In order to understand the transformation that has been brought about by blockchain technology, it is useful to start with its largest implementation date. With the maturity of cryptocurrency moving to another level, it has been criticised for its inability to match the performance of the existing payment networks and meet the requirements of financial systems and governments.
Bitcoin has been successful in solving the problem it was designed for, and that is allowing global network to securely transact and exchange value without the need for a costly intermediary. Bitcoin replicates the financial systems ability to transfer value but without any of the labor typically involved in running and securing transactions. Cryptocurrencies like bitcoin and other distributed ledgers are continuing to mature the question would be where might they be applied next?
How Blockchain Works
The following are five basic principles underlying the technology of Blockchain:-
- Distributed Database
Each party on a blockchain has access to the entire database and its complete history. No party controls that information or data. Every party can verify the records of its transaction directly.
- Peer-to-Peer Transmission
Communication occurs directly between peers instead of through a central node. Each of the nodes stores and forwards information to all other nodes.
- Transparency with Pseudonymity
Every transaction and its value are visible to anyone with access to the system. Each node or user on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others.
- Irreversibility of Records
Once a transaction is entered in the data base and the accounts are updated then the records cannot be altered because they are linked to every transaction record that came before them. Various algorithms and approaches are deployed to ensure that the recording on the database is permanent and available to others on the network.
It is not a surprise some of the closer-to-market applications of the technology are in the financial sector. Trading and speculation were early use cases of bitcoin, new technologies such as Ethereum and Zcash providing a higher degree of privacy than bitcoin and Ethereum offering a powerful development platform for smart contracts and decentralized applications to job and energy markets to hedge funds and cloud services.
When the cryptocurrency ecosystem matures, digital wallet providers and exchanges will become more professional and secure.
Some companies such as Abra and Circle are taking advantage of the lower costs offered by blockchain technology for cross-border payments, encroaching in the territory of players such as Paypal and TransferWise and traditional remittances providers.
Ripple is now lowering the cost of transactions between banks and other financial institutions through its global settlement network. In all of the cases, blockchain technology is adopted and consumers and businesses can reap the benefits without ever knowing that s distributed ledger was involved.
Central banks are also actively exploring the opportunities and challenges a fiat backed digital currency would entail for monetary policy, taxation and lending. The practical applications for blockchain technology go beyond financial assets. Any type of digital asset can be tracked and traded through a blockchain.
The immutability offered by blockchain is only useful if the original information entered on is accurate. Blockchain can allow for the costless verification of the attributes it carries, recording those attributes in the first place may require labor-intensive tasks and intermediaries to prevent fraud from happening.
Cryptocurrencies have the potential to change how internet services are delivered (Blockstack, IPFS) and how open-source communities fund their development.