Cryptocurrency, is a common term heard nowadays whenever the term of digital money comes. So, let’s first understand what does it actually mean.
Cryptocurrency is a digital currency or asset that are secured by cryptography which can’t be simulated or copied. We can also say that it is a digital payment system which has no dependence on banks for any kind of verification or processing of transactions. If we look at the number of cryptocurrencies currently available, it would count more than 2,000. Some of them are listed below:
So, now we have knowledge of what cryptocurrencies are, let’s now learn about the technology that helps us work with cryptocurrencies. The main technology behind these cryptocurrencies is blockchain which is basically a decentralized and distributed ledger that keeps track of digital money and is open to everyone and the data once stored in it can’t be changed.
Blockchain is basically a type of database that keeps track of all the data of assets related to the transactions of these cryptocurrencies. The blocks in the chain consist of information about the transactions and whenever a new transaction is done, it is then added to the series. These blocks consist of sections for storing the data, as data, hash, and the hash of the previous block. The data that is stored in the block mainly depends on the type of the blockchain that is used. Like if we’re taking the data of a transaction, then it’ll consist of the details of the sender, the receiver and the amount that is transferred.
The block also contains the hash. The hash value for each block is different just as the address in the memory. Every file has different memory address, no two files contain same address. So, the hash tells the identity of the block and its contents, which is always unique. Also, whenever a change is done in the block, it’ll probably result in the change of hash of that particular block and if the hash value of the block changes, the block doesn’t remain the same. The third type of information stored is the hash of the previous block. It is the only element that helps to create the chains of blocks and make this technology more safe and secure to use. It is cryptographed so that no one can enter into the data and misuse it and only the concerned person is able to do the required operations on the blocks.
The concept of blockchain was first introduced by Satoshi Nakamoto in 2008 to use the cryptocurrency bitcoin. Its invention led to the solution to the use of digital money without the interference of any authorized member. The blockchain database is managed using a peer-to-peer (P2P) network. It ensures that there is no double-spending, minimizing frauds through confirming that each value is being transacted or transferred only one time.
HOW BLOCKCHAIN HELPS IN USING CRYPTOCURRENCY?
Blockchain is the most used technology in cryptocurrencies and cryptocurrencies are the digital currencies just like cash that could be used to buy goods and services. Also, the amount can be transferred from anywhere to anywhere in the world. This technology also helps to make faster and remote payments, doesn’t matter in which corner of the world you are. There is no interference of any official and verified bodies in the operations of these digital currencies. This is so because cryptocurrency uses blockchain that acts as public ledger and an enhanced cryptographic security system that keeps online transactions recorded and secured.
There are some companies who are already working on this tech and have included compulsorily, which are Walmart, Unilever, Siemens, IBM, and others. In fact, IBM has formed its Food Trust blockchain so that the food products could be tracked to reach their respective locations.
Blockchain is mostly used in recording the transactions of cryptocurrencies, out of which Bitcoin and Ethereum are the most common networks being used nowadays. Just like other cryptocurrencies Bitcoin also use cryptography to perform a valid transaction. Bitcoin owners get a password generally specified as private key to access their account, through which they can keep track of their balance, incoming and outgoing amount, etc.
Since, it is the best technology that is being used everywhere in the world of digital currency (cryptocurrency), but have you ever thought about the trust and security issues it’ll have? Everything in this world has some fault in it, be it 0.0001%, it still causes some problems. When we’re talking in case of money and technology, it results in a big issue that becomes difficult to resolve.
Blockchain has a higher security system that’ll be harder to break through for any theft or frauds to make, as each block has its own unique identification number corresponding to individual owner. Blockchain technology allows decentralization of the members over a distributed network and a single user cannot change the record of transactions.
It is very difficult to hack a network created using the blockchain technology, as the data is not stored at a single node, but distributed over a large network of nodes (computers), where the records are verified at a particular time difference.
Also, all the nodes or blocks are interconnected through the hash code, so if any hacker tries to access any of the block and changes its data, the hash code will change that will disconnect the chain, eventually, users will be aware of the hacking. So, we can conclude that it’s difficult for a hacker or similar person to get into a system of blockchain network.
ADVANTAGES AND DISADVANTAGES OF BLOCKCHAIN TECHNOLOGY
Let’s first dive into the benefits that Blockchain provides us.
Blockchain is an open-source software that can be used by anyone and its source code is available to everyone, which tells us that there is no single person or authority that controls this. Also, it is a decentralized, distributed ledger that allows all network users to access and view the same information at the same time.
- Secure Transactions
Whenever a transaction is held, it is verified against the blockchain network. All the users in the network hurry up to check all the details of the related transaction and as soon as they find it to be correct, a block adds up to the existing series of blocks with the assigned hash code, also storing the hash value of the previous block. So, it’s very secure to have a transaction of cryptocurrencies using blockchain.
- Cost Reduction
Generally, we all have to pay separately for any extra to be done at the banks or any verified body. Be it a transaction or doing any update, all these operations are to be paid. Here, there is no such requirement as there is no involvement of any third party for the verification.
The transactions can also be triggered after following up the conditions that are required to carry up the verified and secure transaction. In the end, the process will be faster and efficient.
Everything in this world has two faces, a good one and a bad one. We’ve already considered the good points about blockchain, now we’ll go through the problems that are created while using blockchain:
- Cost of Technology
As blockchain saves service costs and other operational costs, but still, it is costly as it requires high computational power to validate and create transactions. This will result in high electricity bills to make sure for the transactions to occur.
- Illegal Activity
The blockchain consists of high security system that can’t be hacked or accessed, but it allows illegal activities and trading on its network. Once, it allowed users to browse the website without being tracked and purchase cryptocurrencies illegally.
- Immutable Data
We’re learning from the beginning that data once entered into the blocks can’t be edited or changed, and if we try to do so, the hash code changes and the block doesn’t remain the same. This becomes the biggest disadvantage of blockchain. What if a person wants to change some information that he/she doesn’t want? He’s not able to remove that data form the block having no privacy.
- Self-centered bank
As blockchain has a decentralized network, so every user involved in it has their own rights to perform the required operations on their account. Every user in the network is provided a separate and unique private key, which he/she has not to share with anyone and if he/she does, his/her account is in danger. Also, if he/she forgets or misplaces the private key, he/she can’t get access to their account.
Let’s wind-up all things that we’ve learnt so far!!!
The blockchain has various concepts that is used for the successful operation of the cryptocurrencies. Also, Bitcoin and Ethereum were the successful crypto that implemented blockchain. Now, it’s been used in various fields where there is the factor of trust without the inclusion of any third party. It is the most secure and fastest technology that could be used for transfer of digital currency until the security code provided to each user is not shared and lost. So, users keep that in mind!!