[ad_1]
Why use blockchain technology? While there are certainly many advantages for a distributed ledger, it may not be applicable to all companies or individuals – not yet, at least.
The second question people usually ask when they hear about the blockchain is: why use blockchain? Why use a distributed ledger? Why not use a regular database or legacy system as a registration system in this already digital world?
After all, in many cases for entrepreneurs, upgrading the existing infrastructure with blockchain technology can be expensive, laborious and in reality not worth it.
In this article, let's examine what is a blockchain, which blockchain applications are, what they can do and, more importantly, why use blockchain?
What is Blockchain? A distributed accounting
In case you need some recovery, people often talk about "blockchain" in the singular, as if it were just one. In fact, they should talk about blockchain technology (also known as Distributed Ledger Technology or DLT) or blockchains in the plural, since there are many different ones, including public (without authorization) and private (authorized) blockchains.
Examples of public blockchain and distributed blockchain technology include Bitcoin blockchain, Ethereum blockchain, NEO blockchain and many others. The authorized blockchains are adapted for business or organizational use, with an example as an IBM Hyperledger blockchain. But we will get into that in a moment.
A blockchain (or distributed ledger) is essentially a huge, ever-growing ledger where all blockchain transactions are recorded.
Each block in the chain is chronologically linked to the previous blocks and synchronized with the nodes of the network. This means that changing data in a block would mean having to reverse all the previous blocks first, making the alteration very difficult, very difficult, even if not completely impossible.
This is true for Ethereum, Bitcoin and any other cryptocurrency that works with blockchain technology using the proof-of-work consent algorithm. To get a concise sense of the nature of the blockchain and what it offers blockchain, check out this explanatory video below:
How Blockchain works
The data sent to each block on the distributed ledger are based on encrypted Merkle Trees, which is a technical way of saying that fraudulent transactions can not be recorded. If any transaction that does not follow protocol rules is detected by network nodes, it is ejected immediately. This inherently secure nature of distributed blockchain technology means that it prevents damage to the entire shared database blockchain and can interrupt a hacking attempt at a block.
The best known blockchain is that of the Bitcoin network in which each transaction (which follows the protocol) is recorded and included in a block. Once a transaction is transmitted to the network and confirmed by the miners, the action can not be canceled, nor can it be tampered with in any way. The same applies to Ethereum, which is responsible for smart contract technology.
This open source public registry displays a history of all transactions and transaction data never made. Most blockchains are supported by miners. In the case of the Bitcoin blockchain, for example, it is up to the miners to confirm a Bitcoin transaction to the rest of the Bitcoin network by including them in blocks. Ethereum transactions on the Ethereum network work the same way.
These public blockchains are global and decentralized, visible to everyone. Wmany believe that blockchains are a registration system, they are not actually an effective means of archiving, but a verification. In short, the blockchains ensure that everyone is on the same page and no single person can change the ledger for anyone else, if they did, the network would reject the attempt.
This means that when a person sends bitcoin or ETH funds to another, the transaction data is public. This does not mean that your name and private data are displayed all over the web, but you can view the public address and the amount.
This is a key quality of blockchain technology that makes it so efficient when it comes to record audits and industries that require transparency. However, a decentralized public ledger in which payment amounts are visible to everyone is not necessarily practical or useful in cases where privacy is necessary or desired.
What Blockchain can do
There was a lot of marketing hype about what blockchain can do and what blockchain it offers. To be sure, it's a life-changing technology that will bring great things for years to come. But it is not even a panacea for all the ills of the world.
The ability to conduct peer-to-peer transactions on the ledger distributed without a trusted intermediary makes the blockchain technology revolutionary.
However, there have been many fraudulent or overly exaggerated claims about what blockchain is and what it can do. This is particularly true through initial coin offerings where companies collect huge sums of money, often claiming to be able to use the blockchain to realize their ambitious ideas. These shots could be almost anything from the transformation of the real estate industry to the management of drone traffic.
So let's put things straight. No, it can not cure cancer, but there may be ways in which the medical industry can incorporate technology into its research or recording. It may be difficult at this time to buy property using smart contracts on blockchain, but the potential exists once the legislation reaches the level.
Blockchain can also give people a digital identity, which is portable and can demonstrate who they are, eliminating the need for, for example, a passport or social security number, which can be falsified or altered as we saw with many cases of identity theft.
Many companies and entrepreneurs are examining the use of blockchain for their business processes. Walmart, for example, has tracked products around the world through the supply chain with successful results and has registered several blockchain patents that indicate its interest in evolving technology.
The supply chain, in fact, is an excellent example of where blockchain technology can be particularly useful. Here, cross-border payments must be made and transaction fees are high, along with currency conversions and many intermediaries taking their cuts.
Because blockchain can guarantee that data is tamper-proof and immutable, digital identity becomes unquestionable. This offers enormous potential to eliminate not only trusted third parties but also corruption at various points in the supply chain.
There is also the possibility for companies and individual members of the supply chain to pay using a standard cryptocurrency, thus removing conversion fees while reducing commissions and transaction times.
Beyond the supply chain, however, any industry that requires verification and transparency of registries can benefit from blockchain, from real estate to financial services. Capital markets and risk capital have already been changed forever by the decentralized nature of blockchain technology. How does the concept of digital identity.
One of the key aspects of public blockchain technology is that it is decentralized, which means it is not controlled by a single entity, a central authority or central server. The authorized blockchains, however, can not share all these properties. More information later.
Unlike databases or typical IP addresses controlled by a central authority, the blockchain can not be closed because it is executed on a network of nodes. This also means that it does not have a single point of failure and makes it more resistant to hackers than centralized "honeypot" databases.
So when we come back to the question "why use blockchain?" This is an extremely important point to keep in mind. Consider countries where censorship is a problem and the government breaks certain pages and channels, like China with Wikipedia or Google. With blockchain technology and a blockchain application, this would be impossible at the protocol level.
Blockchain vs normal databases
Here are some of the advantages offered by blockchain on a regular database or on other existing technologies:
immutability – Thanks to its Proof of Work system, blockchains can offer almost immutable transactions. When the decentralized data on a blockchain is checked, it makes it virtually impossible to roll back and tamper with the data. This gives the blockchain technology a strong use in industries where records must be verified and accurate, such as medical records, land deeds, birth certificates or social security numbers.
Safety – Blockchain technology is particularly secure compared to centralized databases. This means that it is much less likely to be the goal of a hack because there is no single point of failure.
If a block is violated, it will be rejected by the system and cut short in the bud before any damage is done. The more nodes and hashes the power of the network, the more secure it is, making Bitcoin's blockchain generally considered the most secure public blockchain today.
Redundancy – Using distributed blockchain technology, you have the same set of data distributed across multiple locations around the world, which means data is extremely secure and virtually impossible to lose. When you consider this type of advantage for a large and small business that has suffered data loss and hack, blockchain offers a huge advantage.
Cost reduction – Using distributed blockchain technology that runs on a network of nodes, it is no longer necessary for additional staff members to maintain a DevOps system. A small business can realize significant cost savings using blockchain technology and smart contracts to cut intermediaries for administrative tasks or financial services.
Responsibility – With all the features listed above, companies and individuals can be assured that the data is true and that no bank insurance or additional verification is required: the digital identity of each contributor is clear. This makes it easier for companies to hold people accountable for any attempt to enter illicit data into the system.
Blockchain can be hacked?
The nature of the blockchain and the words "immutable" and "secure" often raise questions about why there are so many hacking attacks and scams from initial coin offerings. So, can the blockchain be hacked? Well, the hacking of exchanges that we see on a common basis has nothing to do with blockchain technology but with minor weaknesses in software, such as exchanges, vulnerabilities in the smart contract code and wallet providers.
Blockchain is extremely safe considering its decentralized nature and the fact that a hacker or a bad actor can not easily enter the system and cause a disaster like with Equifax. The hacking of a blockchain as big as the Bitcoin blockchain would require resources, power, coordination that outweigh the GDP of many small countries.
But it is possible that the blockchains are hacked. In what is called a 51% attack, a hacker must gain control of most of the hash power of network mining. With smaller and more authorized blockchains, a hack is easier to perform, but with a network like Bitcoin, this is almost impossible. The Bitcoin blockchain is the most resistant to this type of attack today.
On a more complex network such as the Ethereum network, the attack surface is potentially larger. Ethereum actually suffered a hacking attack in 2016 called DAO hack, which was not caused by a 51% attack, but by a loophole in a smart contract.
This saw Ethereum split in two, between those who believed that "the code was law" and those who wanted to safeguard the future of Ethereum by starting a hard fork to substantially reduce the damage that had been done.
This led to the creation of Ethereum Classic as a separate cryptocurrency derived from the override code.
Blockchains authorized vs. public blockchains
Public blockchains allow anyone to participate and are visible to everyone. The Ethereum blockchain, in particular, has a very strong community of developers who create their own decentralized application, otherwise known as "DApp".
This kind of decentralized application strengthens the Ethereum network and means that more people add to its creativity and security. Perhaps one of the most memorable to date has been CryptoKitties. This decentralized application congested the Ethereum blockchain (driving up transaction fees) because the demand was so high and at the same time it attracted more people into the network.
Bitcoin blockchain also has more people who check, read, write code for it and mine many other blockchains.
With authorized blockchains (also called private blockchains) exactly the opposite is true. The only people who control and execute transactions on the blockchain are those that have the classification and access to do it.
There is a central entity and actions can be eliminated and overwritten, which makes sense for companies or for a large or small company that needs control. However, this is contrary to the claim of "immutability" of the blockchain.
The immutability does not apply to authorized blockchains and, as such, are more vulnerable to hacking than a public blockchain.
The benefits of authorized blockchains are obvious as they can keep certain information confidential, and are much faster than public blockchains. The number of people on them does not require thousands of nodes and their consent for execution because the validation nodes are usually selected by the central entity.
Blockchain vs Cryptocurrency
It is easy to confuse the blockchain with cryptocurrencies and, in fact, they are really two different sides of the same (virtual) currency. Many people make the distinction such as Bitcoin, Ethereum, or Bitcoin Cash which are the digital currency and block the technology that flows beneath them. However, the separation is somewhat arbitrary.
Cryptocurrencies are digital resources where value is transferred from peer to peer without the need for centralized authority or trust. At the moment more than 2,000 cryptocurrencies are available and not all are the same. The main types of digital currency are Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin and Steller Lumens … but the list is long.
The cryptocurrencies have allowed the increase in initial coin offerings, a peer-to-peer way of raising start-up funds that eclipsed venture capital funding in the first innovations last year.
Recently, the price of Ethereum has dropped sharply, taking it from its position of second cryptocurrency by market capitalization to the third, beaten by XRP in market capitalization. The price of Ethereum, the price of Bitcoin and all the major cryptocurrency prices have recently taken a turn, showing how sensitive they are to external speculation and to the pressures of the external market.
Cryptocurrency is still not widely accepted, although there have been cases of people selling their homes and real estate developments for bitcoins, such as Aston Plaza in Dubai.
Source: https://astonplazacrypto.com/
The blockchain, on the other hand, is below the digital resources that regularly updates the network status, ie the balances. This eliminates the need for an intermediary and essentially a bank or a bank insurance.
Cryptocurrencies are actually just a subset of the broader range of applicability of blockchain technologies. While many people try to separate the cryptocurrencies from the blockchain, blurring the cryptocurrency as a tool for criminals while they paint the blockchain as a respectable technology, it is in bad faith in many ways.
What gives rise to all these opportunities in any industrial sector is the notion of an intelligent contract and its decentralized calculation. Which brings us to our next question …
What are the smart contracts?
Smart contracts are automated agreements that allow us to transfer money, data, real estate, shares or anything else of value in a transparent manner. Many people believe that smart contracts were invented by the Ethereum network, however, the American computer scientist who invented BitGold in 1994, Nick Szabo, initially conceived the concept.
Smart contracts are a turning point in the blockchain world as they allow us to cut intermediaries. They are set between two or more parts and self-executed based on a set of predetermined conditions.
For example, when it comes to trading, traditionally you should pay a broker to do it for you. With smart contracts, you simply need to upload your cryptocurrency and trade.
If you want to make a Bitcoin transaction or an Ethereum transaction, for example, from one person to another, you can automate it in a smart contract. The Bitcoin price or the Ethereum price that you accept according to the terms of the smart contract can not therefore be modified or modified and the funds can not be canceled once sent.
Below, you can check the code for the simplest smart contract written on the Ethereum blockchain. While smart contracts can be coded for all blockchains, Ethereum allows unlimited processing capacity.
Source: https://www.ethereum.org/token
What is Bitcoin Mining?
Bitcoin mining is where computing power is spent to confirm Bitcoin transactions and introduce new bitcoins into the system. The same is true for the mining of Ethereum. Cryptocurrency mining is intentionally designed to be resource-intensive through its Proof-of-Work (PoW) model. Although many bitcoin mining companies are incentivized to look for cheaper and renewable energy sources. Meanwhile, the mining sector of Ethereum is trying to move to a PoS (Proof-of-Stake) model in the future, which would require less resources than PoW.
Bitcoin mining requires miners to solve complex mathematical equations to confirm transactions and prevent double expense. For their efforts, the Bitcoin miners are rewarded. The current Bitcoin mining prize is 12.5 bitcoins for each block found (about 1,800 bitcoins a day), although it is expected that this amount will decrease over time (as the amount of bitcoins that will exist will be fixed at 21 million).
Today, mining activities require complex machinery and high operating costs. This Bitcoin extraction is now largely concentrated in large mining companies as individuals can no longer extract their home PCs due to the increasing difficulty and high price of Bitcoin.
Is Blockchain legal?
A question that appears a lot is whether the blockchain is legal or not. Regulatory compliance appears to be a problem that varies from jurisdiction to jurisdiction. However, since countries such as China have banned the initial supply of coins and the use of cryptocurrency, this does not mean that blockchain technology must achieve regulatory compliance. Like the Internet, blockchain is a technology and can not be regulated at the protocol level.
Countries are concerned about regulatory compliance due to the explosion of fundraising on the blockchain because there have been many scams that left uninformed investors out of their pockets. Exchanges and suppliers of cryptocurrency wallets should also achieve regulatory compliance, in order to protect their users in the event of a hack. Social security is important for countries and must ensure that their citizens are well informed or protected from investing in frauds.
While some jurisdictions implement KYC as a minimum requirement for regulatory compliance, this is not useful when it comes to an external violation, such as a hack.
Who created Blockchain?
Satoshi Nakamoto created the Bitcoin blockchain even though the basics of technology had been established much earlier. Satoshi Nakamoto is, in fact, a pseudonym and the author of the Bitcoin whitepaper appeared in 2008.
Many people say that Bitcoin has produced a response to financial institutions and capital markets for the banking crisis of that year. It seems that Satoshi Nakamoto meant that Bitcoin was a decentralized peer-to-peer currency for payments without borderless fraud that excluded all trusted intermediaries (which historically can not be trusted, ie central banks). In addition to digital relationships, people can transfer more than just data: they can also transfer value.
In fact, the blockchain has often been called the "Internet of Value" because people can send digital currency to each other without a central authority and simply by using a private key to access the funds from anywhere in the world.
Nobody really knows who Satoshi Nakamoto is, even though most believe this is one of the main advantages of Bitcoin as it allows people to concentrate on work at their fingertips and on technology.
Wrapping It Up – Why use a Blockchain?
Blockchain technology and its public book are still in its infancy, although there are many reasons why some companies, financial institutions and even governments might eventually want to incorporate it. Technology offers security, potential cost reduction and endless possibilities for supply chain management, eliminating many intermediaries.
As we have seen, apart from extremely rare circumstances, blockchains are certainly more resistant to censorship and tamper proof than legacy databases. Governments or non-profit organizations can also use blockchain technology if they want to verify that the information is accurate and truthful, for example with voting or medical records. They have many reasons to consider the question "why use a blockchain?"
Financial institutions are already using blockchain technology to accelerate cross-border payments and reduce transaction fees. And we see more and more use cases for what technology offers every day, including blockchain technology in the energy sector. However, while it remains in its early stages, small businesses may not want to get on the blockchain bandwagon again.
Why use a blockchain? Why use any technology? Because it accelerates processes, improves efficiency and reduces costs. If the blockchain technology or any other application platform does not do it for your company yet, it's not worth it.
