What is Blockchain?
At its core, blockchain is a distributed digital platform
that stores data of any kind. Blockchain can record information about
cryptocurrency transactions, NFT ownership, or smart Defi contracts.
While any normal database can store this type of information, the blockchain is unique because it is completely separate. Instead of being stored in a single location, the central administrator — think of an Excel spreadsheet or banking website — has many identical copies of the blockchain website hosted on multiple computers distributed across the network. These individual computers are called nodes.
How does Blockchain work?
The word blockchain is not in error: A digital book is often
defined as a “chain” composed of “blocks” of individual data. As new data is
periodically added to the network, a new "block" is created and
attached to the "series." This includes all nodes updating their
blockchain ledger version to match.
How these new blocks are made is key to why the blockchain
is considered so secure. Most nodes must verify and verify the validity of the
new data before a new block can be added to the block. With cryptocurrency,
they can be involved in ensuring that new transactions in the block are not fraudulent,
or that the coins have not been used for more than one season. This is
different from a private website or spreadsheet, where one person can make
changes without being monitored.
“Once a consensus has been reached, a block is added to the
series and sub-activities are recorded in a distributed book,” C. Neil Gray, a
partner in the fintech practice centers at Duane Morris LLP. "The blocks
are securely connected, forming a secure digital chain from the
beginning of the ladder to the present."
Tasks are usually secured using cryptography, meaning that
the nodes need to solve complex mathematical calculations to process
the process.
"As a reward for their efforts to ensure changes in
shared data, nodes are often rewarded with new values ?? in the traditional
blockchain currency, e.g., new bitcoin in the bitcoin blockchain," said Sarah
Shtylman, fintech and blockchain consultant. and Perkins Coie.
Public Blockchains vs Private Blockchains
There are both public and private blockchains. In the public
blockchain, anyone can participate which means they can read, write or view
data in the blockchain. Significantly, it is very difficult to change
transactions embedded in the public blockchain as there is no single authority
that controls the nodes.
The private blockchain, meanwhile, is controlled by an
organization or group. It can only determine who is invited to the program and
has the authority to go back and change the blockchain. This private blockchain
process is very similar to an internal data storage system without streaming to
multiple nodes to increase security.
How is Blockchain used?
Blockchain technology is used for many different purposes,
from providing financial services to managing voting systems.
Cryptocurrency
The most common use of blockchain today is the backbone of
cryptocurrencies, such as Bitcoin or Ethereum. When people buy, exchange or use
cryptocurrency, transactions are recorded on the blockchain. When more people
use cryptocurrency, the blockchain may become more widespread.
“Because cryptocurrencies have not changed, they are not yet
widely used in purchasing goods and services. But that is changing as PayPal,
Square and other financial services businesses make digital assets more widely
available to retailers and retailers, ”notes Patrick Daugherty, Foley &
Lardner's senior partner and lead the company's blockchain team.
Banks
Apart from cryptocurrency, the blockchain is used to process
fiat currency transactions, such as dollars and euros. This may be faster than
sending money through a bank or other financial institution as transactions can
be quickly verified and processed outside of normal business hours.
Property Transfer
Blockchain can also be used to record and transfer ownership
of various assets. This is currently most popular with digital assets such as
NFTs, digital art identity, and video representation.
However, a blockchain can also be used to process ownership
of real property, such as a title deed to a house and car. The two sides of the
party will first use the blockchain to ensure that one owns the property and
the other has the funds to purchase it; then they can complete and record sales
on the blockchain.
Using this process, they can transfer the title deed to the
property without personally submitting the renewal of local government records;
will be updated immediately on the blockchain.
Smart contracts
Another innovation of blockchain is artificial intelligence
contracts often referred to as “smart contracts.” These digital contracts are
automatically created when conditions are met. For example, interest payments
may be made as soon as the buyer and seller have met all of the terms of the
deal.
"We see great potential in the realm of smart contracts
- using blockchain technology and code-based commands to create legal contracts
automatically," Gray said. "A smart legal contract with the
appropriate code in a distributed register can reduce, or perhaps eliminate,
the need for outsiders to verify its operation."
Supply Chain Monitoring
Supply chains involve a large amount of information, especially as goods move from one part of the world to another. With traditional data storage methods, it can be difficult to trace the source of problems, such as substandard goods from the seller. Keeping this information in the blockchain will make it easier to go back and hire a supply chain, such as IBM's Food Trust, which uses blockchain technology to track food from your harvest to your consumption.
Benefits of Blockchain
High Accuracy of Performance
Because blockchain sales must be verified by multiple nodes,
this may reduce the error. If one node has an error in the database, others
will see that it is different and catch the error.
In contrast, on a traditional website, if someone makes a
mistake, they are more likely to pass. In addition, all assets are individually
identified and tracked in a blockchain block, so there is no chance of using it
twice (as someone who withdraws more than one bank account, thus spending twice
as much).
No need for mediators
By using a blockchain, two parties to a design can guarantee
and complete something without having to work with someone else. This saves
time and costs to pay the consultant as a bank.
"It has the potential to bring great efficiency to all
digital transactions, increase financial capacity for people without banks or
the world's poorest people, and empower a new generation of online applications
as a result," Shtylman said.
Additional Security
Theoretically, a world-class network, such as a blockchain,
makes it almost impossible for a person to perform fraudulent activities. To get into a fraudulent transaction, they will need to steal everywhere
and change the whole book. While this may not be possible, many cryptocurrency
blockchain systems use methods to verify stakes or transaction proof
transactions that make it difficult, as well as participants' interests, to add
fraudulent transactions.
Most Effective Transfer
With blockchains running 24/7, people can make effective
financial and material transfers, especially internationally. They do not have
to wait for days for a bank or government agency to verify everything in
person.
Blockchain disadvantages
Limit on Activity per second
Given that the blockchain depends on a large network to
allow transactions, there is a limit to how fast it can move. For example,
Bitcoin can only process 4.6 transactions per second compared to 1,700 per
second with Visa. Additionally, increasing transaction numbers can cause
network speed problems. Until this gets better, balancing is a challenge.
High Energy Costs
Having all the nodes that work to verify what is being done
takes a lot more electricity than a single website or spreadsheet. This not
only makes blockchain-based transactions more expensive but also creates a
greater carbon burden on the environment.
As a result, some industry leaders are beginning to drift
away from certain blockchain technologies, such as Bitcoin: For example, Elon
Musk recently said Tesla would stop accepting Bitcoin in part because it was
concerned about environmental damage.
Risk of Assets
Some digital assets are protected using a cryptographic key,
such as a cryptocurrency in a blockchain wallet. You need to carefully guard
this key.
"If the owner of a digital property loses the cryptographic
secret key that gives them access to their property, there is currently no way
to get it back — the property is gone forever," said Gray. Because the
system has been relocated, you cannot call a central authority, such as your
bank, to request access.
Opportunities for Illegal Employment
The division of Blockchain adds extra privacy and
confidentiality, which unfortunately attracts criminals. It is harder to track the illegal activity on the blockchain than with a bank account that goes with the
name.
How to Invest in Blockchain
You will not be able to invest in the blockchain itself, as
it is simply a system for storing and processing transactions. However, you can
invest in real estate and companies using this technology.
"The easiest way to buy cryptocurrencies, such as
Bitcoin, Ethereum, and other tokens works in a blockchain," Gray said.
Another option is to invest in blockchain companies using
this technology. For example, Santander Bank is experimenting with
blockchain-based financial products, and if you would like to get exposure to
blockchain technology in your portfolio, you could purchase its stock.
For a variety of options, you can buy from an ETF that
invests in blockchain assets and companies, such as the Amplified
Transformational Data Sharing ETF (BLOK), which puts at least 80% of its assets
in blockchain companies.
Bottom Line
Despite its promise, the blockchain remains a niche
technology. Gray sees the potential for blockchain in many cases but depends on
future government policies. "It remains to be seen whether regulators like
the SEC will take over and when. One thing is clear — the goal will be to
protect markets and investors, ”he said.
Shtylman likens the blockchain to the first stages of the
internet. “It took about 15 years to get online before we saw the first version
of Google and over 20 Facebook. It is difficult to predict where blockchain
technology will be in 10 or 15 years, but like the Internet, it will drastically
change the way we interact and interact with each other in the future. ”
Barriers still exist, especially in terms of performance limits and energy costs, but for investors who see the potential of technology, blockchain-based investments may be the bet you should take.