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A blockchain is a type of database that was invented in 2008. It stores and secures information in sequential blocks. Unlike traditional databases, a blockchain’s contents are not stored on a single server. Instead, a copy of the entire database is recorded and stored in each computer, or node, operating the network. This decentralized setup makes blockchains more secure than traditional databases, which often have a single point of failure.
How Blockchains Work
Blocks of data in a blockchain are chained together by a network of miners or validators. Miners are commonly associated with Bitcoin, where they use powerful computers to solve complex mathematical problems and earn bitcoin as a reward. Validators, on the other hand, post digital asset holdings as collateral in exchange for the right to add transactions to the blockchain and earn rewards in kind.
The validating process can make some blockchains slow compared to traditional databases. For example, the Bitcoin network can process 4.6 transactions per second, while Visa’s rate is 1,700. However, many developers are working on ways to achieve faster processing times, and newer platforms like Solana, Cardano, and Algorand claim to be able to handle thousands of transactions per second.
Why Use a Blockchain?
The decision to use a blockchain depends on the problem you’re trying to solve and how it aligns with a blockchain’s characteristics. Blockchains sacrifice speed and efficiency for security, transparency, and decentralization. They excel at replacing intermediaries in various industries.
For example, in countries with hyperinflating currencies and inaccessible or corrupt banking systems, bitcoin can preserve savings as a decentralized form of money. It doesn’t rely on governments or banks for minting, transfer, and access. Additionally, blockchains can replicate the traditional banking system in a decentralized and permissionless way through smart-contract-based infrastructure.
Another example is the use of non-fungible tokens (NFTs) in the digital art industry. Artists can register their work directly on a blockchain and post it to an NFT marketplace, eliminating the need for dealers. Ownership is verified on the blockchain, and transactions are facilitated through smart contracts. This direct-to-consumer approach increases artists’ profit margins and allows them to receive royalties every time their work is resold.
Private Blockchains
While public blockchains like Bitcoin and Ethereum are well-known, private blockchains also have their use cases. Private blockchains are used to upgrade conventional corporate systems in industries like shipping, logistics, aviation, and banking. For example, Maersk uses blockchain technology to track supply chains and process marine insurance claims. Boeing uses a blockchain-enabled air-traffic-control system to communicate with and track drones. Honeywell maintains transparency with blockchained aircraft records. These private blockchains offer increased security and transparency without the need for decentralization or tokens.
The Future of Blockchain
The future of blockchain is still uncertain, but there are several developments that give us insight into what it may look like. The public blockchain industry is working on improving speed, efficiency, interoperability, and user interfaces for decentralized applications. Over time, blockchains will become better and faster.
There are also parallels between blockchain and the early days of the Internet. Private blockchains can be compared to the concept of an “intranet,” and it remains to be seen whether public or private blockchains will prevail. Additionally, blockchain tokens are subject to speculative bubbles, much like the dot-com bubble of the early 2000s.
In conclusion, blockchain is here to stay. It offers security, transparency, and decentralization, making it suitable for various industries. Whether it’s replacing intermediaries in financial transactions or revolutionizing the digital art market, blockchains have the potential to reshape our daily lives in the near future.
Note: This article is for informational purposes only and should not be construed as investment advice.
