What is Blockchain Technology : The Conclusion

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A blockchain is a public digital log of transactions that is impossible to hack or change. Individuals may now transact securely with one another without the need for an intermediary like as a government, bank, or another third party.

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Cryptography is used to connect the increasing list of records, known as blocks. Each transaction is independently validated, time-stamped, and contributed to a growing chain of data via peer-to-peer computer networks. The info can't be changed after it's been recorded.

While bitcoin, ethereum, and other cryptocurrencies have gained popularity, blockchain technology has potential uses in legal contracts, property sales, medical records, and any other sector that requires the authorization and recording of a sequence of activities or transactions.

What is the mechanism behind blockchain?

Here's how blockchain, also known as distributed ledger technology, works using the Bitcoin system as an example:

Bitcoin transactions are entered and relayed via a network of powerful computers known as nodes.

Using computer algorithms, this network of thousands of nodes across the globe competes to confirm the transaction. Bitcoin mining is the term for this. The miner that completes a new block first is rewarded with bitcoin for their efforts. Network fees, which are passed on to the buyer and seller, pay for these benefits. Depending on the number of transactions, the costs may increase or decrease.

The sale is added to a block on the distributed ledger once it is cryptographically verified. In a procedure called "proof of work," the majority of the network must next ratify the transaction.

The sale is finalized when the block is permanently linked to all prior blocks of bitcoin transactions using a cryptographic fingerprint known as a hash.

The idea of blockchain technology was originally mentioned in a dissertation published in 1982 that discussed “the architecture of a distributed computer system that may be created, maintained, and trusted by mutually suspicious groups.” But it was Satoshi Nakamoto's pseudonymous paper "Bitcoin: A Peer-to-Peer Electronic Cash System" from 2008 that put an academic idea into practice.

The benefits and drawbacks of blockchain technology

Here are some of the benefits and drawbacks of blockchain technology when it comes to cryptocurrencies, using bitcoin as an example:

Pros :

Decentralization

While the Federal Reserve produces and manages the US currency, no government entity issues or regulates bitcoin or other cryptocurrencies. This also implies that no one government or agency will be able to decide the destiny of a public blockchain. The absence of intermediaries lowers costs by eliminating the fees associated with third-party transactions. Another benefit of decentralization is time efficiency: unlike banks and other middlemen, the blockchain is available for business 24 hours a day, 365 days a year.

Transparency combined with anonymity

On the Bitcoin blockchain, all transactions are recorded on all computers connected to the network. Because the address and transaction history of Bitcoin wallets, which store the cryptocurrency, are publicly accessible, transactions are fully transparent. However, the owners of each wallet linked to those public addresses remain anonymous and are not recorded.

Precision and safety

There is a reduced chance of mistakes since the transaction requires minimal human contact. The risk of information being manipulated or changed is removed since each transaction must be verified by a majority of network nodes and recorded throughout the whole blockchain. Counterfeiting (sometimes known as the "double-spending" issue) is also prevented.

Beyond cryptocurrencies, blockchain has a wide range of uses.

Blockchain technology has the potential to generate efficiencies that go well beyond digital currency. While cryptocurrencies such as bitcoin use a public blockchain, private blockchain networks may be used to develop a variety of commercial applications:

Blockchain supply chain: Companies like IBM Blockchain are already utilizing blockchain technology to provide private network solutions that monitor product supply chains more precisely. Companies may, for example, utilize the technology to monitor where recalled food items have been transported and sold quickly and precisely.

Health-care records: A national blockchain network for electronic medical data, according to Deloitte Consulting, “may enhance efficiency and promote improved health outcomes for patients.”

Smart contracts: Using blockchain technology, contract terms may be automatically modified or updated if a set of criteria is met.

Startups such as FollowMyVote are developing blockchain technologies that may be used in elections.

Property transactions: Blockchain proponents claim that the technology may be used to sell a broad variety of assets, including real estate, automobiles, and investment portfolios.

Cons :

Crypto is popular with criminals.

Some of the earliest users of new technology, like many others, have been criminal organizations. They utilize cryptocurrencies like bitcoin as payment as well as to target bitcoin users for scams because of the anonymity they offer. Customers of Silk Road, a black market online shopping network for illegal narcotics and other criminal services that was shut down by the FBI in 2013, utilized bitcoin, for example. Colonial Pipeline paid $4.4 million in bitcoin to unlock its computer systems after a recent ransomware assault.

Meanwhile, bitcoin investment fraud has increased in lockstep with the currency's recent record surge. The Federal Trade Commission stated that over 7,000 individuals lost $80 million in quick-return scams between October 2020 and March 2021, a roughly 1,000 percent increase in reported losses year over year.

Cryptocurrencies on the blockchain are very volatile.

Cryptocurrency's popularity skyrocketed in 2021, with bitcoin hitting a new high of almost $65,000 in April. However, due to its inherent volatility, bitcoin's price had fallen almost 50% by early June. Bitcoin reached a prior high of almost $20,000 in December 2017, but it was trading below $3,500 by December 2018.

Cryptocurrency use is still uncommon.

Many more exchanges, brokerages, and payment applications now offer bitcoin, and many businesses accept bitcoin as payment, including PayPal and Microsoft. Purchases made using blockchain currencies like bitcoin, however, are still the exception rather than the norm. Furthermore, users must pay capital gains taxes on bitcoin traded for purchases on cash applications like PayPal, in addition to any state and local taxes paid on the goods or service.

The effect on the environment is under doubt.

Bitcoin mining is done using a network of high-speed computers that require a lot of energy. According to the University of Cambridge Energy Consumption Index, if Bitcoin were a nation, it would be the 34th largest electricity user, after the Netherlands and ahead of the Philippines. Elon Musk, the CEO of Tesla, said in May that the company would stop accepting bitcoin until it could find methods to decrease its carbon impact.

The Bitcoin blockchain is very sluggish.

The Bitcoin blockchain can handle about seven new transactions per second. Visa, on the other hand, claims to be capable of processing 24,000 transactions per second. This creates a scalability issue for the Bitcoin system. This issue is being addressed by other types of blockchain-based cryptocurrencies. Ethereum 2.0, a highly awaited update to the Ethereum system, is projected to be capable of processing 10,000 transactions per second, up from the present pace of 30 transactions per second.

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