You’ve presumably heard the term “blockchain technology” in the last several years, probably concerning cryptocurrencies like Bitcoin. It is important to understand the science behind blockchain technology to keep up with the new era of technology which is becoming increasingly important in the digital world.
It is up to you to understand blockchain technology as it advances and becomes more user-friendly to be prepared for the future.
If you’re new to blockchain, this blog is a must-read for you to get a better understanding of the topic.
Understanding blockchain technology
Blockchain technology is a blueprint for storing public transactional records, also known as blocks, in a network of peer-to-peer nodes. This form of storage is often known as a “digital ledger.” Every activity in this database is approved by the owner’s digital signature, which authenticates the transaction and prevents tampering. Hence, the digital ledger’s data is securely encrypted.
The digital ledger is akin to a Google spreadsheet shared across several computers on a network, and it stores transactional information based on actual sales. The data is visible to everybody, yet they can not modify it.
How does blockchain work?
Blockchains are distributed databases. Each party on a blockchain has total access to the database and its history. There is no single party in charge of the data or information. Every party can validate each transaction against its copy of the blockchain, making forgery nearly impossible. As a result, a credible system free of third parties is created for any transaction.
Today’s blockchain technologies go by many names — distributed ledger technology (DLT), permission-ed ledgers, and so on — but they all have their roots in essential concepts established for Bitcoin beginning in 2008. These technologies all have one thing in common: they streamline trust.
Fun Fact: According to the blockchain technology market, the global blockchain technology market is expected to reach $20 billion in revenue by 2024.
What is the primary aim of blockchain?
The primary function of blockchain is to store information on monetary transactions made with cryptocurrencies, but they also store other forms of data, like product tracking and other data.
Food products, for example, can be tracked from the time they are sent to their final destination. This info is useful because if a contamination epidemic happens, you will be able to easily pinpoint the source of the outbreak. This is just one example of how blockchains might be used to store crucial data for enterprises.
How can you invest in blockchain?
You can’t invest in blockchain because it’s just a mechanism for storing and processing transactions. But, you can use this technology to invest in assets and businesses.
- The simplest solution is to buy cryptocurrencies like Bitcoin, Ethereum, and other blockchain-based tokens.
- Another possibility is to invest in blockchain companies that use this technology.
- You can also invest in cryptocurrency penny stocks like Altcoin and Litecoin.
- Other apps and services in the pre-development stage raise funds with blockchain technology.
- As an investor, you can purchase coins hoping that their value will rise as the service or app grows in popularity.
- Finally, there is the option of investing just in blockchain technology.
What are the current implications of blockchain technology?
1. Brought new life into the global economy
Bitcoin, the primary use of blockchain, has helped numerous individuals through financial services like digital wallets. It has made microloans and micropayments available to those in less-than-ideal economic circumstances.
2. Avoids third-party intermediaries
The next big impact is on the concept of trust, particularly in international transactions. Before blockchain, we employed attorneys to bridge the trust gap between two parties, but this took additional time and resources.
However, the introduction of cryptocurrency has fundamentally altered the trust equation. Many organizations are based in places where resources are limited, and corruption is rampant. In such instances, blockchain provides a huge advantage to the impacted individuals and organizations by allowing them to avoid the traps of untrustworthy third-party intermediaries.
Blockchain technology enables enterprises or apps to operate a decentralized peer-to-peer network. It enables users to pay for things like tolls, parking, and so on.
You can utilize blockchain technology to create a secure platform for storing sensitive patient data in the healthcare business. With the technology, healthcare institutions can construct a centralized database and communicate information with only those who are appropriately allowed.
What are the key advantages of blockchain technology?
1. Increased transaction accuracy
This can reduce mistakes because a blockchain transaction must be confirmed by many nodes (the framework of a blockchain). If one node makes a mistake in the database, the others will notice and catch the issue.
In contrast, it is more likely to be accepted if someone makes a mistake in a traditional database. Plus, each asset is uniquely identifiable and recorded on the blockchain ledger, eliminating the possibility of double-spending.
2. Additional security
In theory, a decentralized network like blockchain makes fraudulent transactions extremely impossible. To enter fraudulent transactions, they need to compromise every node and manipulate every ledger.
While this isn’t always impossible, many cryptocurrency blockchain systems use proof-of-stake or proof-of-work transaction verification procedures that make it difficult and not in participants’ best interests to add fake transactions.
3. Efficient transfers
Since blockchains are available 24/7, you can make more efficient financial and asset transactions, particularly globally. You can skip waiting days for a bank or government body to authenticate everything personally.
What are the drawbacks of blockchain technology?
1. Transaction limitation per second
Since blockchain relies on a broader network to authorize transactions, the speed with which it can move is limited. For example, Bitcoin can only process 4.6 transactions per second, whereas Visa can process 1,700 transactions per second.
Similarly, an increase in the volume of transactions can cause network speed concerns. Scalability is a difficulty till this improves.
2. High energy prices
Having all nodes trying to validate transactions consumes far more power than a single database or spreadsheet. This raises the cost of blockchain-based transactions and imposes a significant carbon load on the environment.
As a result, several industry leaders are beginning to abandon some blockchain technology, like Bitcoin. For example, Elon Musk recently stated that Tesla would no longer take Bitcoin because he was concerned about the environmental impact.
3. Possibility of Illegal Activity
The decentralization of blockchain increases anonymity and confidentiality, which regrettably makes it enticing to criminals. Illicit transactions on the blockchain are more difficult to track than bank transactions linked to an identity.
Despite its claims, blockchain is still a niche technology, but one thing is clear: the goal will be to protect markets and investors.
It is tricky to estimate where blockchain technology will be in another 10 or 15 years. Still, like the internet, it will fundamentally alter how we transact and communicate with one another in the future.
There are still challenges, particularly with transaction limits and energy costs, but for investors who understand the potential of the technology, blockchain-based assets may be a worthwhile gamble.