Why is the blockchain important?

in crypto •  6 months ago

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The blockchain permits an endless use case of peer-to-peer(p2p) transfer of value. Nearly instant transactions are used in a system that is essentially trustless and decentralized. Trustless in the sense that you do not have to trust any third party with your assets. In the traditional financial system, a third party is required in order to do anything with money/assets. The blockchain is superior to this because you do not have to trust the 3rd party to keep your information secure. The blockchain does this for you with its immutable, mathematically proven, computationally based ledger.

Transfers of money through these central parties also take an excessive amount of time compared to cryptocurrencies. Bitcoin can be sent from me in the US, to Japan or Australia or Europe etc., in a matter of minutes with extremely small fees. Whereas it costs me $30 to wire money from my bank to an exchange, IN THE US & IT TAKES HOURS.

The problems that arise from the current financial system are less clear in more developed countries such as the US and UK, but at first glance at underdeveloped countries with corrupt governments, or places in which the majority of the citizen are unbanked, impoverished, and unknowledgeable, the need for an upgrade becomes apparent.

How does the blockchain work?

Each transaction is verified by thousands of nodes which run the system, shifting power from a central entity to a decentralized majority. This ensures that the ledger is 100% accurate and that double spending cannot occur. This happens through a majority consensus among nodes. The nodes that verify these transactions are essential to the network.

Each full node on the bitcoin blockchain holds the whole blockchain and is crucial to the sustainability of the blockchain. Without these nodes, the network simply would fail. However, these nodes receive no compensation in comparison to miners who if lucky, receive the block reward. It has often been criticized that bitcoin nodes do not get compensated for running the full node. One could argue that they are equally important as miners.

Blocks are created every x amount of time and the reward distributed is y, this is different for every blockchain and cryptocurrency. For Bitcoin currently, blocks are created every 10 minutes and release 12.5 bitcoins to the miner that solves the mathematically intense SHA-256 puzzle.

These blocks then get placed on the previous block, in a line, forming a chain. So now you see where the term blockchain came from. Once created, these blocks cannot be altered. There is no interfering with the blockchain. That is what makes it immutable. Every node, miner, and participant in the network will then have the same exact copy of the blockchain.

The Fight Against Corruption

If there is a singular node or miner with a false copy of the blockchain they will automatically be seen as corrupt by the majority consensus of the network and thus be forced to adopt the correct copy of the blockchain or be forbidden from contributing. It is this process that makes the blockchain trustless. While not having to trust a central entity, the computers are all cryptographically linked and achieve a majority consensus ALL THE TIME. So, you never have to worry about whether or not the blockchain is correct because it is.

This is why hackers have little success hacking blockchains. First, they can only hack several nodes just because of practical and monetary reasons. Automatically these nodes are seen as corrupted and thus have no more power in the system. Realistically, a 51% attack, in which hackers obtain control of the majority of miners/nodes, would render a blockchain useless. However, a hacker's incentive to do this is minimal because upon hacking the blockchain, the price of that coin would instantly dump and also be worthless as the blockchain is proven hackable thus useless.

I hope this cleared up some knowledge gaps about blockchain and cryptocurrencies. It can be a really confusing space and has been for me as well. Keep learning and researching and you will be fine, hope you enjoyed!

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Hi! I am a robot. I just upvoted you! I found similar content that readers might be interested in:
https://steemit.com/blockchain/@bullsvsbears/blockchain-simplified

You've said it all. I like blockchain most especially for the first reason you mentioned. Considering the fact that third party is not involved has spur the interest in blockchain in the mind of all of us.

Infact, that is the single reason i venture into blockchain.