What’s a Blockchain?
Published on: 10 Apr 22:09
Cryptocurrency is steadily gathering steam as more and more people are recognizing the benefits of a digital currency with no central management system. Existing on blockchain technology, cryptocurrency works because transactions are made and verified using an independent system. Miners verify transactions, which are then accepted by everyone and added to the blockchain. But what is a blockchain? How does cryptocurrency work? cDuel offers an online cryptocurrency trading simulator game, which gives you the opportunity to learn cryptocurrency trading in a safe environment. Sign up for your free account today!
WHAT’S A BLOCKCHAIN?
It’s important to keep in mind the difference between cryptocurrency and blockchain. Cryptocurrency is the actual digital currency that can be traded. Blockchains are the mechanism by which cryptocurrency can be traded. It’s the difference between the dollar bill and the bank or transaction ledger you use to keep track of such things. In other words, a blockchain enables the transactions of the cryptocurrency. Cryptocurrencies cannot exist without blockchains, which is why they are frequently mentioned together and why they cause such confusion.
Blockchains record records (or transactions when speaking of cryptocurrency), called blocks, which are linked using cryptography, which is code that is kept secret. Cryptography converts data into a format that is unreadable for an unauthorized user, and is readable by an authorized user with the key. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Once the block has been verified by the miner (or node) it can be added to the blockchain for a permanent record of the transaction. Blockchains were invented in 2008 by Satoshi Nakamoto, for the purpose of cryptocurrency trading.
WHERE CAN BLOCKCHAINS BE FOUND?
Pioneered by cryptocurrency, the blockchain is now being used for other means. But what makes blockchains so special?
- Blockchains have no central authority, making the information recorded on a blockchain available to everyone on the network.
- Anyone can transact on the blockchain who are a member of the network.
- A blockchain is an immutable record of transactions, time-stamped and stored on computers.
- A blockchain has no transaction costs to act upon it. Information is passed from one party to another and verified by others with no costs involved except what it costs for your internet connection.
- Once verified, a blockchain transaction cannot be changed, making fraud virtually impossible.
- Blockchains have the potential to eliminate fee-processing middlemen and match-making platforms such as Uber and AirBnB for good, virtually eliminating whole business models. Apple iTunes and Spotify could be eliminated as you’ll have the potential to buy directly from the artist with a blockchain. Even powerhouse Amazon could go under as the need for them to distribute products and services is eliminated. However, the biggest repercussions would be in the financial markets as virtually every financial institution could go bankrupt, since all fees would be eliminated. Mind-blowing if you think about it.
HOW DO BLOCKCHAINS WORK?
The best analogy for a blockchain is a spreadsheet that exists on Google Sheets that is available to anyone. Thus, when new blocks (or transactions for cryptocurrencies that are stored as blocks) are added, anyone can add it and everyone has access. However, you cannot make changes once blocks are added to the blockchain.
WHERE COULD WE SEE BLOCKCHAINS IN THE FUTURE?
- Smart contracts. Contracts can execute when specific conditions are met.
- The sharing economy. Elimination of the middleman by enabling peer-to-peer interactions.
- Crowdfunding. Crowdsourced venture capital funds.
- Governance. Full transparency to election results.
- Supply chain auditing. Verifies the items we buy are genuine.
- File storage. Makes storing files decentralized.
- Prediction markets. Pay outs according to the market outcome.
- Protection of intellectual property. Provide copyright protection.
- Internet of Things (IoT). Using smart contracts that automate remote systems, the exchange of data between object and mechanisms can take place.
- NeighbourhoodMicrogrids. The buying and selling of renewable energy via neighbourhoodmicrogrids.
- Identity Management. Having a secure digital identity.
- AML and KYC. Anti-money laundering (AML) and know your customer (KYC) allows cross-institution verification of clients and increase monitoring and analysis effectiveness, eliminating hours of verification practices.
- Data management. Manage and sell your data online.
- Land title registration. This will become more efficient and help eliminate fraud.
- Stock trading. Intermediaries, such as clearing houses, auditors, and custodians will be eliminated.
Blockchain technology has the potential to revolutionize society as much as machines did. It would bring the highest level of accountability, with virtually no human error or even machine errors. Having transactions recorded in one register that all users have access to and are validated through third-party sources that all accept is the beauty of blockchains.
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