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A Blockchain: What Is It?

Blockchain

By JAYESH KUKREJAPublished about a year ago 6 min read
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A Blockchain: What Is It?
Photo by Rodion Kutsaiev on Unsplash

Blockchain:

A definition of a blockchain is a digital transaction record that is kept by a computer network in a way that makes it hard to hack or change. The technology provides a safe means for individuals to interact directly with one another without the use of a government, bank, or other third party as an intermediary.

Cryptography is used to link together a list of records, or blocks. Peer-to-peer computer networks independently verify each transaction before adding it to the ledger with a time stamp. The data cannot be changed easily once they are recorded.

Blockchain technology has gained popularity thanks to the growing use of cryptocurrencies like Bitcoin, Ethereum, and others.

However, it also has potential applications in the fields of legal contracts, property sales, medical records, and any other industry that needs to authorize and record a series of actions or transactions.

Example of a blockchain: Bitcoin Here is how blockchain, also known as distributed ledger technology, works using the Bitcoin system as an example:

Bitcoin transactions are entered and sent to a network of powerful computers known as nodes.

Using computer algorithms, this network of thousands of nodes around the world competes to confirm the transaction.

This is referred to as mining Bitcoin. Bitcoin is given to the miner who successfully completes the first new block.

The buyer and seller receive these rewards in the form of newly issued Bitcoin in addition to network fees. Depending on the number of transactions, the fees may rise or fall.

The sale is added to a block on the distributed ledger after it has been cryptographically confirmed. The sale must then be confirmed by the majority of the network.

Using a cryptographic fingerprint known as a hash, the block is permanently chained to all previous blocks of Bitcoin transactions, and the sale is processed.

In a 1982 dissertation on “the design of a distributed computer system that can be established, maintained, and trusted by mutually suspicious groups,” the concept of blockchain technology was first discussed. However, it was Satoshi Nakamoto’s 2008 paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” that put a theoretical concept from academia into practice.

The advantages and disadvantages of blockchain technology in relation to cryptocurrencies are as follows:

Advantages

Decentralization Unlike the United States dollar, which is issued by the Federal Reserve, Bitcoin and other cryptocurrencies are not governed by any government entity.

This also means that no government or organization can decide what will happen to a public blockchain. Costs are reduced as a result of the elimination of fees associated with third-party transactions and the absence of intermediaries.

Time efficiency is another benefit of the blockchain’s operation; unlike banks and other intermediaries, the blockchain is accessible 24 hours a day, 365 days a year.

Anonymity in addition to transparency Every Bitcoin transaction is recorded on computers all over the network. The address and transaction history of cryptocurrency wallets, which hold the cryptocurrency, are visible to the public; however, the owners of each wallet connected to those public addresses remain anonymous and are not recorded, so transactions are completely transparent.

Security and accuracy There is less chance of making a mistake because there aren’t many people involved in the transaction. Each transaction must be confirmed and recorded by the majority of network nodes, making information manipulation virtually impossible. Additionally, this prevents multiple Bitcoin expenditures.

Applications for the public and private blockchains Blockchain technology creates efficiency that may go far beyond digital currencies. NFTs are digital collectibles, games, and complex decentralized finance (DeFi) products that have been developed by sector developers.

Anyone can join the public blockchain networks that hold Bitcoin and other well-known cryptocurrencies (sometimes referred to as “altcoins”). On private blockchain networks, however, where organizations have control over who joins, numerous business applications can be developed:

Supply chain of blockchain: Using blockchain technology, companies like IBM Blockchain already offer private network solutions for tracking product supply chains with greater precision. For instance, businesses can quickly use the technology to determine where recalled food products were shipped and sold.

Medical records: A nationwide blockchain network for electronic medical records, according to Deloitte Consulting, “may improve efficiencies and support better health outcomes for patients,”

Contracts smart: Contract terms can be changed or updated automatically using blockchain technology when a set of predetermined conditions are met.

Electronic elections: Blockchain technology is being developed by some developers for use in elections.

Real estate transactions: Blockchain technology can be used to sell a wide range of assets, including real estate, automobiles, and investment portfolios, according to supporters.

Opportunities for the underbanked Cryptocurrencies based on the blockchain protocol make it possible to transfer and hold cash without worrying about unscrupulous third parties in nations and regions that have poor or corrupt financial institutions.

Cons

Cryptocurrency is popular with criminal organizations. Like many new technologies, criminal organizations were among the first to adopt them. They target Bitcoin holders for scams and use cryptocurrencies like Bitcoin as payment because of their privacy. Customers of Silk Road, a black market online shopping network for illegal drugs and other services that was shut down by the FBI in 2013, used, for instance, Bitcoin. Colonial Pipeline paid $4.4 million in cryptocurrency to unlock its computer systems during the most recent ransomware attack.

Scams involving Bitcoin investments have increased in tandem with the cryptocurrency’s recent historic rise. From October 2020 to March 2021, the Federal Trade Commission reported that schemes promising quick returns caused nearly 7,000 people to lose $80 million, a nearly 1,000 percent increase in reported losses year over year.

Some people wonder, “Is blockchain a good investment?” because cryptocurrencies on a blockchain are extremely volatile. That depends on your investment objectives and risk appetite. In 2021, Bitcoin reached a record spot price of nearly $65,000, exploding its popularity. However, the price of Bitcoin and many other cryptocurrencies had decreased by more than half by the fall of 2022. Stablecoins, or cryptocurrencies, have attempted to address this problem by utilizing mechanisms that aim to bind digital assets to the value of the dollar or other fiat currencies and commodities.

Crypto use is still specialty

A lot more trades, financiers and installment applications currently sell Bitcoin, and many organizations, for example, PayPal and Microsoft acknowledge Bitcoin for installment. However, transactions using blockchain currencies like Bitcoin are still rare. In addition, users who use cash apps like PayPal to make purchases with Bitcoin must pay capital gains taxes on the Bitcoin they sell, in addition to any state and local taxes that are paid on the product or service.

Energy is required for Bitcoin mining. The process of mining bitcoins makes use of a network of fast computers that use a lot of energy.

According to the University of Cambridge Electricity Consumption Index, the proof-of-work system for Bitcoin would be the 34th largest consumer of electricity if it were a country. It would come in behind Pakistan and ahead of Kazakhstan. In May 2021, Elon Musk, the chief executive officer of Tesla, made the announcement that the automaker would no longer accept Bitcoin until the cryptocurrency can find ways to reduce its carbon footprint. A protocol known as “proof of stake,” which substitutes crypto staking for mining, has been developed by developers of other blockchains and offers alternatives that use less energy.

The Bitcoin blockchain is sluggish. It can process approximately seven new transactions per second. Visa, a major player in the credit card industry, claims to be able to process 24,000 transactions per second. This creates a scalability issue for the Bitcoin system. This issue is being worked on by other blockchain-based cryptocurrencies, including Ethereum, which recently completed the merger with Ethereum.

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JAYESH KUKREJA

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