Introduced in 2008, the Blockchain is an information storage and transmission technology offering a high level of security and transparency. No central entity controlling.
The Blockchain is a kind of large database containing the history of all movements or exchanges since its creation. The information on the Blockchain is secured by a cryptographic system and distributed to each user, without an intermediary. This allows each individual with access rights to check the validity of the chain.
Some Blockchains are public, so all users have access to all the information present. Others are private, access is then reserved to a certain number of actors.
The public blockchain
A public blockchain is an open network. Anyone can participate in the network.
A public blockchain is distributed and decentralized. Transactions are recorded in blocks and linked together to form a chain. Each new block must be time-stamped and validated by all the computers connected to the network, called nodes, before being written into the blockchain.
The private blockchain
A private blockchain is an invitation-only network managed by a single entity. Network participants must obtain permission to read, write, or check the blockchain. There can be different levels of access and the information can be encrypted to protect confidentiality.
Private blockchains allow the use of distributed ledger technology without making the data public.
But this means that they lack a key feature of blockchains: decentralization. Thus, some critics argue that private blockchains are not blockchains at all, but centralized databases that use distributed ledger technology.
However, private blockchains are faster, more efficient, and more cost-effective than public blockchains, which require a lot of time and energy to validate transactions.
How does the blockchain work?
The creation of new blocks
The blockchain, as its name suggests, is made up of several connected blocks. For that 4 steps should take place.
1 – A transaction must take place
2 – This transaction must be verified
In other public information registries, such as the Securities Exchange Commission, Wikipedia, or your local library, there is a person responsible for verifying new data entries.
In the case of the blockchain, this task is assigned to a network of computers. Note that there are two methods of verifying transactions: Proof of Work and Proof of Stake, concepts that will be discussed in more detail later in this guide.
3 – This transaction must be recorded as a block
After verifying the accuracy of your transaction, it receives the green light. The transaction amount, your digital signature, and the recipient’s digital signature are all stored in one block.
There, the transaction will probably join hundreds, if not thousands of others in the same block.
4 – This block must be chopped
Once all transactions in a block have been verified, it must receive a unique identification code called “hash”. The block also gets updated and gets the hash of the most recent block added to the blockchain. Once hashed, the block can make a part of the blockchain.
When this new block is added to the blockchain, it becomes publicly available to everyone.
Blockchain and mining: The example of Bitcoin
As mentioned above, all transactions in a blockchain must be verified. This verification task, performed by a computer network, is called mining.
Anyone can provide the Bitcoin network with computing power to collectively participate in the mining.
When someone sends Bitcoins somewhere, it is called a transaction. When a transaction is made in a store or online, banks, point of sale systems, and physical receipts document it.
Bitcoin miners achieve the same result by grouping transactions into “blocks” and adding them to the Bitcoin blockchain. The nodes then keep records of these blocks so that they can be audited in the future.
With up to 300,000 purchases and sales made in a single day, verifying each of these transactions can be a lot of work for the miners (a lot of power consumption).
As compensation for their efforts, miners receive Bitcoins every time they add a new block of transactions to the blockchain. The amount of new Bitcoins released with each block they operate is called a “block reward.
Proof of Work VS proof of stake
Proof of work (PoW) and proof of stake (PoS) are two different methods of validating transactions in a blockchain.
What is proof of work (PoW)?
PoW is most often associated with Bitcoin, but it is also used in other cryptosystems. It is an algorithm designed to confirm transactions and obtain new blocks added to the blockchain.
With the Pow, miners compete to be the first to complete a complex mathematical puzzle that will generate that new block, which means they can collect new Bitcoins as a reward.
Let’s take a quick look at the pros and cons of Proof of Work. On the one hand, proponents of this algorithm point out that anyone can be a minor as long as they have the computing power to do so. However, over time, it becomes increasingly difficult to undermine the BTC and, compared to a few years ago, there is much more competition for smaller rewards.
But competition means more computing power. Thus, PoW mining consumes a lot of energy. Last year, research at the University of Cambridge suggested that Bitcoin consumes more energy than the whole of Switzerland.
proof of stake (PoS)?
Here’s how it works: The Proof of Stake gives the ability to validate transactions without taking into account your ability to solve those complex puzzles we were talking about earlier. On the contrary, it is directly related to the number of coins you hold.
Let’s imagine that you hold 5% of the available coins on a blockchain. With PoS, this would mean that you have the right to exploit up to 5% of new transactions. Although Proof of Stake consumes much less energy, it can create financial barriers for new miners.
PoW or PoS?
We have therefore provided a simple explanation of the concepts of Proof of Work and Proof of Stake. But who would win in a battle of Proof of Work versus Proof of Stake?
It depends on who you ask. Some say that it is difficult to compare PoW and PoS directly because PoS has not been used as widely as PoW. It’s a much newer type of consensus algorithm – and, as a result, we haven’t really seen how PoS would behave in a major blockchain. But since Ethereum 2.0 is expected to be fully deployed within the next two years, which will move crypto money from PoW to PoS, we will have a better idea of how it will work.
Blockchain and its Applications :
The blockchain represents a major innovation that is used in particular in the banking sector. Indeed, historically, blockchain technology has been developed to support transactions carried out via cryptocurrency/crypto actives (including bitcoins, which are the best-known form) and which have the main characteristic of not being dependent on a centralizing body (such as a central bank) and of being international.
But its use is not limited to crypto-money. Many fields and sectors of activity, whether commercial or non-commercial, public or private, already use the blockchain or plan to do so in the coming years.
- In the banking sector, technology opens up the possibility of validating transactions without the intermediary of a clearinghouse, which should make it possible to certify transactions within much shorter deadlines; the blockchain can also promote the sharing of information between competing players in a financial center while respecting the secrecy of their commercial data and, in so doing, facilitate the management of common structures or instruments by reducing contact costs and administrative expenses.
- In the insurance sector, the contribution of the blockchain is due, for example, to the automation of reimbursement procedures and the simplification of certain formalities for both companies and their customers provided that the assumptions and conditions for compensation and damages are clearly established.
- In the logistics sector, the blockchain has two interests: to ensure product traceability, as well as the memory of the various interventions on a production and distribution chain; to lighten formalities and create the conditions for cooperation between the actors of a sector, particularly in terms of information exchange.
- this use could also find an application in the agri-food sector for food traceability, particularly interesting in the event of a health crisis.
- in the energy sector, by authorizing the exchange of services and values outside a central management body, the blockchain potentially creates the conditions for the implementation – on a more or less large scale depending on technical capacities – of local networks for the production, exchange, and resale of energy to balance supply and demand at any time, which is a strong constraint of electricity networks in particular
But many sectors are potentially concerned by the use of blockchain technology: health, real estate, luxury, aeronautics, etc…
Crypto-currency and blockchain
Blockchain allows Bitcoin and other cryptos to operate without the need for a central authority by distributing its operations over a network of computers.
This not only reduces risk but also eliminates many processing and transaction costs. It allows countries with volatile currencies to have a more stable currency.
The blockchain plays a crucial role in healthcare, as private health information is stored there with a private key.
A similar approach can be used to ensure that research is conducted under HIPAA laws in a highly protected and secure manner.
Also, transaction receipts are stored on a blockchain and automatically sent to insurance companies for validation. Besides, it can also be used for normal health care management, such as drug monitoring, regulatory compliance, test results, and management of healthcare supplies.
Payment processing, and money transfers
One of the most legitimate uses of blockchain technology is to speed up the transfer of funds from one party to the other. It facilitates a much faster and cheaper money transfer. Now banks are no longer involved in the process and transactions are carried out 24 hours a day, 7 days a week.
Most transactions processed by a blockchain can be completed in seconds. The global payments industry is imperfect, expensive, and open to money laundering. Verification of payments and settlement of cross-border transactions can take up to five business days.
Thanks to blockchain, real-time transactions can be easily completed, while banks are completely out of the equation, which can reduce transaction costs.
Intellectual property and blockchain
Ownership rights, royalty distribution, and transparency are the main issues in the music industry. The digital music industry is more focused on monetizing productions, while property rights are often neglected.
Blockchain technology can quickly solve this problem by creating a decentralized, comprehensive, and accurate database of music rights. At the same time, the decentralized registry allows transparent communication of artists’ rights and real-time delivery to all parties involved with the labels.
Supply chain Monitoring :
Blockchain can be beneficial, especially in filling the need of monitoring the supply chain. Now companies can quickly correct inefficiencies in their supply chains and locate items in real-time.
In addition, the blockchain will allow companies, and eventually consumers, to see how products performed from a quality control perspective as they moved from their place of origin to the retailer.
The blockchain allows companies to have end-to-end visibility into their supply chain by providing data on the status and condition of supplies as they are delivered around the world.
According to a Forbes report, the food industry uses blockchain to track the flow and safety of food as it travels from farm to fork.
Real estate and blockchain :
Blockchain technology is widely used in the real estate sector, from the purchase of real estate to the management of property titles. This technology could be used to create efficient solutions for commercial and residential real estate.
Ukraine was the first nation to use blockchain technology to facilitate real estate transactions. The transaction was carried out using intelligent contracts on the Ethereum blockchain and is the first of several to be carried out by Propy, a startup specializing in real estate transactions based on the blockchain.
The blockchain is therefore first and foremost the technology on which cryptocurrencies such as Bitcoin or Ethereum are based. But it is also a technology that can be applied in many other fields. It is not a risk to say that the blockchain will be present in one form or another in most industries in the future.
As such, it’s a technology that could create very interesting investment opportunities. However, at the moment, one of the only ways to invest in the blockchain is to buy crypto-currencies, whether large crypto-currencies like BTC or Ripple, or more specialized tokens associated with a specific project.
However, when it comes to buying crypto-currencies as well as many other financial instruments, eToro’s online broker is often cited as one of the best choices by both beginners and long-time traders.