Blockchain is a public digital record of transactions that is kept secret by a computer network in such a way that it is difficult for hackers to disrupt. Blockchain technology has been developed in such a way that makes it possible for individuals to interact directly with each other without the use of intermediaries like banks, governments, or other third parties.
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A brief history of blockchain
After Satoshi Nakamoto who is referred to as the “father of Bitcoin” established the first cryptocurrency in the world, he sent an email farewell to a fellow Bitcoin programmer on April 23, 2011. The message states “I’ve gone on to other things,” he wrote, assuring that Bitcoin was in “good hands.”
Currently, Bitcoin is valued at more than $1 trillion, and while Nakamoto’s identity may be just speculation, it means more than that for others. He is believed to have over 1,000,000 Bitcoins, with a current worth of $60 billion, this is equivalent to 5% of all bitcoins in circulation.
Nakamoto brought Bitcoin to the limelight after he published a whitepaper on a cryptography mailing list describing a secure digital currency that allows peer-to-peer transactions and would not require any intermediaries such as government, financial system, and company. These transactions would be recorded through a blockchain, which is a ledger similar to that used by any financial institution. However, this ledger would be distributed across an entire network with duplicates held by all parties and visible to all. In total, there would be no more than 21,000,000 Bitcoin.
Nakamoto’s cryptocurrency was created with the aim of taking currency control from the financial elites and giving it to the common man. Nakamoto sent Hal Finney 10 Bitcoins as the first Bitcoin transaction. Finney was a well-known developer who downloaded the Bitcoin software shortly after its release. Also, an important part of the history will include Laszlo Hanyecz, a programmer, who bought two pizzas from Papa John’s for 10,000 Bitcoin in 2010. These pizzas were very expensive considering Bitcoin’s current value of almost $60,000
How does Blockchain work?
Many people are confused by blockchain and bitcoin if there’s any similarity and how they work. This confusion is not surprising. Blockchain was originally launched to support Bitcoin’s database so they are different. Blockchain is an operating system like Microsoft Windows and macOS, and cryptocurrencies are one of the many applications that can run on it.
Blockchain is often associated with cryptocurrencies such as Bitcoin and Ethereum. However, it is more than a platform for digital currency transactions. It has been used to automate smart contracts, medical records and other data storage, humanitarian assistance, and reduce corruption in elections.
As an example, let’s look at the bitcoin network and how it works
- The transaction of buying and selling bitcoins is made and transmitted to a network, or nodes, of powerful computers.
- A network of thousands of nodes from all over the globe competes to confirm transactions using computer algorithms. This is bitcoin mining. Each block that is successfully completed by a miner is awarded bitcoin. These rewards consist of a combination of new-minted bitcoin and network fees, which are passed along to the buyer or seller. The transaction volume can impact the fees.
- After the purchase is cryptographically validated, the sale is added as a block to the distributed ledger. The sale is confirmed by the majority network.
- The block is linked to all bitcoin transactions before it is sold using a cryptographic fingerprint, known as a haveh.
The technology behind blockchain technology is complex, but it’s generally accepted. What else can you expect from a technology that has revolutionized the world? Let’s take a look at the blockchain chain and discuss what makes it secure.
Is blockchain really secure?
A block records data using hash functions with timestamps. This ensures that the data can’t be altered or tampered with. Data manipulation is difficult because data cannot be overwritten this makes it very impractical to manipulate data.
The Washington Times reported that using blockchain, the technological basis of bitcoin, could greatly improve security within the U.S. Military. It would prevent cyber-hijackings and tamper with aircraft or vehicles.
Why is blockchain so innovative?
Blockchain technology can be used to perform almost any transaction involving value. It has many uses, including collecting taxes and allowing migrants to send money home to relatives in countries with difficult banking.
Also, because every transaction is recorded and shared on a public ledger, blockchain could help reduce fraud.
What are the pros and cons of blockchains?
No matter how excellent innovation is, there will always be the good side and the bad side. Let’s look at the pros and cons of blockchain below:
Transparency and anonymity
All transactions made on the Bitcoin blockchain network are recorded on all computers. Transparency is assured because transaction history and the address of Bitcoin wallets that hold the cryptocurrency are publically viewable. However, the identities of the wallet owners connected to these public addresses are not recorded.
Security and accuracy
The transaction is less likely to involve human interaction and therefore has a lower chance of error. Each transaction must be verified and recorded by the majority of network nodes. This makes it virtually impossible to alter or manipulate information thereby preventing people from spending bitcoins more than once.
The Federal Reserve issues the U.S. Dollar, but no government agency controls bitcoin or other cryptocurrencies. This means that any government or agency cannot decide the fate of a public Blockchain. There is cost reduction by eliminating intermediaries and third-party transaction fees are also eliminated. Blockchain’s efficiency is also reflected in its time efficiency. The blockchain is available for business 24 hours per day, 365 days per year, which is not the case with banks or other intermediaries.
Bitcoin’s environmental impact
Bitcoin mining requires a large network of high-speed computers, which consumes a lot of electricity. According to the University of Cambridge Electricity Consumption Index, the Bitcoin system would be the 34th largest consumer of electricity if it were a nation. It would follow the Netherlands and the Philippines. Tesla CEO Elon Musk stated in May that the company would not accept bitcoin until the cryptocurrency finds ways to reduce its carbon footprint. Other blockchain developers have developed less energy-intensive alternatives.
Cryptocurrency is still not a norm
There are many more bitcoin-selling exchanges, brokers, and payment apps. There are many companies, such as PayPal, that accept bitcoin payments. However, transactions with blockchain currencies such as bitcoin are still the exception and not the norm. Additionally, bitcoin sales for cash app purchases such as PayPal require users to pay capital gains tax on bitcoins sold. This is in addition to any state or local taxes that may be paid on the product.
Blockchain technology’s future
Although the Bitcoin system is perhaps the most well-known example of blockchain technology, there are many other cryptocurrencies built on top of it. It is not clear if Bitcoin will be able to replace traditional forms of payment, but blockchain technology applications are rapidly growing and may bring about significant changes in industries.
What are the applications of blockchain?
The blockchain can play a crucial role in the healthcare industry by increasing privacy, security, and interoperability for healthcare data. It has the potential to solve many interoperability issues in the sector as well as allow secure sharing of healthcare data between the various entities and individuals involved. It prevents third-party interference and reduces overhead costs. Blockchains allow healthcare records to be stored in distributed databases by encrypting them and using digital signatures to protect privacy and authenticity.
Government: The power of Blockchain technology can transform Government operations and services. Blockchain technology can help improve the data transactional challenges facing the Government sector. It also allows for better data management between departments by allowing data to be linked and shared. It increases transparency and makes it easier to audit and monitor transactions.
Hospitality and Travel: Blockchain’s application can dramatically change the hospitality and travel industry. It can be used in money transactions, storage of important documents such as passports/other identification cards, reservations, managing travel insurance, loyalty, and rewards.
Blockchain technology can be added to data storage solutions to increase security and integrity. It is easier to hack into data stored in a distributed manner than it is to wipe out the entire network. A centralized storage provider might only have a few points. This allows for greater data access, as access is not tied to the activities of one company. Another good thing is using blockchain for data storage might be cheaper in some cases.
Customers and providers can have greater transparency by using smart contracts on a Blockchain. Customers won’t make duplicate claims for the same event if all claims are recorded on a blockchain. Smart contracts can also speed up the process of claimants receiving payments.
Real property transactions require a lot paperwork to verify financial information, ownership and transfer deeds or titles to new owners. The use of blockchain technology to record real-estate transactions can make it more secure and easier to verify ownership and transfer ownership. It can speed up transactions and reduce paperwork.
Supply chain tracking and logistics
Blockchain technology can be used to track items throughout a supply chain or logistics network. This has several benefits, for example, it allows for easier communication between partners, as data is stored on a secure public blockchain. It also provides greater data security and integrity as the data stored on the blockchain cannot be altered. This allows logistics and supply chain partners to work more efficiently and with greater trust in the accuracy and currentity of their data.
Challenges of blockchain
Users can’t trust each other
Organizations might not be able to trust the security of the technology and other users on a blockchain network.
Each transaction on the blockchain is considered secure, private, and verified. The network is decentralized, so there is no central authority to verify and validate transactions. Consensus algorithms are the core of any blockchain network because they drive consensus about the current state of the distributed ledger across the network. This ensures that each new block is the only true version agreed to by all nodes on the blockchain. This has also made business leaders trust private Blockchains more than any other users.
Difficult to grasp
It is difficult for laypeople to grasp the benefits of blockchain technology due to its complexity. It is important to understand and read the principles behind encryption and distributed ledger before diving into this innovative application. Blockchain is also difficult to use because financial institutions can provide secure payment gateways as well as other services at reasonable prices, compared with the cost of blockchain.
Blockchain is yet to be standardized. There are many networks out there, but no standard. This lack of standardization causes problems such as increased costs and complicated mechanisms, which makes mass adoption difficult. The lack of standardization in blockchain technology has also made it difficult for investors and developers to enter the market.
Other than the above-mentioned challenges, privacy, cost, and security are other important considerations for large-scale implementations.
Global media houses and enterprises have been highlighting a lack of regulatory clarity about cryptocurrencies and the underlying blockchain technology since 2009. This is a major roadblock to mass adoption. While blockchain ventures can be trusted and distributed, there are some areas that need regulatory support, and one of these is smart contracts. These self-executing contracts run on peer to peer networks. They ensure that the contract is executed automatically when certain conditions are met. Smart contracts are not covered by regulations, which can hinder adoption and investment in the blockchain industry.
Limited Developer Supply
It takes time for new technology to become mainstream and for educators to offer the appropriate courses. Blockchain is still very young and there are a lot of unqualified developers. In order to manage the complexity of peer–to–peer networks, there is a lack of skilled and trained workers. This results in slow innovation.
Blockchain technology is not only about hardware and software; it also requires additional knowledge and qualifications.
Blockchain networks are distributed and decentralised. It is easier to corrupt a system that doesn’t have a single point of failure since a hacker can only affect one component of the system.
Private blockchains, however, lose some of this advantage because private blockchains have a small number of nodes and only one point of control, which restricts who can alter the ledger. These blockchains, also known as centralized (although it might sound odd), are used internally by corporations. This makes sense as it allows the company to have more control over its processes.