You must have heard about blockchain technology(I think that’s why you are here) and should be thinking what the hell is blockchain?
Blockchain sounds like a number of blocks chained together, which is what it sounds like. A technology where blocks of information are chained together so no one can hack the information.
So, the questions are,
How does it work?
What are its features?
Are there any drawbacks?
That’s what I’m going to tell you in this article.
Blockchain technology is a decentralized digital database that logs all transactions made between computers connected to a network. It initially served as the foundation for Bitcoin. Since then, it has developed and is now used in a number of sectors, including supply chain management, banking, and voting.
Blockchain is an open and transparent system, with all network participants having access to the same information. We refer to this collection of data as a “blockchain” because it is saved in the form of linked blocks with each block having information related to the previous block. Every block is protected from hacking by a unique piece of code called a “hash,” which serves as the block’s “signature.”
Blockchain technology is crucial because it provides a way to build a decentralized, secure, and impenetrable ledger of transactions. It is therefore the perfect tool for applications that demand security, trust, and transparency.
Supply chain management can use blockchain technology to track a product’s starting point, route, and destination. This assists in tracing the movement of the product through the supply chain and ensures that the goods being sold are genuine and of high quality.
Another example is the voting process. Blockchain technology can be used to create an honest, secure, and resistant to fraud voting system. This would strengthen the credibility of the electoral process and the precision of the results of the election.
Here are some essential features of blockchain technology,
Decentralization: It operates on a peer-to-peer network rather than requiring a central authority.
Immutable: Once a block has been added to the chain, the information contained therein cannot be changed or removed, ensuring a safe and permanent record.
Transparent: Transactions and data stored on the blockchain are visible to all participants, promoting transparency and accountability.
Traceability: Blockchain enables the ability to trace an asset’s history by providing a complete path of all transactions.
Efficiency: It enables faster and more cost-effective transactions compared to traditional systems.
According to Wikipedia, “Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin… [which] made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server.”
So, in blockchain technology, each block in the chain has a cryptographic hash of the one before it, transactional data, and a timestamp. If anyone has to change or hack information in one block, he has to do it with all the blocks of that particular chain.
The network of computers that maintains the blockchain is referred to as nodes. These nodes employ consensus algorithms like proof of work or proof of stake to validate and store transactions. Making it easy to ensure that the data stored on the blockchain is accurate and unchangeable because any modifications to earlier blocks would necessarily require network consensus.
Before a transaction is added to the ledger, it is verified by the computer networks that make up the blockchain. As a result, there is no need for intermediaries or centralized authorities to check the validity of transactions, making the system extremely safe and reliable.
Despite its many advantages, blockchain technology also has several drawbacks that need to be considered. The two main drawbacks include:
Blockchain technology faces significant challenges, especially when it comes to public blockchains like Bitcoin and Ethereum. These networks can only handle a certain number of transactions per second (TPS) at the moment. For instance, the Ethereum network has a processing capacity of about 15 TPS while the Bitcoin network’s approximately 7 TPS.
In contrast, conventional payment systems like Visa can handle thousands of TPS. This means that if blockchain technology is to compete with existing payment systems and gain widespread adoption, it still has a long way to go in terms of scalability.
To address the scalability issue, various solutions have been proposed, including off-chain transactions, sharding, and the use of more efficient consensus algorithms. However, these solutions have not yet received widespread adoption and are still in the early stages of development.
There is rising worry regarding the energy use of this technology due to the resource-intensive nature of many of the consensus algorithms employed in blockchain systems.
For instance, the most popular consensus technique, Proof of Work (PoW), requires a lot of computing power to verify transactions and add new blocks to the blockchain. The nodes, which are these computers, compete to solve difficult mathematical challenges in order to validate transactions and create new blocks.
An important disadvantage of blockchain technology is the amount of energy needed to construct new blocks, verify transactions, and complete existing ones. The estimated yearly electricity usage of the Bitcoin network is around 110 TWh, which is comparable to the energy consumption of Uruguay…(I know it’s a country).
In addition to damaging the environment, this high energy consumption makes it more challenging for blockchain technology to be widely adopted.
Blockchain is a cool technological advancement with its own importance, benefits, and certainly, downsides as well.
Therefore, the real query is,
Is the world prepared for a blockchain system that is more complex than what Bitcoin currently provides?
There were many companies like Amazon, Google, and Facebook in the early 2000s that failed to gain traction for the innovations they offered.
These blockchain startups currently share a common fate.
So, that’s all for this article and I hope you would have liked it. If you have any queries, you can ask me in the comment section.
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