Blockchain: How Technology is Changing the World

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Nov 24, 2023
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Blockchain: How Technology is Changing the World

In this article, we will explore the challenges that can be encountered when using blockchain technology.

Development of Technology

When Bitcoin emerged in 2009, it introduced an innovative technology - blockchain. This technology not only became the foundation for the operation of BTC but also evolved into a powerful tool promising profound changes in various areas of our society. So, what is blockchain and how does it impact the world?

There are several reliable methods to track the current price of BTC. One of them is using cryptocurrency exchanges where the price of BTC is updated in real-time. Another useful resource is specialized websites for monitoring cryptocurrency prices, such as CoinMarketCap or CoinGecko. They provide detailed data on prices, trading volumes, and market capitalization of various cryptocurrencies. Additionally, many financial news portals and asset tracking applications also provide information on the current BTC exchange rate.

What is Blockchain?

Blockchain or "block chain", is a form of a database where information is stored in a sequence of linked blocks. Each subsequent block contains data about the previous block and information about new transactions, providing a stable, continuous, and easily verifiable history of all transactions made. This decentralized technology does not require centralized control to confirm operations. Instead, blockchain operates using a distributed network of participants, or "nodes," that collectively verify and record each transaction.

Blockchain and Bitcoin

Bitcoin became the first and most well-known application of blockchain technology. In this context, blockchain is used to record all Bitcoin transactions, creating a public, immutable "ledger" that can be verified by anyone.

This ensures transparency and security in Bitcoin transactions, eliminating the need for trusted intermediaries such as banks or government authorities. This has paved the way for the creation of a global, open financial system accessible to anyone with an internet connection.

How Blockchain Works

In 2009, a hacker known by the pseudonym Satoshi Nakamoto invented the first digital currency. In this new system, money became a mere unit of account, a way to abstract value, establish ownership, and facilitate transactions.

Traditionally, physical forms of money were used for these purposes. Having physical tokens, such as coins, allowed people to transact directly with each other. It was quite challenging to counterfeit cash, eliminating the need for strict accounting of who owned a certain portion of the money supply.

However, if a table is created to show who owns how much money, coins and banknotes become unnecessary. Banks and payment systems have already partially replaced physical currency with digital records, tracking and processing transactions in their closed systems.

Bitcoin completed this process by creating a universal digital ledger known as the blockchain. This technology got its name due to its chain-like structure, where changes can only be made at the end of the latest blocks. Each new addition contains information about new transactions.

Unlike traditional financial institutions that maintain accounting in closed systems, the Bitcoin blockchain is distributed across computers worldwide. This data is accessible to anyone with an internet connection. Miners, owners of computers storing blockchain information, are responsible for processing transaction requests, verifying them, and adding them to the blockchain as new blocks.

The validation process determines that a person has bitcoins after a transaction and has not spent them elsewhere. In the blockchain, ownership is determined by two cryptographic keys. One key is open and visible in the blockchain, while the other is only accessible to the owner. These keys are used for encrypting electronic messages. When someone sends an encrypted message, they use the public key. The recipient uses their private key to decrypt the message.

In blockchain technology, transactions are signed with private keys corresponding to public keys tied to the coins a person wants to spend. When processing a transaction, these coins are assigned a new public key.

When multiple parties are involved in a transaction, immutability becomes crucial. If the blockchain were controlled by a central bank with known validators operating within a single jurisdiction, transaction execution would be simpler.

However, in the world of Bitcoin, there is no single bank overseeing rule compliance. Miners are anonymous and operate globally, despite the diversity of cultures and legal standards. Therefore, there is no way to hold them accountable. The immutability of operations is ensured by the Bitcoin code, using a scheme called proof of work.

How Proof of Work Makes Blockchain Technology Reliable

In the creation of new blocks, miners compete for the reward offered for being the first to create a block in the blockchain. To prevent the possibility of manipulation, all miners must have an identical copy of the blockchain. When adding a new block, a miner provides cryptographic proof of the transaction using hash functions.

Miners perform computations by inserting random numbers into data to obtain a hash with a specific number of zeros. The discovered hash is sent to other miners, who verify it and add it to their version of the blockchain. This is akin to finding the right key for a lock.

Miners invest in equipment and electricity. Altering a block becomes impractical because it requires additional expenses. As the number of blocks grows, the cost of changing previous blocks increases because each block contains the hash of the preceding one. This creates a reliable and secure chain of data, incentivizing miners to support the network and ensuring its continuous development. Thus, Satoshi solved the issue of manipulation and created a resilient digital currency.

How to Use Blockchain in Other Sectors

Blockchain technology, particularly Ethereum with the use of smart contracts, offers advanced capabilities beyond traditional financial transactions. This technology opens doors for broader applications in various fields, overcoming limitations imposed solely by financial operations.

The creation of Ethereum in 2013 by Vitalik Buterin took blockchain to a new level, allowing the use of infinitely complex smart contracts. These contracts enable the integration of programs into the blockchain through transactions, unlocking the potential to replace digital platforms such as social networks and online forums.

Unlike Bitcoin, where miners simply confirm transactions, Ethereum allows users to interact with more intricate programs, creating endless possibilities for innovation. The implementation of smart contracts enables the creation of transparent and censorship-resistant systems, reducing the need for human intervention.

Thus, blockchain technology through Ethereum and smart contracts not only expands the functionality of blockchain networks but also provides a foundation for creating decentralized and transparent digital services that can replace existing centralized platforms.

The Imperative of Distributed Ledgers in the Financial Sector

A Distributed Ledger, representing blockchain technology, is oriented towards ensuring privacy and control in situations where open blockchains, such as Bitcoin and Ethereum, do not meet the requirements of financial institutions.

Open blockchains raise concerns in the financial sector due to user anonymity and the inability to restrict access to transaction data.

A Distributed Ledger offers a solution where participant identification is known, data is available only to selected parties, and the process of creating new blocks is carried out by trusted entities, minimizing the need for miner verification. This approach is applicable in situations where participants already have a certain level of trust, as in the case of banking transfers.

Financing

Securing funding to transition all modern services to blockchain technology requires significant resources for research and technical infrastructure. The main challenge lies in how to attract funding for a project that can compete with major corporations. It is crucial to create open blockchains, similar to Ethereum, where data storage is entrusted to the creators. This implies a departure from business models based on collecting and selling user information.

Initial Coin Offering (ICO) is a potential funding mechanism for blockchains, attracting over half a billion dollars. Criticism arises due to massive investments, accusations of blockchain creators' hypocrisy, and the potential cessation of ICO usage in the United States due to regulation. Debates revolve around the impact of ICOs on equality: critics argue that it encourages wealth accumulation, while supporters believe it promotes the spread of blockchain technology. Despite the challenges, the community awaits to see which projects will remain true to their mission, shaping the world.

The Impact of Blockchain on the World

The influence of blockchain technology extends far beyond just cryptocurrencies. Here are just a few areas where blockchain can bring about significant changes:

  • Financial Services: The implementation of blockchain can simplify and expedite transaction processes, reduce costs, and enhance security by eliminating the need for intermediaries.
  • Supply Chains: Blockchain technology can provide complete transparency and traceability of goods from manufacturers to end consumers.
  • Voting: The use of blockchain can guarantee the security and integrity of the voting process, as well as streamline and accelerate the counting of votes.
  • Healthcare: Blockchain can ensure secure and confidential storage of medical data, accessible only to authorized individuals.
  • Real Estate: The integration of blockchain can streamline and expedite the process of buying and selling real estate, making it more transparent and less susceptible to fraud.

We are only beginning to tap into the potential of blockchain, and more industries are exploring its application possibilities. This technology, along with Bitcoin, is already bringing about radical changes, impacting traditional sectors and methods. As we stand on the threshold of a new era, it becomes clear that blockchain and cryptocurrencies, such as Bitcoin, are becoming integral parts of shaping the future of society.

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