Let’s discuss cryptocurrencies!
Don’t worry, we’re not going to bombard you with all the technical jargon. Our goal is to make this knowledge as fun and interesting for you as possible, so we’ll focus on things that are most important for you to know. So let’s jump right in.
As we all know, cryptocurrencies became the buzzword of last year. Digital tokens (another name for cryptocurrencies) like Bitcoin and Ethereum became popular investment choices for those looking to make some high-risk, high-reward decisions. And many of us quickly jumped on the bandwagon and invested in them without understanding what they are and how they work. But at their core, all cryptocurrencies are powered by a technology called a blockchain.
What is a blockchain?
Simply put, blockchain is a collection of records that are linked to each other. It’s like a digital ledger of transactions that anyone can view and verify, making them immune from manipulation.
They’re made up of huge “blocks” of transaction data that are connected with each other via a “chain.” Here’s what it looks like:
Each block contains 3 things:
Still unclear? Well, let’s take an example.
Suppose you and your friend (let’s call him Ash) go out for lunch. You chat, eat, and decide it’s time to leave. The waiter hands you the bill, but your friend decides to pay the bill while you promise to pay later. (goals right?)
The next day arrives, and you try to pay your share of the bill. But the transaction gets denied – may be due to technical difficulties, transfer limits, or any other reason. This could’ve been easily avoided using blockchain.
How? Let’s say you decide to pay Ash in Bitcoin. In the Bitcoin blockchain, every user has a public and a private key. A public key is basically like your email address (can be accessed by anyone), while a private key is like your password (only known to you).
So here’s how it works:
You want to send money to Ash —> The transaction is represented as a block —> This block is broadcasted to every node in the network —> The network approves the transaction —> A new block is added to the existing blockchain —-> The transaction is complete.
Now imagine this on a much larger scale and you have millions of transactions occurring every second throughout the world. Naturally, you need someone to validate them. This is done by miners, who carry out complex mathematical problems and add them to the network and the first one to do so is rewarded with some coins. In Bitcoin’s case, miner’s receive 12.5 bitcoin. This entire process is known as proof-of-work.
Due to the massive computing power available today, it’s fairly easy to change the hashes of blocks and validate them. But the proof-of-work mechanism slows down this process. For Bitcoin, it takes about 10 minutes to calculate the proof-of-work to validate and add a new block to the chain. So essentially, a blockchain’s security comes from the creative use of hashing and proof-of-work.
But there’s another way to ensure safety. Blockchains are P2P networks, meaning that when someone joins the network, they get a full copy of the blockchain. When a new block is added, each person (or node) receives a copy of it and verifies that it hasn’t been tampered with. Once it gets an all-clear from every node on the network, the new block is added.
So now you can see why they’re so popular. But if that wasn’t enough to convince you, here’s some other key benefits that blockchains offer:
Since cryptocurrency payments don’t ask you to provide personal information, they provide users safety from data theft or identity hack.
Blockchains are global technologies, meaning that they cut transaction times from days to minutes. Additionally, transaction settlements are faster since it doesn’t require verification by a central authority.
Since every transaction on the network is published in the open on the blockchain, everyone can scrutinize and verify them. This leads to a greater level of transparency, leaving no room for transaction manipulation, altering money supply, or adjusting the rules mid-game.
What does the future look like for blockchains?
While blockchain technology is still relatively new and developing, it has wide-ranging applications that can potentially change the way we live. Experts even compare it to the potential public internet protocols as HTML had in the early days of the World Wide Web.
Blockchains can provide a secure and cheap way of sending payments, reducing the processing time for bank transfers and reducing verification requirements by third parties.
With blockchain, countries can conduct tamper-proof elections. Citizens would be able to vote digitally, and regulators would be able to ensure that the data is safe on the network.
Supply Chain Monitoring:
Blockchains would make paper-based trails redundant and allow businesses to quickly spot inefficiencies within their supply chains.
The healthcare sector can hugely benefit from blockchain technology as it will allow patients to easily unlock and share their medical data with other providers.