Here’s all you need to know about blockchain technology and cryptocurrencies, and the many benefits they offer
For the past few years, blockchain and cryptocurrencies like Bitcoin have taken the world by storm with its groundbreaking approach and high potential to revolutionize not only the financial sector but other industries as well. With everything going digital nowadays—from sharing photos, to documenting files, to buying things—it’s no wonder why a significant number of people and businesses are greatly anticipating this new technology.
However, not a lot of people fully grasp what blockchain is all about and how it can significantly change their current paradigms. With a limited knowledge about blockchain and cryptocurrencies, people meet the two concepts with some degree of pessimism.
Blockchain, in essence, is the technology behind the exchange of cryptocurrencies. By definition, blockchain is a decentralized online ledger that keeps a master record of all the cryptocurrency transactions that take place in a public peer-to-peer network. All transactions are recorded in blocks of data, which are linked securely to one another through cryptography, forming a blockchain.
Put simply, the blockchain functions like a decentralized but self-sustaining full history of all the bank’s transactions, with each block serving as an individual bank statement.
The real beauty of blockchain, however, lies not only on how it uniquely processes online cryptocurrencies transactions, but on the general characteristics of the underlying technology. Here are some of the many benefits of blockchain technology:
1. Decentralized systems
Decentralization is the core concept and main benefit of blockchain. This simply means that there is no third-party entity to regulate and run the system. In the current financial system, we use trusted intermediaries such as banks to make, validate, authenticate, and keep records of transaction on our behalf.
With blockchain, on the other hand, the peer-to-peer network which is comprised of individual people called miners, validates the transaction through a consensus system. Blockchain technology essentially removes a layer of bureaucracy and the need for a third-party, making online transactions significantly faster, simpler, and cheaper.
2. Democratic finance
What the current financial system lacks is the democracy to handle our finances the way we want it. While regulations are in place to make the system more manageable and to protect both the financial institution and their clients, the current system is stifling.
With the transparent and decentralized quality of the blockchain technology, all transactions are not controlled by a single entity—such is the case of banks having the power to reject or authenticate a transaction. Everyone who is part of the peer-to-peer network is part of a consensus, giving you the deciding power, along with those in the blockchain “community.” In a sense, blockchain technology allows everyone to have a say on how you handle your money.
3. Censorship resistance
Among the many disadvantages of having a centralized system is the existence of gatekeepers who solely have the power to control information and which transactions are permitted. Blockchain technology is powerful because any information that has been added into the blockchain is replicated across a large network of nodes all over the world. Anyone who is in the network has access to the data, making it nearly impossible to censor or alter.
Any attempt to remove or “silence” any data that’s been added to the blockchain would require tremendous amount of computing energy, far bigger than the amount needed to mine or validate the transaction in the first place. Moreover, to do so would also mean having to get at least a majority of all the miners to agree to a change, which would take a significant amount of time. The decentralized and consensus system of blockchain safeguards all transactions to make it immutable and thus resistant to all kinds of censorship.
One of the distinct features of the blockchain technology is its transparency while at the same time protecting your privacy. As mentioned previously, all information that’s been recorded to the blockchain is shared to everyone in the network. Despite the public availability of the information, each block is hashed and encrypted, and does not contain any personal information. What’s recorded is an anonymous digital public wallet address, and where and when the transaction occurred.
The transparency of the system also reduces fraud. Since there is only one master record of all transactions available to the public, this guarantees that it’s impossible to tamper data without everyone else knowing about it. If a block is forged and is added to the chain, all the other nodes will find the forged data to be untrue and reject it.
With all the hype surrounding the blockchain technology, it is still in its early stages, meaning it still has a potential space for further growth and development. The blockchain space has been innovating by leaps and bounds over the past few years that it has existed, and there’s no telling how far and wide the applications of blockchain will go in the near future.
Many companies—from budding startups to established multinational companies like IBM, to government institutions—are taking on their own blockchain projects in the hopes of maximizing the technology’s capabilities. There is so much potential in projects like these, and it’s exciting to see what innovative developments are being discovered, which can help improve the industry as a whole.
The blockchain industry is one of the most anticipated technologies in this era. While it’s been met with a mixed reception, it still stands strong and is growing at an impressive pace. Decentralization, democracy, transparency, censorship resistance, and innovation are just among the many benefits blockchain and its applications like cryptocurrencies have to offer. In the next few years, we might just see a whole new world where our current financial system and the way we approach digital information and security are altered significantly by the blockchain technology.
– Article written by Tinny