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What is Blockchain

Blockchain

What is a Blockchain?   

Based on earlier work by Stuart HaberW. Scott Stornetta, and Dave Bayer, a person (or group of individuals) going by the name (or pseudonym) Satoshi Nakamoto invented the blockchain in 2008 to act as the public distributed ledger for bitcoin cryptocurrency transactions. To this day, Satoshi Nakamoto’s identity is a mystery.

Bitcoin was the first digital money to eliminate double-spending without the aid of a central server or trusted authority because of the blockchain technology within it. Other applications and publicly accessible blockchains that are frequently employed by cryptocurrencies were influenced by the bitcoin design.

Understanding the Blockchain technology 

Long before Bitcoin became a widely used application in 2009. The blockchain was first put forth as an idea for a research project in 1991.  Since then, the introduction of numerous cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts has led to explosive growth in the use of blockchains.

A blockchain is a kind of Digital Ledger Technology (DLT) that is made up of an expanding list of data, known as blocks, that are safely connected to one another using encryption. Each block includes transaction information, a timestamp, and a cryptographic hash of the preceding block (generally represented as a Merkle tree, where data nodes are represented by leaf nodes).

The timestamp demonstrates that the transaction data was there at the moment the block was produced. Each block links to the ones before it, forming an effective chain (compare linked list data structure), because each block carries information about the block before it. Thus, once a transaction has been recorded, it cannot be undone without also undoing all subsequent blocks, making blockchain transactions irreversible.

For usage as a public distributed ledger, blockchains are often administered through peer-to-peer networks in which nodes cooperate to follow a protocol to add and validate new transaction blocks. Blockchains may be regarded as safe by design and serve as an example of a distributed computing system with strong Byzantine fault tolerance even if blockchain records are not unchangeable and blockchain forks are conceivable.

 

What Is Blockchain Used for?

From managing voting systems to offering financial services, blockchain technology is employed for various tasks.

Cryptocurrency

As the foundation of cryptocurrencies like Bitcoin or Ethereum, blockchain is currently used the most frequently. A blockchain keeps track of all cryptocurrency purchases, exchanges, and expenditures. The more cryptocurrency users there are, the more commonplace blockchain technology may become.

 

Banking

Blockchain is being utilized to execute transactions in fiat currency, such as dollars and euros, in addition to cryptocurrencies. Due to speedier transaction verification and processing outside of regular business hours, this may be quicker than sending money through a bank or other financial institution.

 

Transfer of Assets

The ownership of various assets can also be tracked and transferred using blockchain technology. Digital assets like NFTs, a representation of ownership of digital artwork and videos, are currently quite popular with this.

Blockchain might, however, also be utilized to handle the ownership of physical assets, such as the deed to real estate and vehicles. The blockchain would be used by both parties to a transaction to first confirm who has the property and who has the funding before the sale could be finalized and recorded.

With this method, they could transfer the property deed without having to manually submit documents to amend the county’s official records; instead, the blockchain would be instantly updated. 

 

Insightful Contracts

Self-executing contracts, or “smart contracts,” are another blockchain invention. Once certain requirements are met, these digital contracts take effect automatically. For instance, after the buyer and seller have satisfied all requirements for an agreement, a payment for a good may be immediately released.

 

Supply chain oversight

Large volumes of information are involved in supply chains, particularly as items are transported across international borders. It can be challenging to identify the root cause of issues, such as the vendor from which subpar items were purchased, when using conventional data storing techniques. As with IBM’s Food Trust, which employs blockchain technology to track food from its cultivation to its consumption, storing this information on the blockchain would make it simpler to review and monitor the supply chain.

 

Voting 

Election experts are investigating how to use blockchain to stop voting fraud. Theoretically, blockchain voting would make it unnecessary for individuals to physically gather and validate paper ballots by allowing voters to submit votes that couldn’t be tampered with.

 

Advantages of Blockchain

Enhanced Transfer Efficiency

People may move assets and money more effectively because blockchains are available around-the-clock, especially when doing so overseas. There is no need for them to wait days for a bank or a government organization to manually authenticate everything.

Higher Transaction Accuracy

This can lower errors because a blockchain transaction needs to be confirmed by several nodes. The other nodes would notice something is off and recognize the error if one node has a database error.

In contrast, if a mistake is made in a traditional database, it may be more likely to be accepted. Additionally, each asset is uniquely identifiable and recorded on the blockchain ledger, eliminating the possibility of double spending (like a person overdrawing their bank account, thereby spending money twice).

Intermediaries are not necessary

Blockchain enables two parties to a transaction to confirm and finish it directly between themselves. This saves time and money on paying a middleman, such as a bank.

Additional Safety

Theoretically, it is nearly impossible to conduct fraudulent transactions on a decentralized network like blockchain. They would have to hack each node and modify each ledger in order to add fake transactions. While not strictly impossible, many cryptocurrency blockchain systems use proof-of-stake or proof-of-work transaction verification techniques, which make it challenging and not in the participants’ best interests to add fraudulent transactions.

 

Disadvantages of Blockchain

 

Asset Loss Possibility

Cryptographic keys are used to secure some digital assets, such as cryptocurrencies stored in a blockchain wallet. This key needs to be kept in a safe place.

High Costs of Energy

It uses a lot more electricity than a single database or spreadsheet to have all the nodes validate transactions. This increases the cost of blockchain-based transactions and places a significant carbon load on the environment.

Transactional Speed Limit

Blockchain has a speed limit since transactions must be approved by a wider network. For instance, Visa can process 1,700 transactions per second but Bitcoin can only process 4.6.

Possibility of Illegal Behavior

Due to its decentralized nature, blockchain enhances anonymity and secrecy, which regrettably attracts criminals.

 

The Bottom Line

Blockchain technology is still somewhat of a niche technology despite its potential. Gray believes that blockchain technology has the potential to be employed in additional contexts, but that depends on future governmental regulations. It is unclear when and whether regulators like the SEC will intervene. The objective will be to protect markets and investors, that much is clear, he says.

Blockchain is compared by Shtylman to the early days of the internet. Before Google and Facebook had their first iterations, the internet had been around for nearly 15 years. Although it’s difficult to anticipate where blockchain technology will go in another ten or fifteen years, it will fundamentally alter how we transact and communicate with one another in the future, much like the internet.

 

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