When Satoshi Nakamoto released the whitepaper, 'Bitcoin: A peer-to-peer Electronic Cash System' in 2008, it stated in it's abstract, that it is 'A purely abstract peer-to-peer version of electronic cash (which) would allow online payments to be sent directly from one party to another without going through a financial institution'. For Bitcoin to work as mentioned in the abstract without a financial institution, a new technology had to be developed and this where blockchain made its debut.
Blockchain is the technology that runs Bitcoin and other cryptocurrencies. It has developed rapidly over the past few years and is one of today's most significant ground-breaking technologies. It has the potential to impact almost every industry as we know it. This is not only because it is an innovative technology but also because the number of cryptocurrencies are increasing.
How blockchain works
Blockchain is the collection of blocks of data that are all linked to one another through a transaction. The block in the blockchain holds data and connects it with other blocks in chronological order creating a chain of blocks that are linked to one another. Blockchain is a distributed ledger. This means the ledger is spread across the network with all peers, giving them each a copy of the complete ledger.
Due to the security of the blockchain method, many advocates have seized the opportunity of a decentralised, cryptographically secure database that can be used beyond cryptocurrency. The thought is that blockchain, does not only have the ability to replace central banks, but it can also offer a newer way of working online that would be hard to censor.
Global spending on blockchain solutions is set to reach $15.9 billion by 2023.
The advantages of blockchain
1. Heavily distributed
As the data on a blockchain is often stored in thousands of devices across a distributed network of nodes, the system and the data is resistant to malicious attacks and technical failures. The fact that each network node can replicate and store a copy of the database means there is technically not a single point of failure. Many conventional databases rely on a single or few servers which are technically more vulnerable to cyber-attacks and failures.
Blockchain is capable of working 24/7, unlike banks. Transaction validation takes a fraction of a time banks normally take. Some may feel a bit sceptical towards traditional cryptocurrencies, but the rise of stablecoins like Tether and Timvi (TMV), which are aimed at reducing the volatility and are backed by a reserve asset can bring more confidence to the people wondering whether to jump into the crypto-blockchain game.
2. Trust-less system
Traditional payment systems and transactions are not only dependent on the payer and the payee but also an intermediary. This is either a bank, payment provider or credit card company. Blockchain technology lives on a distributed network of nodes as we know, which is what verifies the transactions through a process of mining, totally eliminating the intermediary. For this reason, blockchain is knowns as a trustless system by removing the risk of trusting a single organisation. Using blockchain also reduces the cost of transaction fees by cutting out third parties.
3. Offering stability
The fact that confirmed blocks of data are very difficult or impossible to reverse once in a blockchain makes blockchain technology great for storing financial record and other sensitive data. Once data has been registered into the blockchain, it is challenging to remove or change it. Blockchain provides users with an audit trail. Every change is tracked and is permanently recorded on a distributed and public ledger for all to see.
The disadvantages of blockchain
1. Difficult to modify data
One of blockchains strengths is also its weakness. Once data has entered the blockchain system, it is tough to modify, which is not always a good thing. At times, mistakes are made, and due to the nature of the technology, reversing data it is quite a feat. Changing data or simply de-coding it is very demanding and often requires a hard fork. This is the process of abandoning one chain and taking up a new one.
2. Blockchain private key
In order to give its users ownership over their cryptocurrency units, blockchain uses private-key cryptography. This means that each blockchain address has its own corresponding privet key. The address can is shared amongst the network and people, but the key should remain a secret and only for the user's discretion. This means, like many traditional bank accounts, users will need their private keys to access their funs. The downside to this is that if the user loses their private key, the money is then effectively seen as being lost. At this stage, nothing can be done to claim or get the crypto back.
3. Mass amounts of storage
Overtime blockchain ledgers can become enormous. This means they need lots of room to grow and will take up lost of storage space. Although this does not sound like much of a disadvantage, the fact that blockchain technology is rapidly growing faster than hardware drivers can keep up means there is potential to loose nodes if the ledgers become too big.
The future of blockchain
Despite the attraction to blockchain technology, there still is no clear indication of how technology can be used beyond making payments. The promise is for it to be adopted into many different industries but finding a way to introduce is a steep mountain to climb, which means it will take some time. However, projects such as Facebook’s Libra which is thought to launch in 2020 shows promise for the technology and is a clear indication that it is here to stay.