Wednesday, January 31, 2018

What is Blockchain and How it Works So Far in The Cryptocurrency Market

What is Blockchain and How it Works So Far in The Cryptocurrency Market - Blockchain is a widespread system of records or databases on the network, also called distributed ledger. But what does that mean?

Most of the world of cryptocurrency technologies such as Bitcoin rely on database forms with the advantage of being able to track large and secure transaction volumes. The technology used by many digital currencies is Blockchain.

What is Blockchain and How it Works So Far in The Cryptocurrency Market
Blockchain was first implemented in 2009, and was revolutionized with Blockchain 2.0 in 2014. Blockchain technology consists of blocks that hold transactions, where each block is interconnected through cryptography, thus forming a network.

Along with the development of digital universe, cryptocurreny in the future has become an increasingly attractive proposition in the market and may not have traditional banking infrastructure. Some developing countries in the world have even implemented a Blockchain-based national currency, such as Bitcoin, and the technology is also used by some large charity projects to help those without bank accounts.

The Blockchain system consists of two types of records, transactions and blocks. These transactions are stored together in a block. The unique thing about Blockchain is that each block contains a cryptographic hash to form a network. The cryptographic hash function is to take data from the previous block and convert it into a compact string. This string allows the system to easily detect the existence of sabotage.

With that method, meaning that each block does not need to have a serial number, the hash allows each block to verify its integrity. Each block will confirm its validity from the previous block. Block association is not the only thing that keeps the network secure. This technology is also decentralized, every computer with installed software has a copy of Blockchain that is constantly updated with new blocks. There is no centralized server that holds the transaction, and since each new block must meet the requirements in the chain or network, then nothing can overwrite the previous transaction.

Other transaction requirements, which can be used to specify valid entries. In Bitcoin, for example, a valid transaction must be digitally signed, and must issue one or more unused outputs from the previous transaction, as well as the amount of transaction output can not exceed the number of inputs.

Blockchain also has the potential to be used outside the scope of digital currency, and attracts the interest of many traditional financial institutions to adopt.

Comparison of Traditional Systems With Blockchain
I am sure you can find many definitions of blockchain on the internet, so I will try to explain the meaning in my own way. Let's compare the traditional system with the blockchain system.

1) Traditional System: Trust With Third Parties

Suppose you buy a cup of coffee at your favorite cafe in the Mall. When you pay, you swipe your credit card on the cafe card machine. Here is a transfer of money from your account to the cafe account. But you know where this transfer really happened? Why can your café believe that your money has been transferred to their account? This is because there is a third party that is trusted by you and your café. In this case, the third party is your bank, or the card network you use (Visa, MasterCard, or Amreican Express). Your cafe trusts the third party.

2) Blockchain System

Blockchain is a system that does not use such third parties. In essence, records of transactions that have occurred, stored by many computers scattered in the network itself. So it would be harder to hack a system of hundreds or thousands of computers, and chances are small for all of those computers to be interrupted at the same time.

So if you for example pay for your coffee using Bitcoin (one of cryptocurrency), Bitcoin for the payment of the coffee is transferred from your Bitcoin address to your Bitcoin cafe address in peer-to-peer. And these transactions will be recorded on all the computers scattered in the Bitcoin network.

What is the largest database of Blockchain?

The popularity of Blockchain exploded in recent years, and gained support in the tech and financial sector. Bitcoin helped boost the popularity of the technology because it is arguably the most widely used in the sector.

R3 recently developed Blockchain-Esque technology that can be used by banking institutions, and in May 2017 managed to raise $ 107 million from supporters such as Intel, HSBC and Bank of America.

Another major player is Hyperledger, which echoes an open-source cross-sector collaboration created by the Linux Foundation to popularize Blockchain-based ledger, with the first generation technology released in July 2017.

Some companies in the field of accounting also say that they are testing Blockchain technology, such as Ernst and Young who has announced its new technology, which is making digital wallets available to all employees in Switzerland.

IBM announced in March 2017 that it will build its own 'Blockchain as a service' offered on the basis of Hyperledger, which allows customers to build secure network blocks.

Earlier this year, the London Stock Exchange also revealed that it was ready to start using Blockchain to increase transparency for shareholding information for unregistered businesses that showed the positive impact of the technology.

How secure is blockchain?

Due to a sophisticated cryptographic protection system, Blockchain offers a much safer experience than traditional banking.

The fact that the technology is decentralized, and can not be changed or edited makes it ideal for financial transactions and storage of vital information.

Blockchain is useful for maintaining user privacy, but unfortunately sometimes this image is considered as the preferred payment method for cyber criminals because the Bitcoin network node does not have to reveal the identity of the person making or Receiving payment.

What is Blockchain 2.0?

When Blockchain grows and grows, companies are starting to think of new applications for this technology. In 2014, 'Blockchain 2.0' was popularized as a general term for this new ecosystem, which sees technology used more intelligently and more advanced. For example a smart contract can process payments when the project is completed.

Blockchain 2.0 has the potential to open technology for use in other industries outside the financial sector. In the music business, for example, Blockchain 2.0 can be used to manage copyright and collect royalties from streaming and digital downloads. It can be used to register assets, manage things like properties, vehicles or machines and introduce the ability to accurately fill in data based on usage.

These are important blockchain properties and should be understood by cryptocurrency investors

1. Open-source and Transparent

It is important to understand that the blockchain code is transparent. If you are a developer who can read blockchain code, you can verify your own code what is written, for example on Bitcoin:

    How much Bitcoin supply at startup (Genesis block)
    What is the rate of Bitcoin inflation (to understand demand and supply)

If you compare it to a common currency of a country (eg US Dollar), which is usually controlled by the central bank (Federal Reserve in the United States), ordinary people like us will never know how much new money will be printed in the future, next year; Or what is the bank interest rate next year. With cryptocurrency, all of these can be verified in the written code.

2. Decentralized / Not Centralized

Cryptocurrency is a scattered system, in which no single person or company controls it. The blockchain code is not located on a central server operated by a company, but is spread across thousands of computers in the blockchain network. You can have your own node, where your computer / machine contains blocks and records of the blockchain transaction.

3. Supply and Inflation Levels Clear (Data Available)

Since the blockchain is transparent, we can know exactly how many cryptocurrency supplies there are and how many will be printed in the future.

Everything in the world that can be sold and bought has a price. And the price of everything is always dependent on supply and demand (demand and supply).

Imagine if everyone in the world has an apple tree that can produce an unlimited number of apples, of the same quality. So the price of apples will be very cheap and maybe even close to 0, because it is useless to buy something that you can produce yourself whenever you want.

Another analogy: Imagine if the Ferrari car company only produces 10 Ferrari special editions in the world. You decide to buy one of those cars at a high price, because it is very exclusive. However, in the next 5 years, it turns out Ferrari decided to produce the car as much as 10 thousand units. How do you feel? And what do you think will happen with the price of the special edition car?