What you need to know about blockchain technology
Blockchain is to Bitcoin what the internet is to Google. They are the technologies that support Bitcoin, Ethereum, and more in the case of Blockchain and Google, Facebook, etc. Internet. But the possible uses of blockchain go far beyond the realm of digital money. Now let’s start with what we understand. Bitcoin is a digital version of an asset, similar to gold, known as a cryptocurrency. Blockchain, the technology behind it, has the potential to change the way the world works.
What is blockchain?
Virtually everything we do involves the creation and transmission of data, whether it’s hospital bills, renting an apartment, using public transportation, or tracking credit cards. Blockchain is a new way of storing and moving this data, where the information isn’t stored in one place but is distributed across thousands of nodes on a network, all connected using cryptography. In this way, by replacing authority with decentralized computing, blockchain allows us a new way of doing business with each other, bypassing traditional centralized authorities like the bank, which are currently at the heart of almost all human transactions. The network can use cryptography to recognize that the exchange remains secure. Now, before an exchange can be verified and registered, this network, essentially a series of computers, must give its consent.
How does a distributed database work?
Consider a spreadsheet that is duplicated multiple times across a network of computers. Now this network is designed to update the table regularly. In this way, the information stored in a blockchain rests as a continuously reconciled and shared database. Again, the blockchain database is not kept in a single place, meaning the records it keeps are truly public and easily auditable. No version of this data is centralized for a hacker to tamper with. Your data is hosted on numerous computers and accessible to everyone on the Internet at the same time.
But what’s wrong with our methods of storing information?
Traditionally, we send the recipient a Word document with a request to review it. The problem with this is that you have to wait until you get a copy back before you can view it and make changes to it since you can’t edit it until the person on the other end is done with it. This is how databases work today. Both owners cannot work on the same record at the same time. For banks to manage money transfers and balances, they block access momentarily while making a transfer, then refresh the other end, and then open access or refresh again. Google Docs gives both parties access to the same document at the same time, and the single version of the document is always accessible to both. It’s a shared document, but it works like a shared ledger. The distributed part comes into the equation because sharing involves more than two people. Imagine the number of legal documents that could be used in this way. Instead of passing them around, losing track of versions, and getting out of sync, all business documents can be shared instead of being transferred back and forth. Today, most of the data that drives our lives are stored in large chunks in one place, whether on paper in libraries or archives, or on a private server in the cloud. This works in most cases but is vulnerable to attacks. Lots of data breaches happen. And these leaks have dire consequences, leaving thousands of us vulnerable to identity theft and fraud. Now, blockchain can’t necessarily prevent that. Blockchain cannot prevent hackers from entering your computer system if your admin password is your birth date. But at other times, when hackers resort to the use of computing power alone to breach your system blockchain makes that impossible.
Blockchain eliminates the risks associated with storing data centrally by storing data across the network. That way, the network doesn’t have a centralized vulnerability for hackers to exploit. Think about it like this. The internet was created to transmit information. This information has to be stored somewhere, so now all of us together on Earth must have an incredible number of databases. Think of them as houses storing information. It is difficult, but not impossible, to enter a house. Cyber security is an online lock protecting this home. Blockchain technology breaks down the database into many small chunks and then distributes them across many computers. In this way, instead of having to enter a single home, you must now enter a whole city. The basis for this is the public and private keys, a generated public key is a long, random string of numbers and the user’s address on the blockchain. Bitcoins sent over the network are recorded as belonging to this address. The private key is a password that gives you access to your bitcoin or other digital assets. All data stored on the blockchain is incorruptible. By the way, protecting your digital assets also requires protecting your private key by printing it out of paper like a wallet.
Advantages and disadvantages of blockchain
Despite its complexity, the potential of blockchain as a decentralized form of recording is almost limitless. From increased user privacy and improved security to lower processing fees and fewer errors, blockchain technology may have applications beyond those outlined above. But there are also some disadvantages.
The advantages include but are not limited to;
- Improved accuracy by eliminating human involvement in verification.
- Cost reduction by eliminating third-party verification.
- Decentralization makes manipulation more difficult.
- Transactions are secure, private, and efficient.
- The technology can be monitored by all, ensuring transparency.
- Provides a banking alternative and a way to protect personal information for citizens of Countries with unstable governments.
They Disadvantages includes but are not limited to;
- Significant technological costs associated with bitcoin mining.
- Low transactions per second
- There are limits to the amount of data that can be stored.
- Regulation is dependent on the jurisdiction and is an uncertain variable.
Practical uses of Blockchain to solve problems
- Blockchain for the ‘Humanitarian aid’ program
The United Nations started a world food program with the aims of ending world hunger, this desire led them to begin a project in January 2017 themed ‘Humanitarian aid.’ The project was further developed in the rural areas of Pakistan. There was no way disbursement of food with proper documentation would have been made possible if not for blockchain technology. All transactions were registered on a blockchain and the entire process was transparent for all to see.
- Dubai’s improvement
In the year 2016, Blockchain technology was introduced to offices in Dubai, it was then realized that both developers and entrepreneurs can connect with their companies and investors. Since any two parties involved in a blockchain monitored transaction are assured of the safety of their data, the main goal in Dubai became to establish a blockchain-based system that is accessible by all kinds of industries.
- Incent customer retention
You might be wondering what this means, so I will explain; ‘Incent’ is consumer retention as a service, abbreviated as CRaaS, and it is based on Blockchain technology. It is a program whose basis is the generation of tokens for businesses that are in partnership with its network. in this system, users can exchange blockchain instantly or store it in a digital portfolio on their mobile phones or personal computers making it readily available for their use.
Of all of the uses of blockchain in practical cases, ‘Bitcoin’ is the most popular. This takes us into the world of cryptocurrency.
Simply put, cryptocurrency is a medium of exchange. Just like paper notes, it is designed to exchange digital information, making it a digital currency.
Bitcoin and Blockchain technology
Blockchain is the technology behind Bitcoin. Bitcoin is the digital token and the blockchain is the ledger that tracks who owns the digital tokens. You can’t have bitcoin without the blockchain, but you can have a blockchain without bitcoin.
Frequently asked questions about blockchain
- What is a blockchain platform?
A blockchain platform allows users and developers to create novel uses of the existing blockchain infrastructure. One example is Ethereum, which has a native cryptocurrency called Ether (ETH).16 However, the Ethereum blockchain also allows for the creation of smart contracts and programmable tokens used in initial coin offerings (ICOs) and non-fungible tokens (NFT). They are all built around the Ethereum infrastructure and protected by nodes on the Ethereum network.
- How many blockchains are there?
The number of active blockchains is growing at an ever-increasing rate every day. As of 2022, there are more than 10,000 active blockchain-based cryptocurrencies, with several hundred more on non-crypto currency blockchains.
- What is the difference between a private blockchain and a public blockchain?
A public blockchain, also known as an open or permissionless blockchain, is one where anyone can freely join the network and set up a node. Because of their openness, these blockchains need to be protected with cryptography and a consensus system such as Proof of Work (PoW). With a private blockchain, on the other hand, each node must be approved before joining. Because the nodes are considered trusted, the security layers don’t need to be as strong.
Blockchain is not considered the future of transactions because it is secure. It is considered as this because therein lies the potential to completely bypass the way we function as a society. Cryptocurrencies have been around in one form or another since the 1980s, but they have been centrally managed or created. Satoshi’s simple and elegant idea was to decentralize the whole thing. They no longer had to trust governments or banks. This feeling corresponded to the cypherpunk dream of a near-frictionless global economy, where money flowed around the world without having to overcome bottlenecks imposed by monopolistic corporations or governments.
The banks, of course, don’t entirely agree. Some believe Bitcoin price growth is a bubble that will eventually burst. However, there is a lot of hype surrounding blockchain these days, and banks are no exception. ICOs, or Initial Coin Offerings, which launch new cryptocurrencies, have become incredibly popular, however, not all are legitimate.
Like any technology, blockchain is only as secure as its users. One would assume that with the blockchain, in the event of a data breach, one could simply check the ledger and find the hackers. Theoretically, we can. In its early days, Bitcoin was known to support criminal activities such as money laundering or drugs. This was based on a fundamental misunderstanding of what can and cannot be anonymized. If you have the ability and resources to quote cryptocurrency exchanges to find out which addresses correspond to which users, you can track a bitcoin much more accurately than a paper dollar. Simply put, bitcoin does not help illegal activities. It’s not anonymous.
The future of blockchain
With many practical uses for the technology already being implemented and explored, blockchain is finally making a name for itself, largely thanks to Bitcoin and cryptocurrencies. Blockchain is a buzzword in the language of every investor in the nation, making business and government operations more accurate, efficient, secure, and affordable with fewer intermediaries. As we prepare to enter blockchain’s third decade, the question is no longer if legacy companies will adopt the technology, but when. Today we are seeing a proliferation of NFTs and asset tokenization. The next few decades will prove to be a key growth period for blockchain.