This new revolutionary technology called the blockchain allows businesses the ability of transparency through transactions, the first cryptocurrency to use this technology is Bitcoin. The below academy post will cover the pro’s and con’s of blockchain.
What is Blockchain Technology? (yes, again!)
The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. It is basically a distributed database, picture a spreadsheet that’s duplicated numerous times across a variety of computer networks, this network is then designed to regularly update this spreadsheet. Information held on the blockchain exists as a shared database.
This is a way of using the network that has obvious benefits. While the blockchain is store in various locations it keeps the information stored truly public and verifiable.
Steps on How Blockchain Works
Step 1: New transactions are broadcasted to all nodes.
Step 2: Each node collects new transactions into a block.
Step 3: Each node works on finding a difficult proof-of-work for its block.
Step 4: When a node finds a proof-of-work, it broadcasts the block into all nodes.
Step 5: Nodes accept the block only if transactions in it are valid and not already spent.
Step 6: Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepting block as the previous hash.
Below is an example of how this works:
The Advantages of Blockchain Technology
The decentralized nature of the blockchain is what makes them immune to take overs or corruption by centralized entities such as banks and governments. It goes further, while distributing this data across a wide network of unrelated computers and systems also means the blockchain’s ledger is available for anyone to access, verify & audit data and transactions.
Blockchain allows you to record transactions that virtually eliminates human error and protects data from tampering. The data is verified every single time they are passed on from one blockchain node to the next.
Supply Chain Management
This revolutionary technology offers the benefit of trace ability and cost-effectiveness. Blockchain allows for the tracking of goods, their origin, quantity and more. This simplifies processes like ownership transfers, production process assurance and payments.
Peer to peer global transactions
Bitcoin which uses blockchain technology allows for fast, secure and cheap transfer of funds across the globes. While there’s already services like PayPal that processes international payments, they usually have specific limitations.
Users can trust that transactions will execute exactly as the protocol commands and removes the need for a trusted third party.
Lower Transaction Costs
The elimination of exchanging assets through third party intermediaries allows blockchain to greatly reduced transaction fees.
The Disadvantages of Blockchain Technology
Blockchain is Everlasting
Every bitcoin network client stores the entire transaction history, it became as large as 100GB. The more transactions processed on the network, the faster he size grows. In addition to the data being stored, it needs to be downloaded as well.
Miners Provide Network Security
Since the blockchain has miners and giant mining farms built next to power stations, they burn lots of electricity. If only one-thousandth of the current number of miners existed and thus one thousandth of the electric power was consumed then bitcoin would still be as good as it is now. Miners also have the ability to produce 51% attacks which allows a miner with 51% of hash rate (mining power) to basically rewrite, write and remove blocks within the network.
Since blockchain is stored on each network node, then special services or authorities cannot shut down Bitcoin because it’s decentralized and has no centralized server.
When a transaction is being processed to does everything, a centralized database does but it has 3 more things that hinders its performance.
All transactions made on the blockchain network needs to be signed using a public-private cryptography scheme called Elliptic Curve Digital Signature Algorithm (ECDSA) which in short offers digital signature generation using elliptic curves parameters. This is necessary because transactions propagate between nodes in a peer-to-peer fashion. The generation and verification of these signatures are computationally complex. In centralized databases, once there is a connection there is no need to individually verify every request that comes over it.
In a blockchain, effort must be expanded in ensuring that nodes in the network reach consensus. Depending upon the consensus mechanism used, this might involve significant back and forth communication and/or dealing with forks and their consequent rollbacks.
Since the blockchain has many nodes whereas centralized databases process transactions once or twice, the blockchain must process independently by every node in the network for the same end result.
Part 3 will be linked here when available.
The answers to these questions, will be posted on the bottom of the page of the next page in Cryptolume’s Crypto Academy. Feel free to save them on a notepad, or keep them in your head until you go to the next step.
Question 1: You can change blocks in the Blockchain if you have 51% of the mining power.
Answer with True/False
Question 2: The authorities can shut down a Blockchain network if they deem it to be illegal or shady.
Answer with True/False
Answers to Part #1:
Question 1: I can undo my transaction if I send someone Bitcoin by mistake.
Question 2: A centralized system can take control of my information whenever they please, if they wanted to.
Question 3: You always share your private key, you keep your public key safe.