Blockchain is one of the most significant assets that truly disrupt our day-to-day lives. It’s not just cryptocurrencies. “But Dennis Loos, isn’t blockchain just cryptos?” Oh, no, it’s much, much, MUCH more than that. When talking about the world of cryptocurrencies, it is impossible to ignore the elephant in the room — and ultimately what grants them power — theimpact blockchain technology has had in this century. The term blockchain is often associated with and compared to Bitcoin since their objectives are the same - and to a degree, one is a castoff of the other — the Blockchain helps to create that currency, as well as others. Any federal or traditional entity does not control money. This article will look at blockchain and introduce you to the dynamic, complex, and somewhat controversial tech.
What Is a Blockchain?
Like the name says, a blockchain is a, well, chain of blocks. This chain of blocks consists of a database system stored in a digital format that is distributed and shared between the nodes of a computer network. Its function is to record the information in a decentralized form. In layman’s terms, it is a digital ledger spread across infinite servers and computers. The system also guarantees the timeliness and security of data records, providing a governing protocol without a third party overseeing or enforcing them. It is an entirely autonomous system that can’t be altered. And it doesn’t require, like banks or other traditional financial methods, other people to ensure it works appropriately and oversees it.
The blockchain system is known to be associated with the cryptocurrency world.
When comparing the blockchain with a traditional database, the main differences begin with how the data is distributed. The blockchain collects all the data by placing it in groups of blocks. The blocks contain specific storage capacities, and when they are filled, they are automatically closed and linked to the previously completed block, forming the blockchain.
How Does a Blockchain Work?
The blockchain is a digitized and decentralized public ledger of all cryptocurrency transactions. It constantly grows as “completed blocks” are recorded and added in chronological order.
The word "block" refers to data made up of several "blocks," each representing an individual transaction processed by the network. A new block can only be added at the end of the blockchain, in which each one contains a hash pointer with a link to its predecessor. The blockchain was initially designed for Bitcoin but has become popular with other cryptocurrencies.
This system was first proposed in 1991. Since its application with the Bitcoin cryptocurrency in 2009, it has become very famous. Later on, it was implemented by numerous cryptocurrencies, decentralized finance applications, non-fungible tokens, and smart contracts.
Advantages and Disadvantages of blockchain
- The main advantage of this technology is decentralization. Blockchain technology does not need other parties to act as intermediaries to carry out the transactions. This issue helps to reduce the time to verify and validate transactions.
- Thanks to how the network is distributed, nobody owns the network. This means that users will always have multiple copies of the same information. This advantage also makes it resistant to any tech problem that might occur. For example, if a node fails, it does not affect or cause generalized problems in the specific network.
- By having a distributed network, errors are avoided. Since the information goes through several verification processes, it is almost impossible to insert malware or malicious intentions or actions during the transactions.
- The system also reduces the costs of transactions. Due to the nature of the blockchain, it allows the verification of transactions rapidly and effectively.
- This system has a low cost for users, but high implementation costs for companies, thus delaying its execution and widespread use in filed such as finance, banking, health, etc.
- Having several users verify the duplicate transactions becomes inefficient because only one will receive the reward after mining. Also, when many users perform the same task, it becomes less energy efficient.
- Due to the continuous growth of users, the number of operations integrated and stored into the blocks also grows. Therefore, the time that users need to dedicate to mining must be constant, causing an ongoing problem with non-stoppable hours of work and fatigue—no downtime for users.
- The lack of intermediaries in the transactions will revolutionize most companies — sectors responsible for validating payments and processes will disappear over time. This issue, unfortunately, creates unemployment because job positions needed for these processes will end gradually.
- Today, the energy expenditure is vast - electricity. This cause many of its proponents to still be wary of blockchain tech since - in its current form - it isn’t the least bit eco-friendly.
The blockchain system has many pros and cons that need to be considered when managing transactions by users and miners. Some disadvantages can create huge issues in the mining process. The fact that the information in the blocks is impossible to change - or edit - once cemented in place makes serious problems when correcting and fixing errors. This system creates anonymity that most people appreciate, but it also makes many illicit transactions possible. Thus, hackers exploit this type of an operation because they are impossible to trace. And not only hackers but other criminal enterprises.
How did this technology come about?
In 1991 the first project of the blockchain system using cryptography appeared. In 2008 it was published by a person under the pseudonym of Satoshi Nakamoto. This technology came into operation with the launch of the Bitcoin currency. From this point on, different cryptocurrencies started to appear and implement their systems to reach their specific objectives. And it is my estimation, that Dennis Loos’s estimation, that the tech is just getting started — it still has a lot of ground and advances to cover.
Blockchain in Banking
Banking is one of the industries that benefit the most from this technology. Since financial institutions only operate during certain hours, blockchain becomes handy when verifying transactions. For example, if a check is deposited and many transactions are waiting for verification, it can take anywhere from a couple of hours to several days for the check to clear. But with blockchain technology, verification processes can be done relatively quickly. This technology works 24/7; it never rests. By introducing this system, banks can confirm transactions in less time. Also, banks can make transactions between blockchains transparently more secure. If banks begin to implement this technology, their security also increases. All types of transactions are handled in an agile, dynamic, and safe manner. Blockchain tech can even be implemented in loans, billing, and supply chain financing.
Since most banks use an isolated system, which results in a manual process, introducing this system eliminates those processes and automates them, improving the connection between different infrastructures — entities, and procedures.
Also, as I’ve covered in other Dennis Loos originals, blockchain will radically alter - for the better - actuaries and the healthcare profession.
In my next article, a Dennis Loos original, we’ll look at smart contracts and how they link up with blockchain tech.