Blockchain VS Bitcoin
Although initially invented for Bitcoin (BTC), nowadays blockchain is widely used for other cryptocurrencies as well. These currencies are mediums of exchange the same way that the US dollar is, but the difference is that crypto is digital and its adoption is narrower. At least for now.
Blockchain records can contain data like copies of documents, transaction data, and more. This means that the potential of blockchain is far beyond BTC and crypto, and can be used for settling trades, voting, and more.
Blockchain VS Banks
Those who are still skeptical about blockchain often wonder why they should opt for blockchain instead of banks. There are quite a few reasons, in fact:
- Banks have limited working hours and don’t work on holidays and weekends, whereas blockchain is available at any time.
- Banks have fixed transaction fees, whether you’re using cards, checks, or wire transfers. With crypto, it depends on the chain, but most users agree on fees or pay income tax.
- If you’re a bank user, transaction speed can vary, and can even take a few days for international transactions. With crypto, it will take you several minutes or up to an hour if your connection is really bad.
- Your identity is exposed if you’re a bank user, whereas in crypto you can remain anonymous if that’s what you wish.
- With banks, you need to have a minimum of legal documents (ID card, bank account, mobile phone, etc) but with crypto, you only need access to the internet and your mobile phone.
- When it comes to privacy, your private data is dependent on bank servers which can become compromised. With crypto, transactions are recorded and traceable, but your privacy is guaranteed.
- Banks can sometimes decide to deny your transaction if they notice suspicious behavior, while crypto can be used however you want.
How Does This Technology Work?
If you’re a complete beginner, it may be easier to understand blockchain as a sort of database. Now, what’s different when compared to a traditional database is that blockchain is structured in groups, so-called blocks, with a limited storage capacity.
What is Blockchain Made of?
Once a block is filled, it becomes closed for further modifications and is linked to a previously closed block, forming a chain. Every new block is added at the end of the chain, meaning that it’s stored linearly and chronologically.
Moreover, when added to the chain, each of these blocks is marked with a timestamp. Once data is validated, it becomes irreversible.
Now, to explain how blockchain works, we first need to identify three basic elements:
- Data – Each block has data in it.
- Nonce – Abbreviation for “number that is used only once” and is randomly generated for each block.
- Hash – Number that is permanently associated with the nonce. Its value is very small and that’s why it starts with many zeroes.
What is Mining?
Blocks are created by miners, through the process of mining, which is actually a reference to gold mining. Each block doesn’t only have its own nonce and hash, but also keeps information about all other blocks in the chain – and that’s why mining is a process that gets more difficult over time.
Just like in gold mining, you start with easily detectable targets but, as you dig deeper, it’s more complex to find your ore of gold. For a block to officially become a part of the blockchain, it needs to be validated by the majority of computers in the network (also known as proof of stake).
On average, a new block is mined every 10 minutes.
Photo Illustration: Freepik
Benefits of Blockchain
The benefits of blockchain are many, and usually related to the following:
- There’s no need for human intervention so it’s more accurate;
- Verification-related costs are reduced;
- Due to decentralization, it’s more difficult to corrupt;
- It’s more secure and private when compared to traditional financial transactions;
- It promotes transparent technology and enhanced user ownership over data;
- It’s a safer alternative to keeping private information safe while doing regular citizen activities such as banking or voting.
Who Owns Blockchain?
Now, when you think of blockchain, one of the first questions that pops into your head is – who owns blockchain? The answer to this question may be the sole purpose of its creation.
There’s no single person or group that controls the blockchain. More specifically, if we look at the example of Bitcoin, we can see that all users that are a part of a network have a say – without their validation, no change can be approved.
Blockchain was created with a certain idea in mind but, over time, it grew in importance on many levels:
- Blockchain technology can improve communication and collaboration in the supply chain.
- It can improve supply chain efficiency and eliminate losses from damaged or lost goods.
- It can also be used to reduce paperwork, processing times and increase financing options for small businesses.
- Blockchain can reduce security risks, eliminate fraud, and provide transparency in a scalable manner.
- In terms of crypto, it keeps a record of every transaction and is therefore superior when compared to cash.
In less than 15 years, blockchain has transformed the world as we know it. With each milestone, it seems that our future can be improved and revolutionize the way we think of money, ownership, creation and production, and human connection.
The history of money and the history of civilization are closely intertwined, because every step forward in the evolution of money meant an expansion of economic activity.
Aleksandar Matanović, CEO & Founder of ECD
These are the most important milestones in the blockchain timeline:
1991 – The first outline of blockchain technology was made by researchers Stuart Haber and W. Scott Stornetta.
2008 – A person (or a group) published “Bitcoin: A Peer-to-Peer Electronic Cash System” under the pseudonym Satoshi Nakamoto.
2009 – The first real-world application of blockchain technology was made in a Bitcoin transaction between Satoshi Nakamoto and computer scientist Hal Finney.
2010 – The first ever Bitcoin purchase was made by programmer Laszlo Hanycez. He used 10,000 BTC to buy $60 worth of pizzas. Later that year, BTC market cap exceeded $1M.
2011 – 1 BTC was equal to 1 USD, and organizations such as Wikileaks started accepting BTC donations.
2012 – BTC makes its way into pop culture, being mentioned in TV shows such as “The Good Wife” and getting its own magazine “Bitcoin Magazine”, launched by BTC developer Vitalik Buterin.
2013 – 1 BTC was worth $100, with market cap exceeding $1 billion.
2014 – Many large companies have adopted BTC (Zynga, PayPal), while Buterin raised $18M in BTC for his Ethereum project. Less known, the first NFT was minted.
After several years have passed and even the most skeptic players were convinced of the benefits of blockchain, its adoption has become widely spread:
2015 – Over 100,00 retailers started accepting BTC.
2016 – Tech giant IBM presented its view on BTC application in cloud-based technology.
2017 – 1 BTC was worth $1,000, with a crypto market cap valued at $150 billion.
2018 – IBM introduced a banking platform powered by blockchain.
2019 – China’s central bank announced developing its own cryptocurrency.
2020 – The year of the pandemic showed that blockchain can be immensely valuable for storing medical data and patient information. By the end of 2020, BTC was nearly worth $30,000.
2021 – BTC became legal tender in El Salvador, while Tesla bought $1.5 billion in BTC. Simultaneously, the popularity of Web 3.0 and Metaverse is at its peak.
2022 – As a consequence of inflation, the crypto market worth decreased by $2 trillion.
Is Blockchain the Future?
Although blockchain was primarily used in the BFSI industry, it is actually a ‘general-purpose’ technology, meaning that it can be used across different sectors. Experts believe this is where the potential of blockchain lies and that it will mark the next several years.
Financial services can use it to write smart contracts between consumers and their banking institutions. Similarly, healthcare can use it to write smart contracts between insurers and hospitals, as well as between patients and hospitals. The possibilities are endless.
Christos Makridis, Research Professor at Arizona State University
Most Important Technology Drivers
These are the fields where blockchain is expected to contribute the most:
- Smart Contracts – Designed to automate the execution and delivery of contracts, the code consists of a simple command “when/if ______”.
- IoT – Blockchain application will improve the IoT supply chain sector and asset tracking.
- NFT – Based on blockchain technology, NFTs can influence not only digital art but transport, education, marketing, and more.
- Cybersecurity – Cyber criminals cannot access blockchains because they are decentralized and need validation from a majority of networks.
- Cryptocurrencies – Blockchain is the only way to record transactions in complete privacy and accuracy.
How Can it Revolutionize Voting?
Now, let’s turn to complete fan fiction and try to imagine how blockchain technology could be implemented in voting systems. Let’s say that each citizen was assigned a token and each candidate with a wallet address. The voting would still remain anonymous, but each vote could be tracked in real-time, eliminating any forgery or unintentional human mistakes made while counting the votes. It would not only make voting more transparent, time-efficient, and cheaper for that matter, but would also encourage more people to go out and vote, knowing it’ll have a reliable result.
We’ll even go that far and remind you that political parties all over the world blackmail people to vote for them in order to keep their jobs. If blockchain technology was introduced, this would be impossible, as tested in West Virginia.
Photo Illustration: Freepik
What’s Wrong with Blockchain Today?
With all the advantages that come with blockchain technology, comes a great interest and an enormous number of users; of course, whenever there’s wealth involved, there are people who’ll try to win it over by breaking some rules.
Can Blockchain be Hacked?
In terms of blockchain, breaking the rules is much more visible and, thanks to its traceability, it’s impossible to get away with it. But hacking attempts have been made in the past.
Certain Bitcoin exchanges have been hacked and, as a consequence, people who held their funds in those markets have lost everything. Now, every time you move BTC (or steal it, in this case), it can be traced, but the user identity (or hacker) can remain anonymous.
Hacking a blockchain is much more difficult. We’ve mentioned already that these ‘databases’ are the same on everyone’s computer so, if a hacker was to edit data in order to steal funds from users, it wouldn’t comply with the majority of the network and would therefore be an invalid change.
Furthermore, this would only be possible if a hacker were to control over 50% of the total number of blockchain copies. Even if that condition is met, they would have to edit all previous blocks, timestamps and hash codes, which would require them to have ridiculous amounts of money and resources. In other words, you can sleep safely.
Over time, certain disadvantages of blockchain have also been recognized. These mostly refer to:
- Mining is an expensive and energy-exhausting process. There’s even an argument that, on a global level, Bitcoin uses more energy than the whole Denmark.
- Many criticized Bitcoin for its low transaction speed, but nowadays some chains can process transactions much more quickly.
- Blockchain has a history of being used on the dark web and its bad reputation unfortunately stays to this day.
- Legal regulation depends from country to country and is the reason why many still don’t have confidence in the blockchain.
- Some argue that certain chains are producing a huge carbon footprint.