Today when we hear the word “blockchain” we think about Bitcoin, Ethereum and other cryptocurrencies. The distributed ledger technology as it exists now first appeared in 2009 together with the first cryptocurrency. Bitcoin, as well as the vast majority of digital currencies are based on blockchain. Probably the only exception is the project and the coin called IOTA that is based on Tangle technology and does not include blockchain. Anyway, it soon became clear that cryptocurrencies are just one possible way to apply the distributed ledger technology. Blockchain is actually a new and advanced way to store and exchange information, and if we stick to such a broad definition it will become clear how big is the potential of these technology.
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- What is blockchain technology?
- Blockchain and digital currencies
- Where is blockchain being applied and what are its prospects?
To put it simply, blockchain is a kind of database, a way of its management. In fact, blockchain comes down to electronic recording of particular information;storage and amendment of this information must be coordinated between independent parties. The method of information storage with the help of blockchain guarantees impossibility of spontaneous information amendments by a user without other users’ concord. Blockchain resembles torrent, both technologies are based on peer to peer principle,where information exchange is carried out directly between equal participants.Every information record is a block. Blocks constitute a chain; so, every other block contains part of information from the previous one. All information of this distributed database stores on computers of every net user.
Nearly all digital currencies are based on the blockchain technology. Cryptocurrency actually exists as a recorded information about transactions just like the real fiat money that we transfer between bank accounts. Digital currencies record, store and change their information using a distributed ledger technology. Many coins are based on the same blockchain. For example such currencies as Namecoin, Litecoin, Dogecoin, etc. are based on bitcoin blockchain. Ethereum blockchain was used to deploy more than 500 other cryptocurrencies, including such popular coins as Binance Coin and OmniseGo. Some leaders of the cryptocurrency market also used to be based on Ethereum blockchain but later developed or at least started developing their own distributed ledger. These are, for instance, EOS – top-5th digital coin by market capitalization, and TRON. However many cryptocurrencies were not satisfied with what bitcoin and Ethereum could offer and designed their own blockchain. These are Ripple, Zcash, NEO, Dash, Monero, Cardano and others.
So, how blockchain is implemented in cryptocurrencies? A block is a special structure where the information about transactions is recorded. Each block contains the information related to the previous one, so they form a single chain where no one can edit the information on their own discretion. The whole information about what has happened in a decentralized database is recorded into the blocks. Each block includes a header and a list of transactions. Blocks are formed by miners that carry out calculations necessary to find hash. The main function of the distributed ledger is that it ensures cryptographically secured and decentralized storage of the information about transactions.
Blockchain technology is quite cross-functional, because it provides us with the new method of information storage and exchange. In all areas where it is applied, blockchain functions as a universal database that almost cannot be hacked or amended without sanction. However, anyone who has the right can get access to the information. A great interest to blockchain comes from the finance sector. Traditional banks and fintech startups pay their attention to distributed solutions that blockchain suggests.
Governments treat cryptocurrencies rather negative, but at the same time they realize blockchain potential. Some countries, like Sweden or Arab Emirates, plan switch their register of properties to blockchain. Estonia develops mechanisms for blockchain-voting at shareholders meetings. Besides,there is e-Residency platform in the country — electronic identification system based on blockchain.
The world’s largest humanitarian organization called World Food Programme uses blockchain to provide refugees with food via existing shops and retail chains instead of directly distributing food or money to buy some.
Smart contract technology that is realized on Ethereum blockchain is not restricted only to cryptocurrency transactions processing. It is a kind of new method of contractual arrangements where there is no need for lawyers,banks or other mediators.
Today blockchain is already being used for creating distributed cloud storages, where users’ data (including personal data) will be protected by cryptographic means.
Anyway, blockchain is definitely an important technology that is likely to increase its impact in the near future. World Economic Forum describes blockchain as a fundamentally new form of computer architecture that brings the opportunities that could be compared to those brought by the development of the Internet in 1990s and smartphones in 2000s. The potential of distributed ledger is obvious for businesses and even state authorities and many of them started applying the technology in a number of areas.
Blockchain appeared 10 years ago, which is actually quite a long time given the speed of scientific and technical progress. However, we can state that the real potential of the technology is being discovered today. Blockchain is actually a new useful way of storing and transferring information, while in the modern society it is perhaps the most important asset.
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