hurdles to overcome. The obvious one is that there needs to be some kind of global standard adopted. The pros of blockchain do appear to outweigh the cons.
The day is coming when everyone on the planet will have a mobile wallet, and other governments follow the Chinese and develop their own digital currency.
If the US government follows through on the proposal of adopting a digital dollar which uses a form of blockchain, it will be the final hurdle for blockchain to become accepted entirely globally.
It would almost certainly see Bitcoin become extremely valuable and a realistic alternative to the digital dollar.
Blockchain stands on the edge of a fantastic future. It is time to get on board and become more familiar with its potential.