A New and Exciting Era of Blockchain. Are you in?

Not a long time ago, “blockchain” came from the world of information technology in our daily life. It allows us to transmit information safely and also gave us a confidence in its authenticity. Blockchain has already reached a global scale, and quite a large part of the population is already using it. In the nearest future, this technology may conquer the world, until the emergence of very powerful quantum computers that can break the elliptic curves.

Ok, let’s take a closer look at what Blockchain is. It is a technology for storing data in the form of sequentially connected blocks on a network. The term “blockchain” itself comes from two English words: “block” and “chain”. Similar technology was introduced back in 1991 by Stuart Haber and W. Scott Stornetta. The objectives of this technology were to distribute computational operations and ensure the decentralization of information storage.

However, the blockchain became famous worldwide after Satoshi Nakamoto showed how certain technologies can be used and created a new system in the field of finance.The history of the use and further development of the blockchain began after the appearance of bitcoin in 2008.

The purpose of the blockchain is to record and disseminate information, but not to edit it. Therefore, the blockchain creates a place for transaction records that cannot be modified, deleted, or destroyed. For this, the blockchain has become known as DLT – distributed ledger technology.

The essence of the blockchain boils down to the following:
  • it is a special and unique type of database;
  • the main difference from a conventional database is that the blockchain stores information in its own way: several blocks that form a sequence;
  • new data is entered into a new block, and after the block is filled with data, this block is linked to the previous one, and then the data is combined in chronological order into a chain;
  • the blockchain stores various types of information, but the most common use is a ledger for cryptocurrency transactions;
  • the use of the blockchain is decentralized, so neither a person nor a group of people has personal control over it, but all users retain control collectively;
  • the entered data cannot be changed, since decentralized blockchains are unchanged.

So, how is blockchain used nowadays in our life?

Several companies have already successfully implemented this technology. Such as Siemens, Unilever, Pfizer, Walmart, AIG, and many others. Well-known company IBM has developed a blockchain called Food Trust, to be able to track the trajectory of the path that food takes to reach its destination. This is done in order to track the routes of certain food products from their origin to final delivery. If the danger of infection is detected, it is possible to check when it happened and eliminate the source of infection. All this gives much more safety and a guarantee in order to protect the population from the spread of certain infections and other diseases.

Let’s have a look at examples where blockchain is used in daily human life:

1. Finance and banking. After integrating the blockchain into banks, customers will be able to see the speed of transaction processing (no more than 10 minutes), regardless of weekends and holidays. Blockchain also allows you to quickly and securely exchange certain funds between organizations and institutions. Due to the big amount of money in transit, it entails significant risks and costs for many banks. For example, the European bank Santander, together with partners, has estimated significant savings of $ 15-20 billion per year. And French consultancy Capgemini similarly estimated that consumers could save up to $ 16 billion annually in insurance and bank fees using blockchain.

2. Easy and secure transactions. Blockchain is the foundation for Bitcoin and other cryptocurrencies. During the proliferation of transactions across a network of computers, blockchain allows other cryptocurrencies to operate without the need of the Central Bank. This eliminates numerous processing and transaction fees and also reduces risks. It is especially important to use cryptocurrency wallets as a way of payment or for savings accounts if there is no government identification.

3. Medical records. Blockchain can be used to store patients’ medical information. After generating and signing a medical record, it can be added into the blockchain. This provides an assurance and patient confidence that the record cannot be altered. Medical records can be encrypted and stored on the blockchain with a private key, thereby making them completely confidential.

4. Property accounting. The process of registering property rights is a bit of an ineffective process, riddled with many human errors and inaccuracies. Blockchain can eliminate the need to scan documents as well as track physical files at the local office registration. Ownership stored and verified in the blockchain gives owners the assurance that their documents are constantly being recorded and always accurate.

5. Smart contracts. A smart contract is a computer code that can be integrated into the blockchain to facilitate, verify, or negotiate a contractual agreement. Smart contracts are valid only on the terms with which users agree. Once these terms are fulfilled, the terms of the agreement are automatically confirmed.

6. Supply chain. In the case of the Food Trust example from IBM, suppliers can use blockchain to record the transition and quality of materials. This could allow food companies to authenticate their products with labels such as Local, Organic, and Fair Trade. According to Forbes, the food industry has become the most frequent in using the blockchain to track the path and safety of food from farm to consumer.

7. Voting system. Blockchain can facilitate the modern voting system. In such a case, when implementing blockchain, voting has the potential to eliminate electoral fraud and increase voter turnout. This was tested in the West Virginia midterm elections in November 2018. Blockchain has made votes nearly impossible to fake. The blockchain protocol maintains the transparency of the electoral process by reducing the number of staff required to conduct elections and provides officials with near-instant results.

What are the advantages and disadvantages of blockchain?

Advantages:

– Highest accuracy of transactions and payments. A blockchain transaction must be verified by multiple nodes, so this can reduce errors. If an error is detected in one node in the database, other nodes will detect that and do not take further steps with the error. The same cannot be said for a traditional database, since if a mistake is made, the likelihood of its repetition may be higher. Each asset is individually identified and tracked in the blockchain ledger. Therefore, it is not possible to double-check.

– There is no need for intermediaries. Two parties who started a transaction using the blockchain may not resort to a third party when they confirm and complete a particular transaction. Hence the savings both in time and in the costs of paying the bank.

– Additional security. Blockchain is able to prevent individuals from committing fraudulent transactions. In order to hack the system and gain access to the data, scammers will need to hack into every node and change every “block”. Cryptocurrency uses so-called “proof of ownership” or “proof of work” in their network, which makes it difficult to commit fraud in the transaction. 

– More efficient translations. People can now transfer money and assets very efficiently, and internationally. There is no need to wait for manual confirmation by a bank or government agency as blockchains work 24/7.

The disadvantages include the following:

– Transaction limit. There is a certain limit to the speed of movement of the blockchain. For example, the processing speed of the Ethereum cryptocurrency is 20 transactions per second, while Visa usually makes 1700 transactions per second. As the number of transactions increases, network speed issues and costs arise.

– High energy cost. A single database or spreadsheet requires significantly less power compared to running all nodes to validate transactions. That means the transactions become more expensive and also create a large carbon burden on the world environment. Many professionals are deviating from some blockchain technologies, in particular from bitcoin. As example: Elon Musk stated that Tesla would not be able to accept Bitcoin because he was concerned about environmental damage.

– The risk of losing assets. The protection of digital assets is ensured with a private key that must not be lost. The system is decentralized, which means that you cannot restore your password by calling the central authority with a request to restore access. So if you lost your key, you lost your access FOREVER without the ability to restore it. 

– Possibility of illegal activity. The confidentiality and anonymity of the blockchain attract criminals, whose activities are much more difficult to track than through bank transactions tied to a name. 

Thus, blockchain is becoming more and more popular thanks to bitcoin and other cryptocurrencies. It is able to make business and government transactions more accurate, efficient, secure and cheap with fewer intermediaries. Today, there is an increase in the number of NFTs and the tokenization of assets. The coming decades will prove to be the most important for the growth and development of the blockchain.

* DISCLAIMER: All the information is provided merely for informational purposes and does not provide any investment advice.

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