Blockchain is being talked about everywhere: it’s used for cryptocurrency and art trading, for smart contracts and for protection against cyberattacks. What is blockchain? How does it work?
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Blockchain: What Is It, Why Do We Need It?
Blockchain is a decentralized, publicly accessible database. It stores information about transactions between participants in the system in the form of blocks linked to each other.
Blockchain allows you to find out who owns what asset. If the chain records that you are the last purchaser of a digital copy of the Mona Lisa, no one can simply take it and appropriate it for themselves.
Features of blockchain technology:
- Decentralization – there is no single server or single organization where all the records are stored. The entire chain of transactions associated with an asset is stored by network users on their computers. Changes in the chain are recorded by all participants. If something happens to one computer, the information remains on the others.
- Transparency – information on transactions is publicly available.
- Immutability – it’s impossible to fake or edit a record in the blockchain.
At first, blockchain was only used for signing documents. Then people figured out how to use it to transfer money directly, without intermediaries like banks and payment systems. It’s fantastic if you need to deposit money to sites, like https://22bet.com or a casino where you want to stay anonymous. This required inventing cryptocurrency – digital money that exists in the form of a mathematical code.
What Blockchain Is Used for
The features of the technology allow it to be used where transparency and security are needed. That’s why blockchain is used:
- In the crypto industry. The technology has become the basis for issuing cryptocurrencies. Blockchain increases the speed of transactions, makes transfers safer, and reduces risks. It’s also used to account for the transition of digital assets from one owner to another.
- In banking. Blockchain makes all processes more transparent and reliable. The technology is implemented in various operations: money transfers, settlement of securities transactions, KYC payments, and others. Blockchain reduces banks’ costs by streamlining processes.
- In cybersecurity. Because there is no single database in blockchain, and each participant keeps a copy of the chain with important information, the system becomes more resilient to attacks by hackers on individual network users. If transaction information disappears from one computer, it still remains on others.
- In government agencies. The technology is used to create credentials, digital profiles of citizens. Already today, public services are accessed via blockchain in Estonia and some emirates of the UAE. Its implementation will optimize administrative work.
This isn’t all the areas where distributed databases can be used. Experts consider the technology promising.
Disadvantages of Blockchain
- Scalability – the block in the chain has a limited weight, you can’t put a lot of information into it.
- Immaturity – the technology has yet to gain user trust and become truly mainstream.
- Energy consumption – checking a transaction requires a lot of power.
- Legalization – cryptocurrencies are not legally recognized in most countries.
- Storage – more transactions require more storage capacity.
The Future of Blockchain
Blockchain technology has been around for more than a decade. However, it’s still a novelty in many countries, and its use is insufficiently regulated by law. Given blockchain’s functionality and multiple applications in many industries, including commerce, we should expect to see the development of the technology and regulations related to it in the near future.
Blockchain is a challenge for lawmakers and practitioners alike, requiring new legal solutions, new legal skills, and collaboration between the legal and IT communities to create and apply the law. In the marketplace, effective blockchain integration will certainly be an easier task for large conglomerates with the resources to invest in new technology. It will be much harder for smaller brands to take advantage of the technology.