Trader’s Dictionary: What Is Blockchain?
A blockchain has been a popular term for those who have invested or traded. Yet, it is still something complicated among definitions, its operation systems, advantages, disadvantages, etc. This article is the first in our intensive series about blockchain and cryptocurrencies!
The Definition Of A Blockchain
A blockchain collects and stores distributed databases through the nodes of a computer network. The information in blockchain is in digital formats. It has close connections with cryptocurrency systems, and Bitcoin is the most noticeable representative. The goal is to decentralize the record of transactions and maintain high security without the dependence on the third parties.
So, what is the difference between a typical database and a blockchain? We can tell from the name, block-chain. The information will be collected and stored in groups called blocks, then connected with other groups for the creation of chains.
A block is capable of storing tremendous databases, yet it has the maximum storage capacity. When the block is full, it will close and set the link to previously filled blocks. Gradually, one chain, then another chain will be created and connected to create a whole system — a blockchain.
Meanwhile, a common way is to put data into tables that lack connection. The stored-in-chunk structure differentiates blockchain from typical databases. Also, it leads to an irreversible timeline of data, which means that once a block is filled, there will be no change within such information. There is an exact timestamp in each block to mark the time it becomes a part of a chain!
Let’s Take A Look At A Blockchain’s Operation!
We want to clarify that a blockchain is to record and distribute databases and information of transactions but not to edit it. In other words, the ledgers in blockchain are immutable so once the records of transactions are added, they will not be changed, deleted, or devastated! It will explain why a blockchain is famous for being a distributed ledger technology (DLT).
Although it has been popular in recent years, blockchains have a long history since first publicly launched as a research project in 1991. Until a blockchain and bitcoin collaborated in 2009, everything took off not only in some countries but also on an international scale. Gradually, a blockchain becomes more and more viral through the creation of many cryptocurrencies, the apps of decentralized finance (DeFi), NFTs — non-fungible tokens, etc.
The Application Of Blockchains
A blockchain is a digital platform for the storage of monetary transactions. As mentioned above, it is popular among over 10,000 cryptocurrency systems thanks to reliable and secure records of transactions.
Besides, many big corporations pioneered the use of blockchains to enhance their business performances, such as Walmart, Pfizer, Siemens, Unilever, AIG, etc. For example, IBM has built its Food Trust blockchain to keep track of the whole process in which the food products were taken to their locations!
Nothing is perfect and so is a blockchain. Thus, we will share multifaceted perspectives based on objective analysis and research. The following content highlights the advantages that you should take in your favor and the disadvantages that you should be aware of to minimize losses.
What Will You Love About Blockchain?
High Precision
A blockchain involves the automatic process of adding and storing databases and information on money transfers. So, it will minimize mistakes by humans and enhance the accuracy of the chain.
What about computational mistakes? Yes, it can happen but at a small percentage as it will be in only one copy of the blockchain. It can also spread to the rest of the blockchain with the condition of at least 51% of the network’s computers making the same mistake. And it is nearly impossible along with the growing size of the Bitcoin network!
Less Intermediary Fees
Without any third parties involved, a blockchain cuts down on the cost of banking and transaction services. Instead of paying for fees that banks or other financial partners charge to process transfers, using blockchains enables you to directly execute transactions.
Decentralization To Minimize Manipulation
Remember that a blockchain is based on a distributed ledger technology so all the information will not be stored in a central location. Instead, it will spread across a network of computers worldwide. Once a new block is added to a blockchain, all computers will automatically update the changes.
Such a decentralized system makes it hard to be interfered with or manipulated. Even when a hacker breaks into the blockchain, he/she could only access a single copy of the whole information! So, the effects will be downsized into controllable and handleable scales.
Smooth Transferring
With the aid of 24-hour operation, Blockchains are capable of processing all the transactions and payments almost immediately. Effective transferring smooths the workflow among companies, departments, cross-border trades, etc. so the improvement of business performances is an obvious outcome.
Transparency
Everyone who uses bitcoins can review its codes the check cryptocurrencies’ security per se. So, it is open-source software that everyone has access to but no one controls or edits. In other words, no one can manipulate the blockchains in their favor. However, it is not dictatorial software but it appreciates the suggestions by users. If users reach a consensus about the updates, the new versions will be updated.
Guaranteed Privacy
Although everyone can check the information about codes, transactions, etc., no one can trace the identities of users. It highlights private transactions in such an open-source platform. Every transfer will be anonymous so you do not have to worry about privacy violations.
It Is For Everyone
About 1.7 billion adults do not have any means of storing their money. Nearly half of such individuals are in developing countries where the economy is still in ups and downs rather than stable growth.
Blockchains, unlike other forms of wealth storage, enable everyone to join as it does not require any high technology devices. All you need is to have a cheap cell phone, a certain amount of capital for storage, etc.
What Do You Need To Be Careful With?
High Costs to Run Such A Brilliant Technology
We know it seems to conflict with the disadvantage of saving transaction fees above. Yet, running the whole system of various computers needs money to maintain! Specifically, millions of computers on the bitcoin network consume power that is close to the combination of Norway and Ukraine’s annual consumption.
Bitcoin miners will gain bitcoins that are worth their time and energy. For the blockchains which do not involve cryptocurrencies, there will be fees for miners or incentives to validate transactions.
A popular solution to rising technology costs is the setup of bitcoin-mining farms with solar power, wind power, natural gas, etc.
Transactions Per Second And Blockchain Scalability
Although blockchains work 24/7, it still has problems with speed. Specifically, it takes about 10 minutes for the Bitcoin’s PoW system to complete the addition of a new block. So, it can execute over seven transactions per second (TPS) meanwhile Ethereum has much better performance, yet it is not corporated with blockchains.
People have developed solutions over the years, which have led to the improvement of more than 30,000 transactions per second. Also, the issue is the scalability of a blockchain when it can hold so much data!
A Medium For Illegal Activities
The respect for the private information of Bitcoin network users has been exploited by people with bad motives and illegal activities. The salient example is to use bitcoins to sell and buy drugs or do money laundry. The famous case investigated and shut down by the FBI lasted from February 2011 to October 2013.
Government Regulation Over Cryptocurrencies
China has banned bitcoin in their new blockchain — The Spartan Network. It is the latest and salient example of blockchain technology and governments. Anything that relates to politics becomes complicated!
Reference:
