If you have tried to immerse yourself in this mysterious thing called blockchain, you will be forgiven for being terrified of the absolute opacity of the technical jargon often used to frame it. So before we understand what cryptocurrency is and how blockchain technology can change the world, let’s look at what blockchain really is.
In simple terms, a blockchain is a digital transaction log, unlike the logs we have been using for hundreds of years to record sales and purchases. The function of this digital notebook is essentially almost identical to that of a traditional notebook, as it records people’s debits and loans. This is the main concept behind the blockchain. The difference is who keeps the log and who checks the transactions.
In the case of traditional transactions, payment from one person to another involves an intermediary to facilitate the transaction. Suppose Rob wants to transfer 20 pounds to Melanie. He can either give her cash in the form of a 20 20 banknote or he can use a bank account to transfer the money directly to his bank account. In both cases, the bank is the intermediary, which checks the transaction. Rob’s funds are checked when he withdraws money from the cash register, or they are checked by the app when he makes a digital transfer. The bank decides whether the transaction should be carried out. The Bank also keeps track of all of Rob’s transactions, and is solely responsible for updating it when Rob pays or receives money from someone. That is, the bank keeps, controls the register, everything flows through the bank.
It’s a big responsibility, so Rob may feel that he can trust his bank, otherwise he would not risk his money with them. He must feel confident that the bank will not deceive him, will not lose his money, will not be robbed, will not disappear overnight. This need for trust has substantiated almost every major behavior of the monolithic financial industry, to the point that even when it turned out that banks were handling our money irresponsibly during the 2008 financial crisis, the government (another intermediary) chose: save them, not risk the last shards of trust by allowing them to collapse.
Blockchains work differently in one main sense. they are completely decentralized. There is no central accounting house like a bank, և there is no central ledger kept by one entity. Instead, the log is distributed over a vast network of computers called nodes, each of which holds a copy of the entire log on their respective hard drives. These nodes are interconnected through software called a “peer-to-peer” (P2P) client, which synchronizes data over a network of nodes to ensure that everyone has the same version of logs at any given time. .
When a new transaction is entered into a blockchain, it is first encrypted using the latest cryptographic technology. Once encrypted, the transaction becomes something called a block, which is mainly used for the encrypted group of new transactions. This block is then “sent” (or broadcast) to a network of computer nodes, where it is checked by nodes; under the list of all previous blocks. This is called a chain, hence the technology is called blockchain.
Once approved, the transaction can be completed after registration. Here’s how cryptocurrencies like Bitcoin work.
Responsibility վեր Loss of trust
What are the advantages of this system over the banking or central clearing system? Why would Rob use bitcoin instead of regular currency?
The answer is trust. As mentioned earlier, in the banking system, it is very important for Rob to trust his bank to protect his money and to manage it properly. To do this, there are huge regulatory systems in place to monitor the banks գործող to ensure that they are in line with their purpose. Governments then regulate regulatory bodies by creating a kind of gradual system of inspections whose sole purpose is to help prevent mistakes and misconduct. In other words, organizations like the Financial Services Authority exist precisely because banks cannot be trusted on their own. And banks often make mistakes and misbehave, as we have seen many times. When you have one source of power, power tends to be abused or abused. The trust relations between people and banks are awkward and unstable. We do not really trust them, but we do not feel that there is much alternative.
Blockchain systems, on the other hand, have absolutely no need for you to trust them. All transactions (or blocks) in the blockchain are checked by the network nodes before adding to the log, which means that there is no failure point և no confirmation channel. If a hacker wanted to successfully break the blockchain registry, he would have to hack millions of computers at once, which is almost impossible. Hackers will also be almost unable to crash the blockchain network, as, again, they must be able to shut down every computer on a worldwide network.
The encryption process itself is also a key factor. Blockchains like Bitcoin use deliberately difficult processes for their verification process. In the case of Bitcoin, blocks are checked by nodes, which perform a series of deliberate processor-time calculations, often in the form of puzzles or complex mathematical problems, which means that the check is neither instantaneous nor accessible. The nodes that require the resource to inspect the blocks are rewarded with a transaction fee and an abundance of newly produced bitcoins. It has the function of encouraging people to become nodes (because such processing units require quite powerful computers – a lot of electricity), at the same time it manages the process of creating or cutting currency units. This is called mining because it involves a considerable amount of effort (in this case by the computer) to produce a new product. This means that transactions are audited as independently as possible, more independently than an organization regulated by a government such as the FSA.
This decentralized, democratic, highly secure nature of blockchains means that they can operate without the need for regulation (self-regulation), government, or other impenetrable mediators. They work because people do not trust each other and not in spite of that.
Let that significance linger for a while, the excitement around the blockchain begins to make sense.
Where everything really becomes interesting is the use of blockchain, except for cryptocurrencies like bitcoin. Given that one of the principles underlying the blockchain system is secure, independent verification of transactions, it is easy to imagine other ways in which these types of processes can be valuable. Not surprisingly, many of these applications are already in use or being developed. Some of the best are:
- Smart contracts (Ethereum). Probably the most exciting blockchain development since Bitcoin, smart contracts are blocks that contain a code that must be executed in order for the contract to be executed. Code can be anything as long as a computer can do it, but in simple terms it means that you can use blockchain technology (with its own independent verification, unreliable architecture և security) to create some kind of backup system for any type of transaction. . For example, if you are a web designer, you can sign a contract that checks to see if a new client’s website is up and running, and then automatically gives you the funds when it launches. No more harassment or invoices! Smart contracts are also used to prove ownership of an asset such as property or art. The potential for reducing fraud with this approach is enormous.
- Cloud storage (Storj). Cloud computing has revolutionized the Internet, with the advent of big data, which in turn has ushered in a new revolution in artificial intelligence. However, most cloud-based systems run on servers that are hosted on a single deployment server owned by one person (Amazon, Rackspace, Google, etc.). This presents the same problems as the banking system, as your data is controlled by a single, opaque organization that represents a single point of failure. Distributing data on the blockchain completely eliminates the problem of trust; he promises to increase reliability, as it is much more difficult to destroy the blockchain network.
- Digital identification (ShoCard). Two of the biggest problems of our time are theft and data protection. With huge centralized services like Facebook, which has so much information about us, ջանք the efforts of governments in various developed countries to keep digital information about their citizens in a central database, the potential for our personal data to be misused. Blockchain technology offers a potential solution by wrapping your key data in an encrypted block that can be verified by a blockchain network when you need to prove your identity. These applications range from the obvious replacement of passports, ID cards, to other areas, such as password replacement. It can be huge.
- Digital voting. As a result of the investigation into Russia’s influence in the recent US elections, digital voting has long been suspected of being “unreliable” and highly vulnerable to fraud. Blockchain technology offers a way to verify that a voter’s vote was successfully sent while maintaining their anonymity. It promises not only to reduce electoral fraud, but also to increase voter turnout, as people will be able to vote on their mobile phones.
Blockchain technology is still in its infancy, մեծ most applications are far from universal. Even Bitcoin, the most established blockchain platform, is subject to enormous volatility, which indicates its relative newcomer status. However, some of the key issues facing the blockchain potential that we face today make it an unusually exciting and enticing technology to follow. I will certainly follow.