Unlocking the Potential of Blockchain Technology

Activating the Potential of Blockchain Technology

As a block cannot be changed, trust is only required at the moment a program or user enters the data. The need for trusted third-party parties is reduced, as they are typically auditors and other human beings who add cost and can make mistakes.


What is a Blockchain?

What is a Blockchain?

Spreadsheets and databases are probably familiar to you. The blockchain works in a similar way to a traditional database, where data is stored and entered.

The key difference between an old-fashioned database or spreadsheet and a blockchain is the way the data is organized and accessed.

The Blockchain is made up of scripts, which are programs that perform the same tasks as a database. They enter and retrieve information while saving and storing it.

The blockchain is distributed. This means that multiple copies of the same data are stored on different machines. They must match in order for the chain to be valid.

Blockchain collects information about transactions and stores it in blocks, similar to a sheet of information. The information collected is then run through a hashing algorithm to create a number that is hexadecimal.

This hash will then be entered in the next block header, and the information within the block is encrypted. The blocks are then chained.


Transaction Process

Transactions are subject to a particular process depending on which Blockchain is being used. On the Bitcoin blockchain, for example, initiating a transaction with your cryptocurrency wallet - an application that provides an interface to the Blockchain - starts a series of events.

Your transaction in Bitcoin is queued and stored until its picked up by a validator or miner. After the transaction is added to a block, and that block is filled with other transactions, this block is then closed and encrypted by using a cryptographic algorithm.

After that, mining starts.

Each member of the network is working simultaneously to try and "solve" a hash. The "nonce" is the only number that can be used more than once.

Each miner begins with a zero nonce, which is added to the hash generated randomly. The nonce is increased by one if the number generated is not equal to or lower than the hash target.

The process continues until one miner produces a valid block hash. They win the race and receive the reward.

The "proof of work" that youve heard so much about is the process whereby random hashes are generated until a certain value is reached.

This "proves" the miner actually did the hard work. Bitcoins network uses so much energy and computational power because it requires a lot of effort to verify the hash.

A transaction becomes complete once a block has been closed. The block will not be considered confirmed until at least five blocks are validated.

The network takes about an hour to confirm a block because the average is just below 10 minutes.

This process is not followed by all blockchains. for example, randomly selects one of its users who has staked ether to verify blocks.

The network then confirms the block. It is faster and uses less energy than Bitcoin.


Blockchain Decentralization

Blockchain Decentralization

The data from a database can be distributed across several nodes (computers, devices or other software running the blockchain) at different locations.

It not only ensures data fidelity but also creates redundant information. If, for example, someone tried to change a record in one database instance, then the other nodes could prevent this.

So, no node in the network is able to alter any information.

Due to this distributed proof of work (and its encryption), the information and history it represents are irreversible.

This record can be an archive of crypto currency transactions, but it could also include other data like contracts or state IDs.


Blockchain Transparency

Blockchain Transparency

Due to its decentralized nature, anyone can view all Bitcoin transactions by using a blockchain explorer or a node.

Every node maintains its own version of the blockchain, which is updated when new blocks are added and confirmed. You could, if desired, track bitcoins wherever they go.

In the past, hackers have hacked exchanges, leading to the loss of large quantities of cryptocurrency. The hackers were anonymous, except for the wallet address.

However, the crypto that they took is easily traceable since the wallet addresses appear on the Blockchain.

The records in the Bitcoin blockchain (and most other blockchains) are all encrypted. Only the owner of an address is able to reveal his or her identity.

Blockchain users are able to remain anonymous and maintain transparency.

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Does Blockchain Security Exist?

Does Blockchain Security Exist?

Blockchain technology provides decentralized trust and security in multiple ways. In the beginning, all new blocks will always be stored in a linear and chronological order.

They are added at the end of the chain. Once a new block is added at the "end" of the chain, the previous blocks are not able to be modified.

Any change to data will alter the hash value of the previous block. Each block has the hash of the block before it, so if you change one block, then the next block will be affected.

A block that has been altered would be rejected by the network because its hash would no longer match.

Some blockchains may not be 100% secure. These are distributed ledgers that use code in order to achieve the high-security levels theyre known for.

It is possible to exploit any vulnerabilities that exist in the code.

Imagine, for example, that a hacker is running a node in a network of blockchains and wants to steal cryptocurrency.

They would need to convince other nodes of their validity if they wanted to alter their copy.

This would require them to have a large majority in the network and to insert the code at the perfect moment. It is called a "51%" attack because it requires more than 50% control of the network.


Bitcoin and Blockchain

Bitcoin and Blockchain

In 1991, Stuart Haber and W. Scott Stornetta outlined blockchain technology.

They wanted a system that would prevent document timestamps from being altered. Blockchain technology was not used in the real world until nearly two decades after its invention, when Bitcoin launched on January 9, 2009.

Bitcoin is built on a blockchain. The pseudonymous Bitcoin creator described it in a paper that introduced digital currency as "a peer-to-peer electronic cash system, without a trusted third party."

It is important to know that Bitcoin relies on the blockchain to record payments and other transactions in a transparent ledger.

The blockchain can record data in an immutable way. It could take the form of a transaction, votes for an election, product inventories, state IDs, home deeds, and more.

Tens of thousands of projects are currently working on using blockchains to benefit society in ways other than simply recording transactions.

For example, they can be used to secure voting in democratic elections.

Due to the immutability of blockchain, fraudulent voting becomes much more difficult. A voting system, for example, could be designed so that citizens of each nation would receive a unique cryptocurrency or token.

The voters then send the tokens or cryptocurrency to that address. Blockchains transparency and traceability would make it unnecessary for humans to count votes and allow bad actors the opportunity to manipulate physical ballots.


The Blockchain and Banks

The Blockchain and Banks

The blockchain has been hailed as an innovative force, particularly in banking and payments. Banks and decentralized blockchains have vastly differing characteristics.

Compare the Bitcoin blockchain to a banking system.


What Are the Blockchains Used for?

What Are the Blockchains Used for?

Blocks on the Bitcoin blockchain are used to store data about transactions. More than 23,000 cryptocurrency systems run on blockchains today.

It turns out, however, that the blockchain can be used to store data on other transactions.

Walmart, Pfizer, and AIG are among the companies that have been experimenting with blockchain. IBM, for example, has developed its Food Trust Blockchain to track the route that food products travel to reach their destinations.

Why? In the food industry, there have been countless E. coli outbreaks, Salmonella outbreaks, and Listeria. Hazardous materials may also accidentally be introduced into foods.

It used to take weeks for the food industry to identify the outbreaks and the causes of illness.

Blockchain allows companies to trace the route of a product from its source, all stops it has made, and finally, to delivery.

These companies are able to see all the other products that the food product may have been in contact with. This allows them to identify the problem much sooner, potentially saving lives. It is just one of many blockchain applications.


Banks and Finance

Banking is perhaps the industry that will benefit most from blockchain integration. Most financial institutions are only open during normal business hours.

This is usually five days per week. If you deposit your check at 6 p.m. on a Friday, it will probably take until the morning of Monday to have that money in your account.

The sheer number of transactions the banks must settle can take up to 3 days for the deposit to be verified. The Blockchain, however, is always working.

Integrating Blockchain in banks could allow consumers to see their transactions processed within minutes, or even seconds, depending on the day and time.

Blockchain allows banks to transfer funds more securely and quickly between institutions. Even a few days of money in transit for banks can be costly and risky due to the large sums.

Stock traders may have to wait up to 3 days for the settlement and clearance process (or even longer if they are trading abroad).

This means that their money and stocks will be frozen during this time. Blockchain could dramatically reduce this time.

Read More: Top Blockchain Application Development Platforms to Choose in 2023


Currency

Bitcoin and other cryptocurrencies are built on the Blockchain. The Federal Reserve controls the U.S. Dollar. This central authority system means that a persons Currency and data are at the mercy of either their government or bank.

The private blockchain network data of a client is put at risk if the bank they use is compromised.

Blockchain industry can give countries that have unstable currencies and financial infrastructures a stable currency.

The Blockchain solution would give them access to a larger network and more applications, allowing for domestic and international trade.

Blockchain allows Bitcoin and other cryptocurrencies to function without the requirement of a central authority.

It reduces not only the risk but also transaction and processing fees.

The use of cryptocurrency wallets as savings accounts or a payment method is particularly profound for people without state identification.

Some countries are war-torn, or their governments lack a real infrastructure for identification. Some countries have no access to brokerage or savings accounts and, therefore, cannot safely store their wealth.


Healthcare

Blockchain can be used by healthcare providers to securely store patient medical records. The Blockchain can store a signed and generated medical record, giving patients the confidence and proof that it cannot be altered.

Personal health records can be encrypted and stored in the Blockchain using a secret key, so theyre only available to certain individuals. This ensures privacy.


Property Records

You will be familiar with the inefficiency and burden of recording your property rights if youve ever visited your local Recorders Office.

A physical deed is still required to be handed over by a government official at the local recorders office. It will then manually enter the central database of the county and the public index. If there is a dispute over property, the index must be compared with any claims made by the parties.

It is not only time-consuming and expensive but also subject to human errors, which make tracking ownership of property less effective.

blockchain platforms have the ability to reduce the time and cost of scanning documents, as well as the effort involved in tracking down files at a local record office. Owners can be confident that the deed to their property is recorded and stored accurately on the blockchain if it is verified and saved.

It can be difficult to prove property ownership in war-torn areas or countries with no financial or government infrastructure.

A group of residents in such a region could use Blockchain to establish a timeline.


Smart Contracts

Smart contracts are computer codes that can be incorporated into a Hybrid blockchain in order to make a contract easier.

Smart contracts are governed by a number of agreed-upon conditions. The terms of an agreement will automatically be carried out when the conditions have been met.

Lets say, for instance, that an interested tenant wants to rent an apartment via a smart contract. When the tenant has paid the security deposit, the landlord will give him the code for the apartment.

When the security deposit is paid, the smart contract will automatically email the code to the tenant. The code could be changed if the rent was not paid or if other conditions are met.


Supply Chains

Suppliers can record materials origins using blockchain. It would be possible to check the authenticity not just of their own products but also of labels like "Organic", "Local", and "Fair trade.".


Voting

Blockchain could be used to create a more modern system of voting, as mentioned earlier. As demonstrated in Novembers midterm election in West Virginia, voting with Blockchain has the potential to reduce fraud in elections and increase voter participation.

This would almost make it impossible for votes to be manipulated. Blockchain protocol will also ensure transparency in the electoral process.

It reduces the number of people needed to run an election and provides officials with almost instantaneous results. The blockchain protocol would also maintain transparency in the electoral process, reducing the personnel needed to conduct an election and providing officials with nearly instant results.


Blockchains: Benefits

Blockchains: Benefits

The Accuracy Of The Chain

The blockchain network is approved by thousands of computers and devices. The verification is done by thousands of computers and devices, which eliminates the need for human intervention.

This results in a more accurate recording of data as well as fewer errors. If a computer made a mistake in the computation, it would affect only one copy of the Blockchain. The rest of the network wouldnt accept the error.


Reduced Costs

In most cases, the consumer pays a bank for verification of a transaction. Or a notary will sign a legal document.

The Blockchain eliminates third-party validation and the associated costs. Businesses pay a fee to accept payments by credit cards because the banks or payment processing companies must process them.

Bitcoin has no central authority, and transaction fees are limited.


Decentralization

Blockchain doesnt store its data in one central place. The Blockchain is instead copied across computers and distributed.

Every time a block is added, each computer in the network will update its Blockchain.

Blockchain is more secure because it spreads information over a large network rather than keeping it centrally.


Efficient Transactions

It can take a couple of days for transactions to be settled through central authorities. You may not see the funds you deposit on a Friday night in your bank account until Monday.

Most financial institutions are open during normal business hours, five days per week. But a blockchain is available 24 hours every day of the year, seven days per week.

Some blockchains allow transactions to be done in just minutes, and they are considered safe after only a couple.

It is especially useful in cross-border transactions, where it usually takes much longer due to time zone differences and because all parties have to confirm the payment.


Private Transactions

Many blockchain networks are public databases. This means that anyone with internet access can see a history of transactions on the network.

Users can view transaction details but not identify data about users. The common misconception is that Bitcoin and blockchain networks are completely anonymous. In reality, theyre pseudonymous since there is an address that can be linked to a specific user.


Securing Transactions

The public blockchain network must verify the authenticity of a recorded transaction. The transaction will be added to the block of the Blockchain after it has been validated.

Every block in the Blockchain has its own unique hash, as well as the hash of every block that came before. The blocks are, therefore, unchangeable once they have been confirmed by the network.


Transparency

The majority of blockchains use open-source software. Everyone can see its code. It allows auditors to check the security of cryptocurrencies such as Bitcoin.

It also means that theres no authority to control the code of Bitcoin or its editing. Anyone can make suggestions for changes to the system. Bitcoins code can be upgraded if a majority agrees that it is a good upgrade.


Unbanked Population: How to Bank the Unbanked

The ability to access blockchains and cryptocurrencies is perhaps the biggest benefit. Anyone can use them, no matter their ethnicity, gender or location.

The World Bank estimates that 1.3 billion adult people do not own bank accounts or have any other means to store their wealth or money.

They are usually paid with physical money. Then, they need to hide this cash at home or in other locations. This encourages robbery or violence.

Crypto makes it harder for thieves to steal.

The blockchains of tomorrow are looking to find solutions that will not only store wealth but medical records, rights to property, and other types of legal agreements.


Blockchains Have Their Own Drawbacks

Blockchains Have Their Own Drawbacks

Technology Cost

Blockchain technology can be a great way to save money, but it is not free. The Bitcoin network, for example, uses a proof-of-work system that consumes a lot of computing power to verify transactions.

The energy used by millions of Bitcoin devices is equivalent to the annual consumption in Pakistan.

Existing solutions are starting to emerge. Bitcoin-mining farms, for example, have been created using solar energy, natural gas surplus from fracking, or wind farm power.


The Inefficiency of Data Speed

Bitcoin provides a great example of the inefficiency that can be caused by Blockchain. Bitcoins PoW takes around 10 minutes to create a block on the blockchain.

The Blockchain can manage only three transactions per second (TPS) at that rate. Other cryptocurrencies, such as Ethereum, perform better, but Blockchain limits their performance. Visas legacy brand, as a comparison, is able to process up to 65,000 transactions per second.

There are currently blockchains that boast more than 30,000 TPS. Blockchains with more than 30 TPS are available.

11 Ethereums merger between mainnet and beacon chains (September 15, 2022) is expected to provide up to 100 TPS after a number of upgrades, including sharding, a division of the database to enable more devices to run Ethereum (phones tablets and laptops). It is predicted that this will increase the networks participation, decrease congestion, and improve transaction speeds.

Another issue is the fact that each block only has a limited amount of data. Block size has always been, and will continue to be, one of the biggest issues in terms of scaling blockchains.


Illegal Activities

The Blockchain is a network that protects its users against hacks, preserves their privacy, and allows them to engage in illegal activities.

Silk Road is the most common example of how Blockchain was used to facilitate illicit activities.

The Tor browser allows you to purchase and sell illicit goods on the dark web without being tracked. You can also make purchases using Bitcoin and other cryptocurrencies.

The U.S. laws require that financial service providers obtain customer information when opening an account. The financial service providers are required to confirm the customers identity and ensure that their name does not appear on any known or suspected terrorist organization list.

The system has both pros and cons. This system allows anyone to access financial accounts but also makes it easier for criminals to conduct transactions.

Some have said that cryptocurrencys positive uses, such as banking for the unbanked, are more important than its negative uses, particularly when the majority of illegal activities still involve untraceable money.


The Regulations of the United States

Many people in the crypto community have voiced concerns over government regulation of cryptocurrencies. Although its becoming increasingly hard and nearly impossible to stop something like Bitcoin, as the decentralized network continues to grow, governments can theoretically ban cryptocurrency ownership or participation.

As large companies such as PayPal allow their customers to purchase cryptocurrencies through their online platforms, this concern is lessened.

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Bottom Line

Blockchain is making its mark, thanks to Bitcoin and other cryptocurrencies. Blockchain is a word that has become a household name among investors.

It promises to improve business and government processes by making them more efficient, safe, cheap, and accurate.

Its not a matter of whether legacy companies will adopt blockchain technology, but when. We are seeing a rise in the number of NFT marketplace and tokenizations.

The next decade will be an important period for the growth of blockchain.


References

  1. 🔗 Google scholar
  2. 🔗 Wikipedia
  3. 🔗 NyTimes