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During the last two years, cryptocurrencies have grown to become a fairly broad and well-known trend. They have gone from being an unknown core technology to the most discussed aspect of the technological and financial world. However, it is not enough simply to know that they exist and how they can be exchanged.
To truly understand cryptocurrencies and be able to make the appropriate investment options, we must deepen and understand the technology that allowed them to exist in the first place. This is obviously blockchain technology.
The importance of blockchain technology
The first thing to understand about the blockchain is that this technology has much more potential than simply being a fundamental element for the crypto industry. While this was its original purpose 10 years ago, in the last few years it has grown much more than that.
Now it has numerous use cases in real life, allows for the creation of new projects and is probably the technology that will define our lives in the future. This is due to the fact that blockchain acts as a database type. However, it is different than normal databases due to several factors.
For example, it is decentralized, which means it does not have a central authority. It also allows users to claim ownership of the data recorded on the blockchain. Not only that, but it is also consistent, which means that the data that is recorded can not conflict with the data already present. This prevents data manipulation, information deletion and the like, which makes the blockchain perfect for storing data such as identification documents and other important information.
At this point, it becomes obvious that the support of cryptocurrencies is not all that Blockchain has to offer. Instead, Bitcoin and its altcoins are just the first of almost endless cases of use cases that Blockchain has to offer.
Some countries that did not share initial (and in some cases, current) skepticism towards cryptocurrencies started looking for blockchains a long time ago. This allowed them to acquire valuable information about this technology and start using it to store medical records, make plans to use it for voting, and even enter into ownership agreements that would be registered on it.
In a sense, the ultimate purpose of the blockchain is to allow different parties to trust one another, since the data stored on the blockchain can easily be considered as something carved into the stone.
What is the blockchain made of?
One thing to understand is that blockchain is a fairly complex technology. It is no coincidence that it has been studied for years, yet researchers say they have barely scratched the surface of the true potential of this technology. As such, it consists of numerous components. These include:
ledger
A historical record that is immutable and distributed, and it is supposed to allow the blockchain to record everything that happens in chronological order.
Peer network
This component allows the blockchain to archive, update and maintain its ledger. Each node that contains the network contains its own copy of the ledger and the work of the network must reach a consensus before any changes to the ledger are changed. In this way, every copy of the ledger will remain the same.
Membership services
All members of the public blockchain have equal power, rights and authority. Anyone can register at any time and become a recognized participant of the network. Private or authorized records require that new users are allowed to participate, and this is mainly reserved for companies that use blockchains for private communications.
Smart contracts
Smart contracts are a type of program executed on the blockchain. It is the aspect that allowed the blockchain to move away to be simply a basis for the use of cryptocurrencies.
Wallets
Portfolios are pieces of software that store user credentials and allow them to track and manage digital assets.
events
This includes notifications of various updates and other actions that are performed on the blockchain. Everything that happens is updated by events. Examples include creating new transactions, adding new blocks to the chain, or providing notifications from smart contracts.
System management
This aspect includes things like monitoring, editing and creating new components. Because of its design, the blockchain should be a lasting system. However, there is still room to evolve and change as needed.
System integration
This is an aspect of the blockchain that allows it to integrate with external systems. It was deemed necessary as a blockchain has evolved and its functionality has grown. In most cases, integration with external systems is via intelligent contracts, but the integration of the system remains a recognized capability of blockchain technology.
Data structure
Blockchain data is composed of two larger dimensions that are usually associated with performance and scalability. Those are data storage and data processing.
Data storage can be understood by remembering how traditional databases work. Blockchains provide immutable and distributed storage that comes with integrity control already incorporated in it. However, it still has a maximum capacity for each block, which depends on its size and its speed. For the sake of efficiency, it is not uncommon to store off-line real data, while the hash of data is the only information actually stored on the chain itself. In this way, the data is still protected, while the blockchain is not overloaded.
As for data processing, this is often represented by a type of external system that performs additional processing. Smart contracts performed on the blockchain are usually processes that require maximum processing power. For this reason, external devices are used to provide this power and feed the execution of various contracts.
Hierarchy Blockchain
While the blockchain is decentralized and there is no one authority that is "in control", there are still several types of actors, or agents, who have their own functions on the chain. Some of them work on development, others are in charge of implementation, but they all work as part of a larger system that is blockchain.
– The architect is the person (or group) responsible for the design of the blockchain structure.
– The operator or the administrator stores, maintains and updates the ledger.
– Developers are responsible for creating smart contracts. They design and upload them and, by doing so, expand their skills.
– Trustees, or regulators, are people who have greater visibility in the ledger. They are an essential part of the ecosystem, as many blockchain-based companies must operate under different regulations regarding the way their data is stored and processed.
– Users are the last type of agents on the blockchain and represent consumers of its services. Usually, this involves using the software that has been created on the blockchain and does not interact with the blockchain itself.
Blockchain as a triple-entry accounting system
One of the main reasons why the blockchain can revolutionize almost every sector in the near future is its ability to serve as a triple-entry accounting system that can function on a global scale.
It is an improvement of double entry systems and all accounting entries involving external parties have been cryptographically sealed by a third entry. Sellers can reserve a charge to account for the money they have received and buyers can do the same for the money they spent during the same transaction. However, this is stored in separate sets of records.
Blockchain has the ability to make these voices occur in the same ledger, rather than taking place separately in different groups of books. On the blockchain, everything is reduced to the realization of this transaction in the form of transfer between different wallet addresses. The voices remain distributed, as well as encrypted, which makes it impossible to destroy or falsify them.
Five characteristics of triple-entry accounting include:
- Tamper-proof records
- Double-entry + encryption
- Distributed master books
- Digitally signed receipts
- Validation, security and privacy
While blockchain technology is still very far from reaching the full extent of its capabilities, it has already changed the world by offering a new way of conducting business. Researchers all over the world are working on this technology at all times, trying to make it more efficient, easier to use and better in terms of security and transparency.
New organizations and companies dedicated to the blockchain also appear continuously, and the development of the blockchain is progressing faster than ever, while at the same time promising to change the world.
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