Cryptocurrencies: The Beginning of Blockchain's Technological Rise

Cryptocurrencies: The Beginning of Blockchain's Technological Rise

 

Most of you would be fairly familiar with blockchain now. However, there are many among us who are not used to the idea of reading. Smart phones have taken over and the new generation is always eager to watch videos vis-a-vis reading. The reading habit is slowly disintegrating from homes and offices. The only exceptions are official letters and notices that are mandatory. In today’s blog, we will take a look at the meteoric rise of blockchain technology.

Blockchain is also known as the Distributed Ledger Technology or DLT. It ensures the history of digital assets as it is unalterable and truly transparent by the use of decentralization and cryptographic hashing.  A transparent ledger of changes retains the integrity of a transaction, which in turn creates trust in the asset. Blockchain’s inherent security measures and public ledger make it a prime technology for almost every single sector.

Financial sectors such as banking and insurance are using blockchain technology in a big way. Government and cyber security are close behind. They are followed by the health care, supply chain and real estate sectors. AI and social media companies are extremely enthusiastic about the blockchain technology too.

Blockchain technology is both promising and revolutionary technology because it helps to reduce risk, eliminates possibility of fraudulent activities and ushers in transparency in a scalable way for a wide range of uses across multiple sectors. The primary objective of using the blockchain technology is to facilitate among the people in general, transactions with strangers and unknown people who do not trust one another but can share sensitive and valuable data in a secure and tamper proof manner.

The whole concept of Blockchain is based on the importance of blocks, nodes and miners. Every chain consists of multiple blocks and each block has three basic elements. The data that is stored in the block. Every block in a blockchain has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn't easy, especially on large chains. When the first block of a chain is created, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined. 

Miners create new blocks on the chain through a process called mining. Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the "golden nonce" and their block is added to the chain.

Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it's extremely difficult to manipulate blockchain technology. Finding the golden nonce requires an enormous amount of time and computing power. When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially.

One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes are largely various electronic devices that maintains copies of the blockchain and runs the network. Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. As blockchains are transparent, every action in the ledger can be easily checked. Each developer is given a unique alphanumeric identification number that shows their transactions.

Blockchain’s most well-known use is in the domain of cryptocurrencies and often attributed as the beginning of  blockchain’s technological rise. Cryptocurrencies are digital currencies or tokens, like Bitcoin, Ethereum or Litecoin, that is used to buy goods and services. Just like a digital form of cash, crypto can be used to buy everything from food, clothing to your next home. Unlike cash, crypto uses blockchain to act as both a public ledger and an enhanced cryptographic security system, so online transactions are always recorded and secured.

Today, there are roughly 16,000 cryptocurrencies in the world with a total market cap that is estimated at around $1.9 trillion as of 26, September, 2021 with Bitcoin holding a majority stake.

Let us take a close look why everyone is keen to possess cryptocurrencies.

1. Blockchain’s security makes theft much harder since each cryptocurrency has its own irrefutable identifiable number that is attached to one owner.
2. Crypto reduces the need for individual currencies and central banks. With blockchain, crypto can be sent to anywhere and anyone in the world without the need for exchanging the currency and without any interference from central banks.
3. Cryptocurrencies can suddenly make some people rich. Speculators have been revving up the valuation of  the Bitcoin, helping the early birds to reap handsome profits to become billionaires.

4.  More and more large corporations are beginning to accept the idea of a blockchain based digital currency payments system. In February 2021, Tesla famously announced that it would invest $1.5 billion in Bitcoin and accept it as a form of payment for their cars.

There is also the flip side to all the euphoria created around crypto currencies.

1.  The first and the primary one is regarding the legitimacy as it is not a legal tender with the exception of a few small countries.
2.  There are legitimate arguments against blockchain technology based digital currencies.
3. The cryptocurrency market lacks proper regulation as it does not have the sanction or support of the government.

4.  Governments with moderate acceptance of cryptocurrency are yet to formulate new rules and regulations to protect their citizens. Only a few have managed to come up with regulations.

5.  Cryptocurrency is highly volatile and subject to rapid price fluctuation.

One can recall in 2016, Bitcoin was priced around $450 per token. But suddenly it spiked to about $16,000 a token in 2018, then slid to around $3,100, and since has increased dramatically to unknown peaks of more than $60,000. The high volatility and unstable performance has turned some people to become very rich, while a majority has lost out.  

Well, while many optimists paint a rosy picture of the digital currency, caution is needed at each step.  It could be a waiting game. The success of digital currencies as the currency of the future generation remains to be seen. As of now, it seems blockchain’s meteoric rise is more starting to take root in reality than pure hype.