High Score Labs News • Feb 8, 2021
If you have been following modern trends in finance, investments, and banking, you must be aware of the recent explosion in the use of blockchain technology. This article will help you understand what Blockchain is, how it works, and its pros and cons.
What is Blockchain, and How Does it Work?
Blockchain is essentially a type of database. It’s different from conventional databases, such as SQL databases in the way it stores information. Blockchains store information in blocks. When new data comes in, it’s entered into a new block. When the block is filled, it is chained to the existing chain of blocks and arranged chronologically. In turn, this block is duplicated and distributed to the entire network of computers that use the Blockchain. Thus, the information is completely unalterable.
To better understand the concept, think of the transaction details stored in an SQL database. This information is at the mercy of an admin, who can alter the features as he sees fit. This is in sharp contrast with Blockchain. There is no admin, and the information on it is duplicated and distributed to all computers on the Blockchain. Thus, to alter any detail of any one transaction, a person would have to alter all the blocks on the network of computers that make up the Blockchain.
From the example above, we can describe a blockchain as a digital ledger of copied transactions and circulated to every computer that utilizes the Blockchain. Every time anyone on the Blockchain makes a new transaction, a record of that transaction is added to everyone’s ledgers on that Blockchain.
Blockchain is also regarded as a Distributed Ledger Technology or DLT. A DLT is a decentralized database that multiple participants manage. Blockchain belongs to this classification by its lacking an administrator; instead, all the users on the Blockchain collectively retain control. In a blockchain, the transactions are recorded with an immutable cryptographic signature known as a hash.
Blockchain Pros and Cons
The following are benefits of utilizing Blockchain:
Transparency: Arising from the decentralized nature of Blockchain, there is an excellent degree of transparency. All participants of the network utilizing the Blockchain have copies of the ledger. So, even though the identities of the users of the Blockchain are anonymous or pseudonymous, all transactions on the Blockchain can be tracked using blockchain explorers.
Security: Blockchains have quite tight security. Each block has its unique encryption, and attempting to alter any will be immediately noticed and rejected by other network users.
Cost reductions: Blockchain helps cut off third-party verification and the associated costs.
The disadvantages of using Blockchain are as follows:
Cost of the technology: Although Blockchain cuts out the cost incurred by third party involvement in transaction validation, the technology involved is far from free. The computational power involved eats up colossal amounts of energy, which extracts a high cost. For instance, the millions of computers making up the bitcoin network utilizes as much power as Denmark’s annual power consumption. However, according to several articles, it is still 3 times more energy efficient than the banking system that it could replace, that is 28 TwH vs Banking systems 100 TwH.
Speed inefficiency: While many blockchains are improving in this aspect, many still struggle with low transaction speeds.
Illegal activity: The anonymity of users on blockchains helps protect them from hackers. However, it also makes it convenient to be used for illicit transactions and activities.However, this seems to be decreasing as those engaged in illicit activities are realizing that recording their transactions on an immutable public ledger can come back to haunt them in the future, as many such activities have no statute of limitations.
Blockchain is a beautiful technology for identity security, supply chain monitoring, cross border payment, anti-money laundry tracking, music royalty tracking and so much more. With the knowledge you now have, you can decide to adopt the technology for your business or join an existing network.