What are Blockchain and Cryptocurrency, and why it is the future?
Basics that you kneed to know in 2021.
Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.
- Vitalik Buterin, Co-Founder of Ethereum
Cryptocurrency is what we hear daily either on news cards or from our friends. A broad audience would also hold some of the cryptocurrencies in their portfolio, out of which Bitcoin (BTC) and Ethereum (ETH) are the ones that steal the show. Have we even wondered what technology drives Cryptocurrency and how do they work? Let’s find out in this post.
What is a Blockchain?
Let’s consider an analogy to explain the term Blockchain better. We all might have traveled by train at some point in our lives. The train is built using the main engine, and several compartments are joined together that work as a team. The engine then pulls up the other compartments together to your destination.
The same is the case with Blockchain. The word can be split into ‘Block’ and ‘Chain,’ which signifies that numerous blocks are chained together. As a definition, Blockchain is a database of blocks that holds transactions in a decentralized manner. It is distributed and considered as immutable when talking with regard to security.
The Blockchain helps store the information in each block that can be easily distributed but doesn’t allow anyone to alter the transactions. Users can not delete or destroy the information already inside the blocks. This concept is known as distributed ledger technology (DLT).
The block we talked about contains three main elements: the data, nonce, and Hash. Data is the information kept inside the block. Hash is an algorithm that produces a unique sequence of characters (32 bytes). A nonce is an arbitrary number generated to ensure blockchain security.
The sequence of characters or Hash gets generated from the value entered in the block. The hash output will be completely different, even with minor data alterations. It ensures security as each block stores the Hash of its previous block. Now you can be confident that Blockchain is the driving force of all cryptocurrencies.
What is a Cryptocurrency?
Cryptocurrency is all digital; it doesn’t have a physical presence and, therefore it is coined as a digital currency. It is used to buy goods and also acts as an investment vehicle. They are a perfect example of offering secure transactions with low fees. The cryptocurrencies are stored in a digital wallet while the transactions happen on a public ledger.
Cryptocurrency harnesses the Blockchain’s technology that differentiates it from traditional currencies. The transactions happening are recorded on the public ledger and allow to maintain the data’s integrity and keep the network secure.
What Problems does Blockchain solve?
Blockchain solves some of the significant issues on the Internet, such as decentralization, transparency, censorship-resistance, security, and many other. It is considered immutable for a specific reason as the possibility of hack is a mere sight.
Decentralization is transferring control and decision-making power to a distributed network. Contextually, this means there would be no central authority. Unlike Banks that pose a risk of a data breach, the databases of Blockchain are spread across the network of computers. These computers (or nodes) have access to every information of the block added since its birth.
Decentralization made transparency possible on blockchain technology. Even if someone is working in Antarctica sitting with the penguins on their side (obviously, it is a hypothetical situation), they can view all the transactions from the blockchain explorers to see the addition of blocks.
Blockchain is known for the security level it provides to consumers. The addition of blocks is done sequentially with the hash and timestamp of the previous block stored in the current block. Hash codes are created by a math function that encrypts the output file. If someone tries to break into the Blockchain, the block would not be accepted, as under checking by other nodes, the hash codes and timestamps would lead to the discarding of such a block.
However, for doing altercations to the Blockchain, the hacker would have to gain access to 51% of the Blockchain’s network. It would require a vast sum of money and resources, resulting in value depletion. Therefore, it is pointless even to try!
Use Cases of Blockchain
The most popular use-case of Blockchain that is familiar with everyone is Cryptocurrency. No wonder why even if we say Cryptocurrency, people often confuse it with Bitcoin (BTC). There are more than 10,000 cryptocurrencies that exist in the market. Even while you finish reading this post, someone might have launched their project into the cryptic space.
Bitcoin stands at the first position in the list of Top Cryptocurrencies by market capitalization. Numerous cryptocurrencies move with the direction of Bitcoin. However, BTC acts as a store of value or as a payment medium. It lacks the real-life use cases that Ethereum and other cryptocurrencies possess.
Ethereum is a decentralized platform known as ‘the world’s programmable blockchain’ that utilizes smart contracts to make transactions. A smart contract is a programmable contract with rules and agreements between the buyer and seller that execute after conditions are met. The concept of smart contracts made way for Decentralized Applications to work efficiently.
Not just one, hundreds of projects utilize smart contracts, out of which significant part is built on Ethereum. Compound, Insta DApp, Opensea are some of the popular DApps that harnessed the power of Ethereum Blockchain. Apart from these, MakerDAO, Aave, Uniswap, Axie Infinity are among the other projects that have made a mark in the crypto space. As a result, more than a hundred billion of dollars is invested in those projects.
Blockchain has revolutionized the way we facilitate transactions with the introduction of cryptocurrencies. It has led to the sudden surge of people entering this space, spreading the market capitalization to trillions of dollars. As we race forward to look at the new ways to leverage Blockchain, the future looks exciting with this tech’s possibilities.
Keywords: Blockchain, cryptocurrency, decentralization, Bitcoin, Ethereum, smart contracts, public ledger, hash.