What is Blockchain Technology and Cryptocurrency?
Imagine transferring money to your friend online. The normal process consists of sending your money to your bank and a merchant who will process your money and will be the one to send the money to your friend. By doing such a transaction, you’ll have to pay some fees and the bank will be the one who’ll store your transaction details.
What if the bank suddenly shuts down or has technical issues? Or someone hacks your account? Or you exceeded the transfer limits for the day? Things can go wrong with our medium of exchange today as we are using a centralized system wherein like the bank, it is the ONLY one who stores your transaction details and history and the only one who can access and control it.
And that’s why the invention of Blockchain technology instantly became a hit.
Blockchain is simply a public digital ledger that stores transaction details and an ingenious way of passing information from person to person in a fully automated and safe manner. Records are stored in blocks and blocks are linked together with cryptography.
To add data in a block, a mathematical puzzle has to be solved by the validators of the network or so-called “miners” to stabilize the network and in return, they will receive a reward. This block is then verified by thousands, perhaps millions of participants of the network.
The verified block is added to a chain, which is stored in millions of computers distributed around the net, creating not just a unique record but also a unique history of the data. And tampering a single record would mean altering the entire chain in millions of instances which is virtually impossible.
Blockchain has three main properties that have caught the interest of many; Decentralization, Transparency, and Immutability. As we know, the internet works in a centralized manner which means there is a centralized point that has the authority of all data in a network and responsible for distributing the information to the other participants in the network.
They are also the only ones who can access the history of transactions or confirm new transactions. Blockchain technology, on the other hand, works in a decentralized manner wherein it has no core point that will dictate the distribution of all data in a network and every participant in the network can access the information.
Transparency is also one of the concepts of blockchain as the transactions are visible to everyone but it also remains confidential as every person’s identity is hidden using cryptography and is only represented by their public address. Once data is entered into the blockchain, it cannot be tampered with making it immutable. This feature is possible through the use of cryptographic hash function in which it takes an input data and gives out an output of a fixed length. The blockchain is a linked list that contains data and a hash pointer that points to its previous block creating the chain.
And in order to perform transactions such as buying, selling, investing, trading, or other monetary aspects, cryptocurrency is used as the medium of exchange making it a resource on a blockchain network.
It uses strong cryptography to secure transaction record entries, to verify the transfer of coin ownership, and to control the creation of additional digital coin records. Blockchain is a public ledger of all cryptocurrency transactions in a network
Some features of cryptocurrency are there’s a limit to how many units of cryptocurrency can exist. You can easily verify the transaction details using the hashing algorithms whether it is valid or not. It also works in a decentralized manner as there is no central authority or a bank taking care of the transactions. It ensures the user’s anonymity. And cryptocurrency units can only be added after certain conditions are met.
What makes the cryptocurrency special?
It’s because there is little to no transaction costs compared to transactions made with your digital wallet or bank. You can access your money 24/7. There are no limits on purchases or withdrawals. It is free to use by anyone without the requirements of some paperwork or documentation. And international transactions are faster and can only take place in just a matter of minutes or seconds.
Surely, the things that Blockchain and Cryptocurrency offers are revolutionary for it provides a safe and smooth transaction. And the traditional banking system is challenged to do better by how it works. Transactional details are stored with greater security and safety.
For example, data in block 3 is altered by a hacker. But since it works in a decentralized manner, every participant of the network has access, and a copy of all the details and tampering data in one computer will not go unnoticed because every computer across the net has the same stored data. Thus, it corrected immediately making it impossible for data tampering.
Information is displayed with much more transparency leaving businesses no choice but, to be honest with the transaction details. Cost reduction for companies and individuals can also be observed as there is no need for a middleman for the transaction to be successful.
It’s mainly between person A and B who will directly transact with each other. There is also an increase in efficiency and automation using blockchain technology and cryptocurrency. You can also enjoy faster transactions locally or internationally.
But some disadvantages are being considered on why blockchain is still can’t fully operate in some countries. The complexity of how it works might be difficult for the older generation to understand and not all of them ate tech-savvy.
The size of the blockchain is also notable as data is being entered into a block, the records are growing every second thus it’s getting bigger and bigger and Ethereum cryptocurrency, for example, has a blockchain size of more than 1 TB. As it works in a decentralized manner, it needs more resources such as nodes to facilitate widespread usage.
Also, we know that there is a thing called human errors and so what if someone mistakenly inputs data? Since blockchain is immutable it is not possible to correct any mistakes that’s why it’s very important to be 100% sure and correct once you input information into the database. To access the blockchain you’ll need to have a private key and if it is lost, then it is impossible for you to enter the network.
Blockchain and cryptocurrency also have some cybersecurity concerns as to its full anonymity feature and the fact that anyone can use it freely is being used by criminals to perform illegal transactions as there is no central authority to verify the identity of a person.
There are a lot of benefits that we can enjoy when using blockchain technology and cryptocurrency but there are also some downsides to it. Blockchain technology and cryptocurrency still need to work on and improve their system so they can be globally accepted by everyone.
And with the technology rapidly changing every day, businesses have to adapt to these changes just like how this new technology works. Implementing blockchain technology and cryptocurrency in their system may be hard at first but once it’s been implemented, it will soon make things easier and more accurate.
Bitcoin is the most popular cryptocurrency, there are others. Bitcoin as well as others do not use any central authority or banks. Its design is public, and no one can own or control Bitcoin but everyone can be a part of it.