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What you need to know about Blockchain Technology
Cryptocurrency and blockchain, conjoined Siamese
Cryptocurrencies like bitcoin, Ethereum, dogecoin and other altcoins have largely dominated the talk about digital currencies. What is least talked about by ordinary investors or users of cryptocurrency is the infrastructure on which they operate. This tendency of behind the scenes technology not getting enough attention or airtime is not strange.
To be honest, blockchain technology came as a game changer in the long struggle to create purely digital currencies. Initial attempts to establish purely digital currencies that could not be free from risks such as double spending and fraud was a mirage. However, blockchain technology pulled a technological ingenuity and solved this problem resulting in the creation of bitcoin and other variants of crypto we know today.
So what is this acclaimed blockchain?
Blockchain refers to an immutable as well as a shared ledger that enhances the process of tracking and recording assets. An asset may be intangible or tangible. Basically, anything that has value can be traded in the blockchain network. Moreover, blockchain stores information in a digital format electronically.
In the cryptocurrency world, blockchain has played an important role. For instance, in Bitcoin, it helps in maintaining decentralized and secure transactions. The good thing about Blockchain technology is that it guarantees security and fidelity. Every block that is in the chain has a certain number of transactions. Also, when there is a new transaction in Blockchain, the transaction’s record is added to every ledger of the participants.
The blockchain ledgers involve a variety of documents such as logistics manifest, land titles, and loans. The information on big data may be shared in a varied verification environment. This is good for secure information sharing as well as real-time.
The Importance of Blockchain
Blockchain is significant to security. The reason is that the new blocks having new information are normally added towards the end of the chain. Every addition that takes place should have a hash or a digital signature. The hash comes in the form of letters and numbers. I can describe it as a secret math code. After an amount in the block changes, then the signatures also change.
The other good thing about blockchain technology is the way it has cut the issue of middlemen. This issue makes companies, as well as the traders, save lots of money. It enhances the issue of direct transactions in a safe manner. For instance, technology has helped people to donate money to Ukrainians. Thus, avoiding the issue of middlemen and money can directly reach the recipients.
As opposed to the traditional database technologies, blockchain mitigates the presence of central authority. This further helps you avoid potential legal issues when transacting. The reason is that when using a third party, data is prone to vulnerability and compromised. Therefore, such issues have been mitigated by blockchain through the decentralized system. The system helps in recording each transaction. Besides, both parties play a role in approving the transactions while they are also automatically for both parties in their ledgers.
Components of the Blockchain Technology
The first component of blockchain technology is a distributed ledger. This is the shared database in the blockchain network. It stores transactions like a shared file, which every team member can edit. In the shared text editors, anybody having editing rights can delete a whole file. Unfortunately, you have to be careful because there are strict rules concerning the person who can edit or even the way to edit.
The second component is public-key cryptography. It is a security feature that identifies the blockchain network participants. Besides, public-key cryptography generates two kinds of keys for the network members. They are public and private keys. The public key is available to every member of the network. However, the private key is unique to each member.
The third and last component of blockchain technology is smart contracts. Enterprises utilize smart contracts in self-managing business contracts. They do not need to get any assistance from a third party. Besides, they are programs stored in the blockchain system, and they can automatically run after meeting the predetermined conditions.
Types of a Blockchain
The main types of blockchain networks include private, public, permissioned, and consortium.
The public blockchain network helps in eliminating centralization and security flaws. Through distributed ledger technology, data is distributed in a peer-to-peer network instead of a single location. Besides, consensus algorithms such as proof of work (PoW) and proof of stake are used in verifying the authenticity of the information.
Furthermore, the private blockchain mainly works on closed networks. Besides, it works well for private organizations and businesses. Companies use the technology to customize their authorization and accessibility preferences.
Consortium Blockchains are unique as they both have private and public components. However, for then, multiple firms manage one consortium blockchain network. They are good for better security and the collaboration of several organizations.
Lastly, permissioned blockchains are private. They allow special access to the authorized persons. Organizations normally set them up to know both worlds. Also, it enhances a better structure in a case where you are assigning the people who can take part in a network as well as the kind of transactions.
The Advantages of Blockchain Technology
Blockchain, as a new technology, has its advantages. Using it when making transactions is the best decision that any trader can make. It helps by making transactions more secure and has extra security.
More effective transactions
The blockchain system operates 24/7. This is good because it makes assets and financial transfers to be more efficient. Remember, people across the globe have a different time zone. Thus, using blockchain enables them to perform transactions smoothly, irrespective of the time. Also, one does not need a government agency or banks that only work during weekdays to confirm everything.
A high number of Accurate Transactions
As I said earlier, blockchain transactions are normally verified through varied nodes. This helps in reducing the error. For instance, in case one of the nodes has a mistake, then other people in the database will see it and know the error.
A decentralized network like this makes it impossible for an individual to hack the system or even conduct fraudulent truncations. In forging a transaction, then you will have to hack every node and even change each ledger. Besides, most cryptocurrencies, such as Bitcoin and Ethereum, utilize proof of stake verification methods. The methods make it complicated for people to add fraudulent transactions.
Elimination of Intermediaries
In the past, there have been intermediaries, and even now, they still exist. For instance, if you want to purchase a house, you have to go through an agent. This means that the amount of money you will pay for the house, in the end, will be higher. The case is different in the blockchain. The reason is that through it, just two parties involved in a transaction confirm and complete a transaction without going through an intermediary. Generally, I can describe it as a system that has brought efficiency to digital commerce.
The Disadvantages of Blockchain
Since blockchain does not use a third party like the government or even a bank, there is a possibility of people engaging in illegal activity. Also, the decentralization enhances confidentiality and privacy that appeals to criminals. Tracking an illegal transaction in the system is so difficult.
Another con of the system is the high energy cost. When all the codes are working when you are verifying a transaction, then you will have to use more electricity. It will be more as compared to when using a spreadsheet or even a single database.
There is also a risk of losing assets. The reason is that some of the assets are secured through a cryptographic key in the blockchain wallet. You have to guard the key. Otherwise, in case you lose the key, then there is no way or recovering it. It means you will have lost your assets.
The uses of Blockchain Technology
- Cryptocurrencies like Bitcoin and Ethereum
- Used in voting to prevent fraud
- Smart contracts
- Recording and transferring the ownership of assets
- Supply chain monitoring
- In banking to process transactions in fiat currency, including euros and dollars