Crypto or Blockchain?
Updated: May 21, 2020
Development in blockchain technology (and let’s face it, a massive Bitcoin rally!) has drawn all manners of varied attraction towards itself, and rightly so. Its recent advances have found multiple applications outside of the financial sectors. Many altcoins are looking to incorporate blockchain technology within inconsistencies in fragmented markets ranging from Land Registry to Sports Betting. Some looking to solve an industry wide problem, some trying to get rich quick (and quite a few succeeding in either objective). Written by themarketace an online marketing agency.
Blockchain, or distributed ledgers, is a technology that allows users to securely and efficiently make transactions or communicate among multiple counterparties while maintaining an anonymous identity. The name blockchain is derived from string of secure “blocks” that store all transaction within a “chain”. All transactions are processed and maintained through a (Blockchain) ledger. These ‘transactions’ can be a transfer of money, documents, information, or better yet – anything that can be digitised. As transactions are stored in an immutable manner, they cannot be later retroactively altered with altering all of blocks that have followed. Whilst keeping the identities of these counterparts anonymous, the ledger is shared and public. Information can be added however never removed. Data is not stored centrally, and as such, no single user has access to all data around the transactions.
Every individual miner, or chain node, has its own copy of the entire blockchain allowing for complete transparency and incorporating the idea of cryptography. Cryptography is used to verify every transaction and no information can be added before agreement across the whole blockchain; it is possible for users to see the complete transaction history on the blockchain. Being an immutable database, in theory makes it secure as there cannot be any duplicates or changes in overlaying information without leaving a digital footprint. A transaction over the blockchain can also be termed as a ‘Smart Contract’. The ledgers are reviewed and policed by every member of the network. Any change in the chain is either agreed and recognised by all members of the chain, or it is rejected.
Due to frequent database replication there will always be a high standard of data quality. In addition to vastly improved technology and security it is important to bear in mind that with no middlemen to impose uncompetitive fees, transactions are significantly less expensive than transitional means. All that is required is two sides to a transaction.
A transaction over the blockchain can also be termed as a ‘Smart Contract’. Smart contracts sit on top of blockchain technology. They are lines of code to execute a specific function, whether it be to buying or selling, a written agreement, or something more complicated. A simple analogy for smart contracts is the use of a vending machine. Rather than using a local corner store to buy some candy, you can go to a self-servicing machine, you simply pay, enter your selection and pull the candy out of the machine. Smart contracts work in a very similar fashion. Funds are released from your digital wallet, a predetermined function is run, and the output is confirmed and observable to all participants on the blockchain. The contract itself is maintained by an algorithm so as to ensure its execution and decide the outcome, whether it be the transfer or receipt of funds, transfer of documents, or even in future, the legal exchange of assets. The immutable nature of the blockchain means that the flow of sensitive information remains secure and inaccessible to those that are not privy to it.
Monies can be exchanged over blockchain through the use of digital currencies or cryptocurrencies. Crypto currencies are created for use on blockchain in place of the currencies used in everyday life. Crypto currencies such as Bitcoin, Ethereum, LiteCoin and Ripple have been widely covered in the media. Unlike fiat currencies that are issued by a central bank or government entity, cryptocurrencies are entirely decentralised and operate only on the blockchain.
Blockchain is widely misunderstood. Some view it as a get rich scheme (undoubtedly associating it with Bitcoin and all the google adverts – “this stay at home mom makes $573,943 a month” – quite a specific amount of earnings!), while institutions are employing it to remove middlemen to various transactions. Many custodian banks have some form of investment within the space widely to reduce the notorious trade settlement cycle. Anything that requires true WORM (write once read many) storage is ripe for the taking. Doubts still remain though over security.
With the rise of Bitcoin, many e-wallets were known to have been hacked. Some might confuse this with the security of the underlying technology itself. That is synonymous to dropping your Ted Baker wallet and walking in to their store demanding uncle Ted replace all your money and cards therein (although thinking of, I should try that and see how it goes).
I do believe there is much more to understand and gain from Blockchain and its applications. It could however be the next Michael Jackson, maybe the world isn’t yet ready for you..