In this digital era, cryptocurrency, short for crypto, is being discussed on online portals or social media platforms daily. It is a digital or virtual currency secured by cryptography which is impossible to counterfeit. However, before you start investing in crypto, first you need to understand what blockchain technology is and how it works!
Blockchains are decentralized digital ledgers, in layman’s terms, a series of blocks forming a digital ledger opened to anyone. Any transactions made using crypto are safely recorded and saved as data on blocks. This system is designed as distributed networks that eliminate the need for a central authority to keep a record against manipulation which means information stored on these networks becomes an immutable database and is governed by a set of rules. It is a database of all cryptocurrency transactions worldwide.
Bitcoin was the first ever blockchain-based cryptocurrency whereby it allowed users to share data publicly so that users can verify any transaction’s validity independently. Cryptocurrencies are built on blockchain technology, named after the intensive use of cryptographic functions.
Cryptography is the main technique used in transactions of blockchain. Public and private keys are used to digitally sign and transact securely within the system. Users can use hash, one of the cryptographic functions, to solve puzzles by going through the ‘mining’ process in hopes of being paid with a fixed quantity of money in Bitcoin.
Why is blockchain important?
The advancements of blockchain technology have been steady growth with new platforms being introduced regularly. Besides cryptocurrencies, there are many established applications in the real world with the ability to create more transparency and fairness while also saving businesses time and money. Let’s look at a few of them below!
- Smart contracts
Helps to eliminate middlemen and provides higher levels of accountability for each party compared to traditional agreements. These contracts are gaining more popularity in government, healthcare, automotive, and manufacturing sectors.
- Internet of Things (IoT)
By utilizing transparency and immutability, blockchain-based IoT adds a high level of security to prevent data breaches. This can eliminate the chances for hackers to steal personal data on everything from Google Home to a smart thermostat.
- Non-fungible tokens (NFTs)
The hottest blockchain application after cryptocurrency. NFTs are just digital products like music, art, GIFs, and videos that are sold on a blockchain, which the owner can claim full rights to. With the help of this technology, the public can claim ownership of their desired digital assets.
- Personal identity security
Identity fraud has become very common today. Based on a study from a non-profit organization in the US, almost 42 million Americans were victims of this crime. By keeping personal and sensitive information like ID numbers, birth certs, medical, financial, etc. in blockchain, these problems may be solved.
- Voting
Within a decentralized database, the use of private and public keys is applied so a person can only vote once as the technology will require verification of ID to proceed with a valid vote. It is also environmentally friendly as voting ballots and logistics cause a higher ecological footprint.
In general, blockchain is a difficult application for normal users. Therefore, it benefits businesses the most. You will need a team of experts to manage it, which usually is suitable only for businesses that have enough resources and interest to manage blockchain projects. According to an online study, the global blockchain market will grow and improve to 20+ billion USD, also a good sign of how rapidly businesses are adopting this system.
Is Blockchain Secure?
As this system is designed specifically to record large-scale transactions and is protected by many layers of data security. Therefore, they are as a rule, safe and secure. However, not all financial systems or data platforms are free from security issues and blockchain is no exception. Even though blockchain is not immune to hacking, the decentralized system gives it stronger security. It will require a lot of resources, energy, and a massive amount of computing power to breach the system. Having more people on a blockchain network is better as it helps to increase security whereby more participants are confirming and protecting the validity of the data block.
Each data block holds a unique hash number and a link that connects to the block before. Every block is a crucial part of the chain and cannot be replaced. When a change is detected, the hash sum would be modified and the block will no longer be valid.
Networks that are more vulnerable to attack and manipulation are private ones where that require an invitation to participate. In addition, a great benefit of blockchain is to prevent “double-spending” attacks in payments and money transfers. Some users will take advantage of crypto and spend it numerous times before the network notices. This is a major source of concern in cryptocurrency. However, with the help of blockchain, the whole network must agree on the transaction sequence, confirm the most recent transaction, and publicly publish it to protect the network’s security.
Pros and Cons of Blockchain
| Pros | Cons |
| High-quality data | Complex signature verification process |
| Immutability & transparency | Uncertain regulations |
| Faster transactions | Cultural adoption/disruption |
| Longevity & reliability | Large energy consumption |
| Simplistic ecosystem | No control for enterprises |
| Durability & security | Private keys |
What does the future of blockchain technology look like?
As of today, the potential of blockchain is limitless. Taking into account the benefits of this emerging technology, it can revolutionize and change a lot of companies and industries. It will be very exciting to see where it goes and what more it can do in the future, especially in some sectors like banking & finance, cybersecurity, healthcare, and supply chain management.
Nowadays many events transpired in our society that seemed unlikely to be fake, for example, network fraud, lost data recovery, intellectual property theft, government investment targeting, etc. Of course, these problems can all be solved or prevented with the help of blockchain technology. With that being said, blockchain is undoubtedly important. Only time will tell when there will be widespread adoption with the growth of blockchain-based applications.