Bitcoin and Blockchain Technology

Blockchain is possibly the most significant technology trend of our time. Blockchain technology is a type of accounting that is used in Bitcoin, for example, to uniquely allocate Bitcoins. Blockchain also solves the problem of double spending. Furthermore, the industry is paying close attention to innovation. Many companies are now building their businesses on the Blockchain, so understanding what the Blockchain is becoming worthwhile.

What Is the Meaning of Blockchain Technology?

First and foremost, blockchain refers to a block chain in English. And that is exactly how you must consider this technology. It is a block database.

Bitcoin is frequently confused with the blockchain, but this is incorrect. True, Bitcoin is built on blockchain technology; however, Bitcoin is a cryptocurrency, not the technology itself. However, Blockchain technology can be applied to many areas of our daily lives other than cryptocurrencies (more on this later). However, because blockchain is so closely linked to Bitcoin, it is natural to explain the technology in terms of Bitcoin.

So, let us return to the blockchain. In Bitcoin, the chain started with the so-called “Genesis Block” (Bitcoin’s first block). Following that, other blocks were and are checked and then chronologically appended behind, resulting in a chain of blocks (blockchain).

What are these “blocks” made of?

A (transaction) history is always present in the blocks. This means that any new transactions are verified and sealed in a new block by the so-called mining process (mining of Bitcoins).

This new block is then appended to the end of the existing chain and includes the previous block’s history in the form of a checksum (similar to the checksum). As a result, the last block contains the entire chain’s checksum, because the previous block internalized the checksum of the block before it.

Is blockchain technology safe?

These blocks are verified using “Proof-of-Work,” after which they are connected to the chain. Proof-of-Work simply means that these blocks have been validated through “work.”

The so-called miners generate this “proof-of-work.” These are simply computers that must solve complex computational tasks in order to prove the blocks (and the information contained within them) with their work. Miners receive bitcoins as a reward for their efforts, and thus new bitcoins enter the market. They are mined through the work of miners, which is why the process of creating bitcoins is known as mining.

The proof-of-work process consumes a lot of power and is thus sometimes criticized. However, the process secures the blockchain. Why? Because the blockchain could only be hacked if someone gathered enough computing power to equal 51 percent of all system participants. With this, the person could then decide that transactions, for example, should be redirected to a completely different account.

This theory is extremely unlikely, particularly in relation to Bitcoin. As previously stated, the power consumption is so high that generating 51% computing power would be so expensive that it would not even be worthwhile.

A 51 percent attack is estimated to cost between 300 and 500 million euros.

Some cryptocurrencies, in addition to the proof-of-work consensus method, use proof-of-stake. (Other options, such as a combination of both, are also available.)

There is no “best” way to validate transactions as of yet. This is due to the cryptocurrency trilemma problem, which is the most serious issue confronting most cryptocurrencies.

Decentralization

As previously stated, all members of this community must validate this transaction history. As a result, there is no centralized authority making decisions about the system. A significant change in our monetary system…

Many problems are solved as a result of this decentralization. Here are some examples:

  • Because the entire transaction history is visible to everyone, security and transparency are ensured.
  • Because there is no centralized authority, the state can hardly prohibit its use.
  • Transaction manipulation and censorship are nearly impossible.
  • It is impossible to spend twice.

There are undoubtedly additional benefits. However, whenever something has advantages, it also has disadvantages. Here are some examples:

Transparency (you can’t tell who owns a Bitcoin account, for example, because there is no name, only a string of numbers and letters, but everyone can see all account activity for every address).

You must incentivize system participants to provide computing power because otherwise,~ no transactions are possible.

The cost of a decentralized system is higher (if everyone is involved in the decision, it costs more than if one decides alone)

Decentralized: represents a peer-to-peer network, or a network with equal participants.

What kinds of “blockchains” exist?

There are two types of blockchains. An open blockchain is one that is publicly accessible to everyone, such as Bitcoin and Ethereum. There is also a closed (private) blockchain, which is only accessible to certain participants. Such private blockchains are especially appealing to businesses because they allow them to protect their trade secrets.

What exactly are “smart contracts”?

Intelligent contracts are referred to as smart contracts. These are contracts that are automatically executed, so the contracting parties do not have to worry about anything else after the contract is signed. Contracts are stored in a programming language, and the code ensures that the contracts are honored. Legal security is thus ensured without the use of notaries. These smart contracts are only possible because of blockchain technology, which was first developed for Bitcoin. Smart contracts enable automatic contracts, i.e. a “if – then” scenario. Ethereum, in particular, is an expert in smart contracts.

  • A simple example based on an internet order using smart contracts:
  • When the package is delivered, the seller can receive payment for the purchase price (The package delivery person confirms the delivery).
  • The process is fully automated and secure.
  • Application possibilities

The blockchain can be useful in areas other than cryptocurrencies. In this context, these are primarily:

Banking

First and foremost, international payment transactions are at the forefront of this discussion. The cryptocurrency Ripple (XRP) and the technology that powers it is particularly noteworthy. In the meantime, Ripple has formed several partnerships with well-known banks that are testing Ripple’s technology, and some of them have even announced their intention to implement it. American Express sees potential in this technology as well. Ripple has the potential to revolutionize cross-border payments globally, according to the business manager for corporate payments (Carlos Carriedo). Ripple makes international payments much more efficiently, much faster, and much less expensive than traditional service providers. So a breakthrough is on the way; whether this is reflected in the price of the coin XRP remains to be seen; after all, this coin is not required for the Ripple technology.

Even securities transactions could be carried out using blockchain technology. As a result, an increasing number of exchanges are considering establishing trading operations on the blockchain. Among others, the Swiss stock exchange SIX is developing a blockchain-based securities trading platform that will be available as early as mid-2019.

Companies that provide insurance

The emphasis is once again on smart contracts. These smart contracts have the potential to make the processing, administration, and documentation of (insurance) contracts more lean and efficient. This efficiency may thus be reflected favorably in the price. In this case, if – then constellations are also possible. If event A (for example, a natural disaster) occurs, the insured receives amount X. Many well-known insurers are already active in this market. Among the pioneers are the largest reinsurer B3i, Swiss Re, and Munich Allianz (among many others).

The Internet of Things (IoT) (IoT)

The Internet of Things refers to the interconnection of physical and virtual objects. These objects communicate and exchange information with one another.

Some may be familiar with the term “smart home.” The Internet of Things is similar, but it encompasses a much larger area. As a result, it is also applicable to businesses, food, pets, and so on. Consider how everything around you is communicating with one another. The toaster, blender, cutlery, bathroom scales, and other appliances are all linked to the internet and exchange data, such as how quickly you eat what. The data is then adjusted, and if you had previously determined that you wanted to lose weight, but the toaster learns via its tracking app that you have already consumed an excessive amount of carbohydrates, it will refuse to toast your bread.

It sounds crazy, and it is, but this is the future, and it is already taking shape. After filling up, your car will pay for the gas, and your refrigerator will order food if it notices that eggs are missing. All this is not only conceivable but already being implemented. First and foremost, of course, the link here to IOTA is interesting, because the cryptocurrency is working on precisely this implementation.

In this respect, the sharing economy is also significant. This is because the combination of smart contracts and IoT could lead to more efficient use of the property. For example, the trend of owning a car is declining; rather, people are renting a car. Imagine how flexible you could be if you rented a car when you really needed it and only paid for it when you really used it. Imagine a world where it is possible to go out and book a car nearby via an app and get around with it. Contract processing and communication of devices are completely automated, you don’t have to worry about anything other than picking the car from the vicinity that suits you the most.

Music industry

At the moment, music services like Spotify dominate the market. But what if you only pay for what you actually listen to? This is how the music industry could be revolutionized if it is decentralized on the blockchain. The path from artist to consumer becomes much shorter. The leaner structures will eliminate many costs. This will make it more efficient and therefore less expensive. The artist sets a price and when the song is listened to, for example, the artist is automatically paid. There are already numerous start-ups working on precisely such platforms.

Travel\sTraveling can be quite annoying when you first have to book the trip, spend hours at the airport, and then, to top it all off, your own data may get lost at the hotel provider or not even be transmitted. So much stress, when the whole thing should be a vacation? This could soon be a thing of the past. The solution to this is blockchain-based e-identity. The whole thing works by storing the identity in the blockchain. This means that your booked trip only has to be linked to your identity and you can go to the airport and identify yourself using a biometric procedure (e.g. fingerprint sensor) (e.g. fingerprint sensor). All further checks are then automated. Does that also sound futuristic? But it has been a reality for some time now, as citizens in Estonia can already apply for this e-identity. Since the blockchain data is unchangeable, no errors can occur when transmitting your data to hotels, airports, etc.

Commerce

A revolution is also brewing in this sector. With the help of blockchain, it will be possible to make the whole supply chain leaner and more efficient. If trade is done on the basis of blockchain, the supply chain will become more transparent and efficient. Some start ups are working on one hand to make the traceability of products as easy as possible for customers. This would also make the products counterfeit-proof. An interesting cryptocurrency in this regard that pursues this goal is VeChain (VET) (VET). The goal is to make sure that the product offered is not counterfeit and that the customer can trace the supply chain. Transparency is becoming increasingly valuable in today’s world. Walmart has also recognized this and is already working on building its trade on the blockchain. The list of potential applications could go on like this. There are more and more areas where Blockchain technology is being recognized and explored. You should let your imagination run wild and you will realize that the technology could find applications practically everywhere.

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