Bitcoin is the first and best known application of blockchain technology. One could even argue that it was bitcoin that contributed to the global growth of blockchain technology and introduced its benefits to the world. But blockchain is not just about cryptocurrencies.
It is a universal technology that can be used in many different industries. And even though cryptocurrencies are going through a difficult time, the technology is still growing rapidly.
What is blockchain
Blockchain is a database technology that underpins the secure storage and exchange of value online: cryptocurrency, artwork, and other digital assets. Thanks to blockchain, users can transact online without intermediaries.
The technology is unique in that new information can only be added to the blockchain, without the right to change or delete it. The system’s data is not stored on a third-party server, but on the computers of blockchain network participants.
Sound complicated? Let’s explore it from the beginning.
History of Blockchain
The first appearance: protecting digital documents
In 1991, research scientists Stuart Haber and W. Scott Stornetta presented a project that was essentially very similar to blockchain technology. The scientists proposed a computationally practical solution for digital documents with a time stamp. The technology was supposed to protect documents from being tampered with or backdated.
“I was very concerned about the fact that society was highly dependent on record keeping. I began to realize that sooner or later there would be a transition to fully digital document management. I knew how easy it was to make changes to digital records without anyone noticing. Consequently, if we can’t find a way to secure our documents, how can we build any kind of reliable infrastructure around them? So the question I wanted to find an answer to was how to create an immutable record,” says V. Stornetta.
Second phase: Satoshi Nakamoto and the first bitcoins
In 2008, a certain Satoshi Nakamoto published a white paper describing the concept of a peer-to-peer P2P electronic money system. We still know very little about the author of the book: it is unknown if it was one person or a group of people. Several attempts have been made to uncover Satoshi Nakamoto’s identity, but none of them have been successful.
In January 2009 programmer Hal Finney received the first 10 bitcoins from Satoshi Nakamoto. In the following years, blockchain was used mostly for cryptocurrency transactions.
Stage Three: Vitalik Buterin and Ethereum
Blockchain can be used not only for cryptocurrencies, but also for the transfer of other assets, and hence for use in a wide variety of applications. However, creating a blockchain from scratch every time for a new application is inefficient.
To solve this problem, in 2013, programmer Vitalik Buterin came up with Ethereum, a platform on which new blockchain applications can be created based on smart contracts. Smart contracts are digital contracts, an alternative to legal contracts. They exist within the Ethereum system, and their execution is guaranteed by a computer program.
Thus, Ethereum is not just a payment system, but a real “crypto-fuel” that helps companies implement blockchain technology in third-party projects.
The main principles on which the blockchain network is built
Decentralization
The storage of data and control over decision-making is not performed by a centralized entity, but by a distributed network.
Immutability
Data cannot be changed. No participant can interfere with a transaction once it has been entered into the registry. If a record contains an error, a new transaction must be added to correct it.
Consensus
The blockchain system establishes a set of rules by which participants approve transactions. New transactions can only be recorded with the consent of a majority of the participants in the network.
How blockchain works
Step 1: Record the transaction
A blockchain transaction reflects the movement of physical or digital assets from one party to another on a blockchain network.
Step 2: Reaching consensus
Participants in the blockchain network must confirm that the transaction is valid.
Step 3: Bind the blocks
When consensus is reached, transactions are written into blocks. Along with the transactions, a cryptographic hash is added to the new block. The hash acts as a chain linking the blocks together. After that it is impossible to edit them.
Step 4: Updating the general registry
The last copy of the registry is distributed to all participants.
What types of blockchain are there
Public blockchain
Public blockchains are open source. Everyone can participate in them as developers, miners, and users.
Private blockchain
Blockchains where you have to get consent before you can participate in them. All transactions remain private and are available only to members of the system.
Hybrid Blockchain
Blockchain systems where you can control which data will be public and which will be private.
Where blockchain technology is already used
Finance
Blockchain is being used not only for digital currency transactions, but also for processing cash flows in dollars or euros.
Business
Blockchain is not just about digital currencies. From authenticating goods to monitoring all stages of international sales, the technology can be used to track business processes
Law
Securities are stored in a program on blockchain. The technology ensures that no one can discreetly change their content.
Game industry
Development of play-to-earn games that run on blockchain. Players earn tokens by fighting, completing missions, and engaging in trading.
Education
Technology eliminates the possibility of data changes. This guarantees the authenticity of diplomas. For example, one university in Cyprus already stores information about diplomas issued on a blockchain platform.
Real Estate
Real estate transactions are accompanied by a lengthy process of ownership transfer. Blockchain will eliminate intermediaries from this process, speeding up transactions between buyer and seller while keeping the necessary data in the appropriate registries.
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What’s next for blockchain?
The technology is still in its infancy, and there are many potential applications. Programmers are actively working to address the shortcomings of existing platforms. Many companies are just beginning to think about integrating blockchain into their operations.
Experts predict that the market for blockchain solutions will grow to $60 billion by 2024. Much of the growth is likely to come from the financial services industry. Here’s a look at how blockchain could affect our future and why the technology will affect everyone.
Digital passports are coming
More than a billion people around the world have trouble proving their identities. Microsoft thinks this can be changed and is developing a decentralized digital identity system. The corporation proposes to assign each user a unique number that can be used everywhere: for example, in banking operations or when receiving medical services.
The global financial system will change
Blockchain could cut banks’ costs by up to 50%. But if the technology continues to develop at its current pace, its widespread adoption could lead to the elimination of some participants in the global financial system.
Healthcare reforms will take place
Private blockchains will be able to store medical records, prescriptions and medical records. Doctors, pharmacists, and insurers will be able to connect to this blockchain. Thanks to blockchain technology, it will be possible to monitor the distribution of medications and identify counterfeit prescriptions. It will also be possible to monitor the consumption of medicines and research the medical data of the population.
Advantages and disadvantages of blockchain
Like any other technology, blockchain has strengths and weaknesses. For example, one potential threat to it is the “51% Attack. It occurs when hackers take over half of the processing power of a blockchain system. In this case, they can control the system by rejecting and approving transactions.
Pros of blockchain:
- no single center for managing and storing data;
- transparency and openness of data;
- the inability to change the data;
- equality of participants;
- no intermediaries;
- high speed of transactions;
- lower commissions;
- data security and encryption;
- possibility of application in various fields.
Cons of blockchain:
- the high cost of the technology;
- high energy costs;
- lack of regulatory definition;
- poor scalability;
- low prevalence;
- danger of fraud.
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