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What is Blockchain?
In 2017, a new form of currency and heated topic came to light, Bitcoin. Soon after its emergence, Bitcoin turned into the most invested in and discussed topic. It was considered to be a future form of digital currency. Investors and debaters understood the basics of how Bitcoin operated, however, the system behind Bitcoin was unclear. Bitcoin, alike many other cryptocurrencies, uses a system called Blockchain. What is Blockchain? How does Blockchain play a role in cryptocurrency?
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According to Bitcoin.org, “The block chain is a shared public ledger on which the entire Bitcoin network relies.” For example, imagine an iron chain full of square blocks, each block is bind by a transaction between two parties. The blocks are added one after another in chronological order. Within this block, information from both participants is contained. Once the transaction is made, it will be displayed for the public to view. Additionally, blockchain.com provides a list of every transaction that is made, and it can be accessed through this web address: https://www.blockchain.com/explorer.
Blockchain plays a role in cryptocurrency by allowing consumers to be able to process a transaction without revealing their identity. Through the blockchain system, each transaction is secured and documented. Once a transaction is made, it is shared with the public. Which means, anyone who has internet access and can operate a computer will be able to see this transaction. Although it is public, one’s identity will not be revealed to the world, only the transaction is shown between two parties. Blockchain is a much more complicated process than a regular transaction. Nonetheless, it has its own way of operations and keeps on enabling consumers to shop till they drop.
Overall, Cryptocurrency made quite a big impact in 2017 with a new and secure form of transaction through Blockchain. In the near future, there is a chance that this form of currency could replace traditional paper money. Since blockchains allow everything to be shown on a record, it could allow users to feel more assured when purchasing an item. Although it is quite a complicated and fairly new process, it holds for a possibility with a future of security without secrecy.
For many years, business is being conducted through an action of swiping a plastic card or a valuable piece of paper. Although, this was not how money had begun. The first transactions between two parties were through bartering. “In fact, bartering was the way people exchanged goods and services from the earliest days of human beings on Earth. If you grew rice, for example, you could trade bags of rice for the other goods and services you needed” stated Metropolis.com.
However, this method was not always feasible. One party might believe that their product is worth more or there isn’t someone to trade with what is need. Therefore, caused a transition to commodity money. Commodity money is a development after the inefficiency of bartering. Commodity money value comes from precious metals such as copper, silver, and gold. Eventually, societies adopted the use of paper money, or fiat money, and credit/debit cards for transactions.
The creation of blockchain initiated in 2008, by Satoshi Nakamoto, to serve as a ledger for Bitcoin. Bitcoin first value was only at $0.008- $0.08 when it started. Within just five days, the price was shot up by 900%. Although unknown to the majority at first, it has finally grabbed interest worldwide when their value skyrocketed to an amount as high as $19,000 in December 2017. Thus, raising the question how can this money be used and who will accept it? To public understanding, this was a form of currency without government regulation. It has no central monetary authority. “Rather than relying on a central monetary authority to monitor, verify, and approve transactions and manage the money supply, Bitcoin is enabled by a peer-to-peer computer network made up of its users’ machines” (Gupta). Many were intrigued by the idea of spending without being watched over while others believe that this form of currency will not last.
The transactions will be solely relied on trust of both individuals. While cryptocurrency could be a new and improve ways of money, it carries along many problems. With a central authority, there is a fixed value that can be used to exchange for service and product. Additionally, the government have the power to help prevent various economies downfall and recession. Will bitcoin be able to produce the same safety net and preventions if there is a failure? Would this be a reliable option for consumers to spend? The most vital question is that, is this a safe method?
Security is one of the most important factors in today’s world. Whether it is the safety of our family to the safety of our identity and financial. Our world has very much developed and transitioned since the development of the internet, the World Wide Web. Our information is stored on a realm that we truly do not understand. Although blockchain serve it purpose, can we truly trust this system? There are various limitations and issues to Blockchain.
Blockchains demands for a massive connection of end users. If a blockchain is unable to maintain a strong contact with an extensive issued grid of crossing, it will be harder to receive the whole advantage. Blockchain has made cryptocurrency more conventional, but, the extremely restricted program is not anything for a starter. Fortunately, there are courses and classes to being made for anyone who is interested in understanding the complicated system.
One of the major disadvantages that have been found in blockchain technology is its low throughput. “Blockchain refers to a single-state database that disseminates the same information concurrently to all connected parties. Like any database, the processing power of a blockchain is based on how fast it can move data around” (Aranda). The system can only process information for a limited amount of time. For example, Bitcoin can run about 7 transactions every second.
Another major problem that was discovered is something called the 51% attack.” A 51% attack is a potential attack on the bitcoin network whereby an organization is somehow able to control the majority of the network mining power (hashrate),” explained by learncryptography.com. In simpler terms, it is a feasible idea that any miner who has greater control can alter the blocks that’s already in place. This shows that users are prone to being attacked.
Unfortunately, there is no simple way to prevent one of these attacks from affecting the network. Due to the fact the system is decentralized, miners could get together and collaborate with each, building a sufficient amount of power to produce the hash rate they require. Although there are chances of being affect by the 51% attack, the attacker would require a tremendous amount of resources to be able to execute such an attack.
With all these characteristics of Blockchain one has to ask a vital question of, what are the cost to maintain this system? Blockchains promise to reduce cost of transaction and revolutionize business and companies. However, what is the cost to keep the system in place? How much data will be needed and where will those data be kept?
For example, iCloud, each iPhone owners are given an amount of free data storage space on their phone upon purchases. Photos, contacts, and documents are kept on a cloud for its user to access anywhere and anytime with an internet connection. Thus, allowing the user to have quick access to information in case they have forgotten an important document at home. Once the storage is completely full, the user is urged to subscribe to a monthly subscription to continue adding more information on the cloud. Currently, there are millions of transactions being processed through blockchain. These transaction does not just come from Bitcoin. Transactions can come from Litecoin, Dogecoin, Ethereum, and etc. Basically, any form of cryptocurrency.
Will Blockchain eventually run out of storage with every transaction that will be add in? As of right now, there are quite a huge amount of data to be consumed. Bitcoin right now is storing at approximately 130 gigabytes, which is bound to increase in the near future. Not to mention other forms of cryptocurrency adding on the that data. Digital currency is increasing every day, and this means that the demand for data space will be increasing as well. Although, a computer has lots of memory to handle this. Transactions are stored in the form of blocks. Perhaps in ten years, there will be better storage technology that will be able to handle all those transactions going through.
Blockchains are in the process of improve their storage by utilizing decentralized data centers. “This new mechanism for storing data on a decentralized network makes use of the unused space on people’s devices across the world to store files. Two of the biggest blockchain projects involved in blockchain based cloud storage are the Sia Network and Filecoin. They work by encrypting and distributing the files across a decentralized network. This way security is enhanced because no central authority has access to the keys needed to decrypt the files, “(Sharma). This shows that the issues with data storage can be alleviate with the right care and technology. Although, with this new technique it will require a significant amount of time before societies can truly be fully digitize, if it the idea are widely accepted.
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IBM is one of the biggest believers in Blockchain technology. They believe that blockchain is the future of currency. An IBM study consists of over three thousand executives shown that there are at least 80% are planning to use or has already adopted the use of blockchain their daily business activities. IBM has also been using blockchain to develope and research method for a new secure digital interaction. Changing the fundamental business processes along the way.
According to IBM Research, “IBM researchers are using blockchain to move transaction information dispersed between parties onto one distributed ledger visible to all involved. The outcome: a significant reduction in the number of disputes, dispute cycle time and more productive use of working capital.” Nearly 44,00 lines of code that was created by IBM were made available for Hyperledger Project. Hyperledger Project is an open source that make use of collaborative effort to furthermore enhance the blockchain industry.
Through Hyperledger, transactions are “ensure the transparency, longevity, interoperability and support required to bring blockchain technologies forward to mainstream commercial adoption.” stated Hyperledger.com. This adoption could forever change the way society use money. In order to implement a new and intricate forms of currency, this would mean fiat money would have to be recollect. This is not a simple operation.
To collect all the paper money that have been distributed would require an outstanding amount of time. As a country, we do not know how much fiat money is floating around the country. Not to mention that in those amounts, there are money that could have been taken overseas and into another country. Additionally, there are will be conflict that will be rising between countries. Money exchange rate would be thrown into the chaos. How will we put a value on the amount that can or cannot be exchange? What about business with other countries? In order for Blockchain for perform at its fullest potential, it will require an agreement between various business.
Such technology has never existed before and it can improve any business that pool any form of data. Blockchain technology has the potential to evolve almost every business in the world. One of the most ask questions is, what can be bought with this form of cryptocurrency?
A lot can be bought through the use of cryptocurrency. From something as small as a little to a house. In 2017, a man name Peter Saddington, reportedly bought a Lamborghini. What surprising was that the man only spends a total of $115. How could have this happened? Saddington is a career entrepreneur who invested his money in Bitcoin when it was only $2.52 for one coin. After his investment, Saddington did not give much of his attention to it because it was fairly new, and he didn’t believe there was much potential to the coin.
Saddington then again checks in later in 2014 to see if there are any changes and came to his surprise, the value of his Bitcoin has skyrocketed. Instead of cashing out to fiat money, Saddington decided to keep it in Bitcoin form. In a YouTube video, Saddington explained his process of a lucky investment of how he was about to purchase a luxurious car by only spending $115. After the fortunate encounter, Saddington claimed that he will be a supporter of Bitcoin.
Since Saddington successful purchase, many more bitcoin owner ventured out to claim their own luxurious car. Quite a few car dealerships caught up with change and decide to accept Bitcoin as a form of payment as well. Santos stated that you can now buy “Food, clothes, houses… You can buy almost everything with Bitcoin by now, even cars. Yes, cars! And we’re not talking about little toys you can collect; we are talking about real cars.” Bitcoin can now buy cars in at a dealership in California, Dallas, Kansas, and all the way in Melbourne, Australia. Additionally, there are websites that offer the same service as well.
If buying car through Bitcoin is possible then that means that soon many other things could be bought as well? Would bitcoin be able to buy groceries? It is possible to use Bitcoin to buy groceries, however, it would have to be through gift cards. Big industry such as Walmart, Kroger, or Target will not be adopting Bitcoin as a form of payment anytime soon.
Another tremendous transaction was also made in 2017. A man had bought a house by using Bitcoin as payment. The seller, unknown, unintentionally made a approximately $1 extra when he decide to buy a house that was worth roughly $4 million. At the beginning of the purchase, Bitcoin was value at $750 per coin. Near the end of the purchase, Bitcoin value then raised to $1000 per coin. Ultimately, the buyer was left with an extra 25% of the money.
The remaining amount was enough for the unknown buyer to purchase a luxuries car at Newport Beach in California. Investment in Bitcoin will always be relying on luck. These incident shows that at the right timing, an individual can receive more than expected. The value will never be stable to determine whether one item is worth a specific amount. In the previous transaction, the buyer ends up making profit while the seller had a loss instead.
If this is how business will be run in the future, how can it be guaranteed that one will benefit in a contract? Business are conduct with the intention of profiting. Through blockchain, Bitcoin can provide transparency but what about profitability? From what scale will the value of Bitcoin be based on?
As shown throughout essay, it takes a great amount of innovation and refining for more than half a century in order to make Blockchain possible to be put into use. Putting these advancements together into a coherent applicant was a great achievement itself. This system is not created base on just techniques, but it required a huge amount of complicated mathematical problem-solving skills.
Furthermore, we need to understand that this technology was created because someone saw the potential of a better method to strengthen way to perform business and provide to business needs. More or less, it is an innovative concept to be taken into consideration for a more efficient economy. As society started from bartering then evolved to something much more complicated.
Trust is not that can be given or obtain easily. It has to be earned by consumers and provider. Obviously, there are risk that are yet to be discovered but nothing is perfect the first time around. Blockchain will be challenged and tested in order for it to be adopt. There is always room for improvement in current currency or a new type of intangible currency. Whether it is going to be widely accepted, it is something that can be use in case there is a failure in the current form of money.
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