What is the use of blockchain technology actually has very broad application prospects?
Blockchain technology is a core innovative database technology used by almost all cryptocurrencies. By distributing the same database copy throughout the network, it is very difficult for hackers to crack or deceive the system. Although cryptocurrency is currently one of the most popular blockchain applications, in fact, the technology has the potential to provide services for a very wide range of applications.
What is blockchain?
The core of the blockchain is a distributed digital ledger that can store any type of data, including cryptocurrency transactions, NFT ownership, and Defi smart contracts.
What is blockchain
Although any traditional database can store this kind of information, the blockchain is unique in its complete decentralization. Compared with a system maintained by a central administrator (such as an Excel spreadsheet or a bank database) in a central organization, many identical copies of the blockchain database are stored on multiple computers distributed in the network, and these individual computers are called Is the node.
How does the blockchain work?
The name “blockchain” is not a whim. The digital ledger is usually described as a “chain” composed of a single “data block”. When new data is added to the network, a new “block” is created and appended to the “chain”, which involves all nodes updating the version of their blockchain ledger to make it the same.
How to create these new blocks is the key to why the blockchain is considered to be highly secure. Before adding new blocks to the ledger, most nodes must verify and confirm the legitimacy of the new data. For cryptocurrencies, they may involve ensuring that a new transaction in a block is not fraudulent, or ensuring that the coin is not used more than once. This is different from an independent database or spreadsheet where anyone can make changes without supervision.
C. Neil Gray, the partner of Duane Morris LLP’s financial technology business unit, said: “Once a consensus is reached, the block will be added to the chain and the transaction will be recorded in the distributed ledger. The blocks are securely connected, Form a secure digital chain from the creation of the ledger to the present.”
Transactions usually use encryption technology for security protection, which means that nodes need to solve complex mathematical equations to process transactions.
Sarah Shtylman, a fintech and blockchain consultant at Perkins Coie, pointed out that “as a reward for their efforts in verifying changes to shared data, nodes usually receive a new amount of local currency in the blockchain, for example, the Bitcoin blockchain New Bitcoin on the Internet”
Blockchains are often divided into public chains and private chains. In public blockchains, anyone can participate, which means that they can read, write or audit data on the blockchain. It is worth noting that Without the authority of a control node, it is difficult to change the transactions recorded in the public blockchain.
At the same time, the private blockchain is controlled by an organization or group, and only it can decide who is invited to the system, and it has the right to modify the blockchain. In addition to being scattered on multiple nodes to increase security, this private chain is more similar to an internal data storage system.
How is the blockchain used?
Blockchain technology is used for many different purposes, from providing financial services to managing voting systems.
1. Cryptocurrency
The most common use of blockchain today is as the core of cryptocurrencies, such as Bitcoin or Ethereum. When people buy, exchange or use cryptocurrency, the transaction is recorded on the blockchain. The more people use cryptocurrency, the more widespread the blockchain will become.
Patrick Daughty, the senior partner of Foley & Lardner and head of the blockchain task force, pointed out that “due to the instability of cryptocurrencies, they have not been used in large quantities to purchase goods and services. Retail customers widely provide digital asset services, and this situation is changing.”
2. Banking
In addition to cryptocurrency, blockchain is also used to process transactions in fiat currencies such as the U.S. dollar and euro. This may be faster than sending money through a bank or other financial institution because these transactions can be verified and processed faster outside of normal office hours.
3. Asset transfer
Blockchain can also be used to record and transfer the ownership of different assets, such as the currently very popular NFT as a representative of the ownership of digital art and video.
However, blockchain can also be used to handle the ownership of real assets, such as real estate and vehicle deeds. Both parties of one party first use the blockchain to verify that one party owns the property and the other party has the money to buy it, and then they can complete and record the sale on the blockchain.
Through this process, they can transfer the property contract without manually submitting documents to update the records of the local county government, which will be updated instantly in the blockchain.
4. Smart contract
Another important direction of blockchain innovation is to automatically execute contracts, usually called “smart contracts.” Once the conditions are met, these digital contracts will automatically take effect. For example, once the buyer and seller meet all the specific parameters of the transaction, the payment for the goods can be executed immediately.
Gray pointed out: “We see the huge potential in the field of smart contracts, using blockchain technology and coding instructions to automate legal contracts.” Smart legal contracts correctly coded on distributed ledgers can minimize or eliminate the external need for a third party to verify performance.
5. Supply chain monitoring
The supply chain involves a lot of information, especially when goods are transported from one place in the world to another. With traditional data storage methods, it is difficult to find the source of the problem, such as where the supplier’s inferior goods come from. Storing this information on the blockchain will make it easier to follow and monitor the supply chain, such as IBM’s FoodTrust, which uses blockchain technology to track the entire process of food from harvest to consumption.
6. Voting
Experts are studying how to use blockchain to prevent fraud in voting. In theory, blockchain voting will allow people to submit votes that cannot be tampered with, and it can also eliminate the need for people to manually collect and verify paper votes.
Advantages of blockchain
1. Higher transaction accuracy
Because transactions in the blockchain must be verified by multiple nodes to reduce errors, if one node makes an error in the database, other nodes will see the difference and capture the error.
On the contrary, in a traditional database, if someone makes a mistake, it may be easier to pass. In addition, each asset is individually identified and tracked on the blockchain ledger, so it is impossible to pay it twice. One person overdrafts the bank account and spends a sum of money twice in the block It cannot be established in the chain field.
2. No intermediary required
Using blockchain technology, both parties in a transaction can complete the transaction without going through a third party, which saves time and costs to intermediaries such as banks.
Shtylman pointed out: “Blockchain technology has the ability to bring higher efficiency to all digital businesses, and enhance the financial capabilities of the population in areas where there are no banks or under-banked areas in the world, thereby providing power for a new generation of Internet applications.”
3. Extra safety
In theory, decentralized networks, such as blockchain, make it almost impossible for people to conduct fraudulent transactions. Forging transactions will require hacking every node and changing every ledger. Although this is not necessarily impossible, many cryptocurrency blockchain systems use PoS consensus mechanism or PoW consensus mechanism transaction verification methods, which makes it difficult to increase fraudulent transactions, and does not meet the maximum of participants. interest.
4. More effective transfer
Thanks to the round-the-clock operation of the blockchain, people can carry out financial and asset transfers more effectively, especially internationally. They do not need to wait for several days, do not need banks or government agencies to solve all problems manually.
Disadvantages of blockchain technology
1. The limit of processing transactions per second
Considering that blockchain technology relies on a larger network to approve transactions, its moving speed is limited. For example, Bitcoin can only process 4.6 transactions per second, while Visa can process 1,700 transactions per second. In addition, more and more transactions will cause network speed problems. Before that, scalability was a challenge.
2. High energy costs
Having all nodes working to verify transactions consumes more power than a single database or spreadsheet. This not only makes blockchain-based transactions more expensive but also creates a huge carbon burden on the environment.
Because of this, some industry leaders have begun to abandon certain blockchain technologies, such as Bitcoin. Elon Musk recently stated that Tesla will stop accepting Bitcoin as a means of payment, partly because he is worried about Bitcoin’s environmental damage. On May 13, 2021, Elon Musk tweeted that the energy usage trends in the past few months have been crazy.
3. Risk of asset loss
Some digital assets are protected by encryption keys, such as encrypted currencies in blockchain wallets. Users need to keep this key carefully.
Gray said: “If the owner of a digital asset loses the private cryptographic key that allows them to access the asset, there is currently no way to recover it. The asset has disappeared forever.” Because the system is decentralized, you cannot call The central institution like the bank requested a re-visit.
4. Potential illegal activities
The decentralization of blockchain adds more privacy and confidentiality, which unfortunately makes it attractive to criminals. It is more difficult to track illegal transactions on the blockchain than through bank transactions linked to names.
How to invest in blockchain?
In fact, you cannot invest in the blockchain itself, because it is just a system for storing and processing transactions. However, you can use this technology to invest in assets and companies.
Gray said: “The easiest way is to configure cryptocurrencies, such as Bitcoin, Ethereum, and other tokens running on the blockchain.”
Another option is to use this technology to invest in blockchain companies. For example, Santander Bank is experimenting with blockchain-based financial products. If you are interested in getting access to blockchain technology in your portfolio, you can buy some shares.
To take a more diversified approach, you can buy an exchange-traded fund (ETF) that invests in blockchain assets and related companies. For example, Amplify Transformational Data Sharing ETF (BLOK), which invests at least 80% of its assets in blockchain companies.
Dilemma
Despite the bright future of blockchain, it is still a niche technology. Gray believes that blockchain may be used in more situations, but it depends on future government policies. “It remains to be seen when and whether regulatory agencies such as the US Securities and Exchange Commission will act. But one thing we can be sure of is that our goal is to protect the market and investors.
Shtylman compares the current development of the blockchain to the early stages of the Internet. “It took us 15 years to see the first version of Google and more than 20 versions of Facebook. It is difficult for us to predict how far blockchain technology will develop in the next 10 or 15 years, but just like the Internet, It will significantly change the way we trade and interact in the future.”
Difficulties remain, especially in terms of transaction restrictions and energy costs, but for investors who see the potential of this technology, blockchain-based investments are worth bets.
The original report comes from David Rodeck and John Schmidt. David Rodeck is a financial writer in Delaware, specializing in investment, insurance, and optimizing retirement plans. John Schmidt is a Forbes consultant and assistant editor of “Investment and Retirement” magazine. The Chinese version is compiled and compiled by the chain market team, and the English copyright belongs to the original author. For a Chinese reprint, please contact the compiler.