Cryptocurrency Market From Scratch - Blockchain

Investments in cryptocurrencies are gaining more and more popularity, but at the same time, more and more people are quickly alienated from them after suffering losses. A lot of these losses are due to poor knowledge of the market and too little knowledge about the cryptocurrencies themselves. It is worth getting to know the instrument in which you invest your hard-earned money, which is why we present a glossary of the most important terms related to cryptocurrencies.

Blockchain - what is it?

Blockchain, is a technology that is used to transmit and store information about online transactions, i.e. it is something like a digital ledger of transactions. This information is arranged in the form of successive blocks of data. One block contains information about a certain number of transactions, then after its saturation another block of data is created, and so on.

Most blockchain networks are designed as a distributed and decentralized digital ledger. Simply put, a blockchain is a digital ledger that is basically an electronic version of a paper ledger and is responsible for recording the list of transactions that take place within the network.

The first application of this technology was the launch of the bitcoin cryptocurrency twelve years ago, the value of which is based on computing power. Moreover, the terms blockchain and bitcoin have long been (incorrectly) used interchangeably. When entering the world of cryptocurrencies and blockchain technology, it is important to understand the differences between these terms. Bitcoin is the first cryptocurrency ever created, and by the way, it is also the most famous and media cryptocurrency.

Available to everyone

Blockchain allows anyone to “own” the entire database of the system, thereby creating a distributed and decentralized ledger. Thanks to this solution, it is impossible to modify data, remove or add false information. A good example is Wikipedia, which is known to everyone. We all have easy access to it, and every slightest trace of modification remains saved - with the difference that the "administrators" of the blockchain system are all its users at the same time. So you know exactly when, who and how the content on each subpage was modified. The whole strength of the system lies in the trust in the technology that is its engine. Moreover, it is not a secret algorithm stored somewhere in highly guarded server rooms in the USA, but in a completely open source code that can be analyzed and checked by absolutely anyone with an average knowledge of software development.

The using

Any type of transaction can be stored in blockchain technology.

Currently, blockchain technology is used to handle various commercial and financial transactions, but they also support e.g. trade or the electricity market. In the last one, blockchain is used to settle energy purchase and sale transactions between its small producers, e.g. households, and their customers, energy recipients, as well as dispersed e.g. electric cars. These transactions can take place outside the system that has been functioning for centuries - without the participation of public trust institutions, directly between the parties to the transaction.

Future of Blockchain

Blockchain technology can play a huge role in the economy and contribute to the development of the economy. The financial industry was the first to recognize the potential of blockchain.

In 2015, the R3 consortium was founded by banks and FinTech companies, whose goal is to develop blockchain technology.

Stopping only on the financial application of blockchain technology, we can talk about an extraordinary solution that strongly revolutionizes the existing order established in the economy. The growing importance of the blockchain may lead to a redefinition of the concept of trust, which until now was based on the authority of the institution, and will now be based on the strength of the cryptographic algorithm used in the system. It is difficult to say unequivocally whether such optimistic moods related to the development of blockchain technology will turn out to be correct.

Strengths and weaknesses

Like everything, blockchain has its strengths and weaknesses.

The advantages can include:

• Because data in the blockchain network is most often stored on thousands of devices as part of the so-called distributed network of nodes, the system and the data itself are highly resistant to technical failures and attacks.
• Once data is recorded on the blockchain, it is very difficult to remove it from it or change its values. It is thanks to this feature that blockchain is identified as a great technology for storing financial records or other data where transparency is required.
• Blockchain eliminates the need for so-called intermediary, because transaction verification is handled by a distributed network of nodes in a process called mining

However, the decentralized nature of blockchain technology also brings some disadvantages. For example, compared to traditional centralized databases, blockchain networks have limited performance and require significantly more memory resources to function properly.

Another disadvantage of blockchain systems is that once data is added to the blockchain, it is very difficult to modify it. While data durability is one of the benefits of blockchain, it doesn't always turn out to be a good thing.

Despite the disadvantages, blockchain technology has some unique advantages and will definitely stay with us for longer. There is still a long way to go before both us and the entire blockchain community to finally adopt the technology to the so-called main stream. What is important, however, in an increasing number of industries, there is a noticeable increase in interest in technology and dealing with its advantages and disadvantages. The coming years will probably result in a large number of experiments on the part of both companies and governments.

Source: Omid Malekan „The Story of the Blockchain: A Beginner's Guide to the Technology That Nobody Understands”, Daniel Drescher „Blockchain Basics: A Non-Technical Introduction in 25 Steps”