- You must be aware of the term, “Cryptocurrency”. But, are you also aware of the technology on which cryptocurrency runs? The answer for the same is Blockchain? But you may ask, “Why is Blockchain named so?” In simple words, the database that uses blocks to store data is called Blockchain. Since the blocks that store information, form a chain, it is called Blockchain. How does storing information in blocks help? It makes hacking data or cheating and changing the database extremely difficult.
- If you are interested in Cryptocurrency and will like to increase your knowledge of the technology on which it runs, you should read on.
- In this post, we will be covering what Blockchain is, how it works, how it is used, its benefits, and limitations. Let’s get into it quickly as there’s a lot to cover.
What is Blockchain Technology all about?
We are sure you know what a ledger is. Think of Blockchain as a ledger too but a digital one. Easy to understand? It is not at all complex. Blockchain stores information about Cryptocurrency transactions and even Non-Fungible Tokens. What makes Blockchain different from any other database is the fact that it is decentralized and unlike a bank database or an Excel spreadsheet, the Blockchain database is not maintained in a single location. Then how is it maintained? It is maintained in the form of multiple copies stored on many computers (nodes) spread across a network.
How does Blockchain Technology work?
As mentioned above, Blockchain is like a ledger that stores all the transactions made within a system. Once the transactions are made, they are copied and are available on all the nodes across a network. What happens when a transaction is made? When a transaction is made, the data is stored on the particular participant’s block and is made available on all the nodes of the network. This happens when every single transaction is made. You can have access to all the data on transactions on the nodes no matter if you are in Iceland or in India.
Uses of Blockchain Technology
The Blockchain database has many uses. Some of them are given below:
1) Cryptocurrency – Blockchain technology lies at the core of cryptocurrencies like Bitcoin and Ethereum. Do you know when you purchase, exchange, or sell cryptocurrencies, the Blockchain is the place where all the transactions are recorded? Yes, that’s true. The chain will keep becoming longer with each cryptocurrency transaction.
2) Banking – Another use of Blockchain is in the banking industry. It helps in the faster processing of transactions carried out in fiat currency like dollars and euros.
3) Transfers of Assets – Transfers of ownership of assets, especially, NFTs or Non-Fungible Tokens can also be facilitated by Blockchains. Not only this real-estate and vehicle transactions can also be recorded and the transfer of ownership of these assets can also be done by Blockchain.
4) Smart Contracts – Blockchain can also be used for self-executing contracts or smart contracts that come to force automatically once conditions are fulfilled.
5) Monitoring of Supply Chain – Do you work in the logistics industry? Yes? Do you often wonder which vendor supplied inferior-quality goods? With a Blockchain, such a question can easily be answered.
6) Voting – Blockchain can also be used in voting but it is an unexplored arena. Blockchain can automate the voting system while preventing voting fraud.
Benefits of Blockchain Technology
1) Transactions are more accurate – An error made by one node can easily be caught by other nodes in the network with the help of a Blockchain thus reducing errors and making transactions more accurate.
2) Transactions are direct – Blockchains facilitate direct transactions between two parties without the involvement of a third party thus making transactions more time-efficient.
3) Transactions are more secure – Blockchains make it difficult for fraudulent activities to occur as the hacker needs to hack all the nodes and that is extremely difficult.
4) Transactions are more efficient – By using Blockchain that operates round-the-clock, transactions become faster and more efficient.
Limitations of Blockchain Technology
There are always two sides to the same coin. Therefore, let us look at the other side and in this case, the negative side of Blockchain with the help of the following points:
1) The number of transactions per second is less – As you know that each transaction in a Blockchain needs to be approved by all the nodes in the network, therefore, the number of transactions per second is less.
2) Transactions are more expensive – You may ask, “How?” Well, to ensure all nodes work properly and round-the-clock, a huge amount of electric power is needed, which in turn makes transactions using Blockchain more expensive.
3) Chances of permanent asset loss are high – A cryptographic key helps you keep your digital assets in a secure way. But what happens when the key is lost? Well, you may permanently lose your digital assets which is one of the major limitations of Blockchain.
Blockchain as a technology has many advantages but it is at a nascent stage and is yet to be explored. Also, the limitations need to be worked on to make it the go-to technology of the 21st century.