Lifting the Lid on Blockchain
What is Blockchain?
Currently when conducting conventional banking transactions, a third party is required. Blockchain eliminates the need for this third party allowing users and providers to transact directly.
Blockchain is effectively a decentralised database which is an immutable ledger of transactions or other data that every user on the network can view. The Blockchain is built on computers / nodes which must verify and therefore approve a transaction before it is confirmed and recorded on the chain.
Stuart wishes to send funds to Ben and submits a transaction from his wallet address to Ben’s wallet address. The transaction from Stuart is posted onto the network on a ‘block’. Anyone online on the network can see the block and the first for example 30 people to validate the transaction on that block are confirming that the transaction is indeed valid. At this point the ‘x’ number of confirmations (as defined in the code for the particular blockchain) mean this data is then stamped onto the network and recorded on the ledger. The funds have now been passed from Stuart to Ben.
Each Blockchain uses their own crypto currency which are often referred to by their short code. For example, Bitcoin (BTC), Ethereum (ETH), Ripple (XRP)
Each blockchain has different use cases from Fintech to Anonymity etc – it is important to understand that transferring funds is the primary use currently but the usage of blockchains can be for ubiquitous utility. Some companies even leverage multiple blockchains in one network.
Please note there are over 1500 Blockchains currently active from various tech start-ups each with their own USP’s and are at varying levels of development.
Proof of Work – The blockchain description provided relates to POW where computers on the network use their computing resources to validate blocks on the network. This uses computing power and energy.
Another type of Blockchain exists utilising POS (Proof of Stake) Proof of stake is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. In PoS-based cryptocurrencies, the creator of the next block is chosen via various combinations of random selection and wealth or age. In contrast, the algorithm of proof-of-work-based cryptocurrencies such as bitcoin uses mining; that is, the solving of computationally intensive puzzles to validate transactions and create new blocks. Proof of Stake uses far less energy and computing resources so many tech start ups are moving in that direction.
Why use Blockchain tech?
• Speed of transactions – It’s far faster than BACS or SWIFT – Ripple (XRP) currently works with major banks.
• Scalability – Blockchain can scale as the market does to allow more users to transact seamlessly.
• Volume – Latest Blockchains can process 1000 TPS (Transactions per second)
• Anonymous transactions (if required) for example Verge (XVG)
• Audit trail – Every transaction entered is recorded on an immutable ledger
• Cost reduction – Clicks & Clicks will replace Clicks & Bricks so less need for bank or operational staff. Greatly reduces infrastructure costs
• Fees – Fees are miniscule in comparison to the banks no matter how much you transfer
• Borderless money. Whilst on the blockchain funds have no borders.
• Decentralised – With no fixed server there is no one point for attack. The network is far safer than a traditional centralised site
• Compatibility with Web 4.0 iOT
• Sending funds is the current primary use
• Sending information which also gets recorded on the network. For example: Cardano (ADA) stores scientific info
• As a store of value. Bitcoin was designed as a way of moving funds but has morphed more into a store of value with Blockchains such as Ethereum (ETH) replacing it as a way of sending money from A to B. This is because other providers offer lower fees to send funds than Bitcoin.
• Trading – Digital assets are currently being traded with volumes increasing exponentially.
• There are many use cases beyond just sending funds from A to B.
• The current market cap for all traded crypto currencies is $408 billion
• The current market cap for Bitcoin alone is $149 billion
• Bitcoin rose form ~$4000 last year to $8784 today per BTC
Acronyms & Key Terms
Blockchain = Network (decentralised immutable ledger)
Node = Computer on the network
Super node = Main computer on the network
Block = Data packet on the network containing transactions and other info
Crypto-currency = Digital asset
POW – Proof of Work – The blockchain description provided relates to POW where computers on the network use their computing resources to validate blocks on the network.
iOT – Internet of Things – A future where your TV, Fridge or Microwave may process complex calculations in addition to it’s main function. https://en.wikipedia.org/wiki/Internet_of_things