Blockchain technology powers all of the Cryptocurrency that we know and love today. However, its implications have a far greater impact in our world than we now realize. The rise in popularity of Cryptocurrency has brought with it much excitement, as well as much debate. In all this hype, many of us seem to have a misunderstanding about Blockchain and Cryptocurrency. In this article, we will discuss these two subjects in order to get a better understanding of what Blockchain and Cryptocurrencies really are.
In order gain a better understanding of what exactly Blochain technology is, let us start by first understanding the problem. At its root, the problem we face today is in transferring assets from one party to another. In the current system today, this problem is addressed by using a trusted third party to manage the transaction. As an example, today, if I wanted to transfer money from the United States to my relatives in Austrellia, I would need to give my money to a trusted third party like MoneyGram. Once MoneyGram receives my money, they then ensure it is transferred to the appropriate account in Austrellia. This process can take several days. And, MoneyGram can take a very large fee for providing the service.
Not only is this process slow and expensive, due to recent events, some have dven questioned whether or not we can trust these middlemen, like Banks.
This issue of slow and expensive transfers is what Blockchain technology aims to solve. Blockchain technology solves this problem by removing the middleman altogether. A quick online search for Blockchain reveals that it is “a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.”
Okay, what the hell does that mean? Well, let’s break it down so we can better understand it. First, Blockchain is a digital ledger. For those not aware, a ledger is basically a record tracking the financial accounts of some type. In other words, a ledger is a record that tracks the movement of some kind of financial account. For example, a cash ledher tracks the amount of cash going in and going out of an account.
Next, transactions are recorded chronologically and publicly. Transactions in the Blockchain ledger are recorded starting from the earliest transaction to the latest transaction. This means that as transactions are added to the ledger, a traceable history of every transaction is available. Since this record is public, anybody can view it at any given time.
You have also probably heard that Blockchain is decentralized. What this means is that, while there is only one global centralized ledger, no one entity is responsible for keeping it up to date and maintaining it. Instead, it relies on a network of volunteers — called miners — that are all given the responsibility of keeping the ledger updated.
With all these people (or computers) trying to keep the ledger updated, how do we know which one to follow? Well, there are a few methods that have been developed to solve this problem. All of which may make your eyes roll from their complexity. But, in short, math.
It is important to understand that while Blockchain technology is often said to be decentralized, this may not always be the case depending on the implementation. Ripple, XRP, is an example of a cryptocurrency that utilizes a centralized Blockchain implementation.
In summary, Blockchain is a digital record of transactions that is publicly available. Blockchain solves the problem of transferring assets by eliminating the middleman altogether.
This new technology has a few benefits over the old solution. First, is its speed. Compared to traditional solutions, which can take days, Blockchain technology can accomplish the same transactions in minutes. Second is cost. Utilizing Blockchain technology can dramatically reduce the cost of such transfers. Third is trust. More specifically, the lack of trust. Since Blockchain technology removes the “trusted third party” altogether, there is no need to trust and hope your money gets to its destination safely. This is one thing that causes many beneficiaries of the traditional system, like banks, do not like and oppose.
Earlier, we discussed how the Blockchain technology is a public ledger that can be used to transfer assets. So, now we move to one such use case for this technology — Cryptocurrency. As its name implies, Cryptocurrency is a currency that utilizes Blockchain technology to perform transactions. Cryptocurrency utilizes Cryptography techniques — hence the name “Crypto” — to regulate the supply of the currency and to verify transactions. Because of the nature of the underlying Blockchain technology, Cryptocurrency can function even without a central bank.
In this article, we covered what Blockchain is, as well as what Cryptocurrency is. We also covered the differences between the two. Hopefully you have a better understanding of what these are, and what all the hype is about, after reading this article. And, if you found this useful, do share it with people you know. The more we become aware of the possibilities of these technologies, the better equipped we all will be to take advantage of the opportunities they present.
