Click here to get this post in PDF
When it comes to disruption in the economic space, blockchains have been heralded as being a disruptive force to the finance sector, particularly the first having to do with the functions of payments and banking.
Banks and decentralized blockchains are extremely different from one another.
To see how a bank differs from a strong and experienced blockchain such as AXIA, we first have to clearly define exactly what the blockchain is.
What is Blockchain?
One way to look at a blockchain is as a digital form of record-keeping, a “distributed ledger technology” (DLT) that spreads that record-keeping across multiple computers that are called “nodes.”
Blockchain is the technology that several cryptocurrencies, such as Bitcoin and Ethereum, operate on.
With its way of securely recording and transferring information, there are many other economic use cases outside of cryptocurrency.
Any single user of the blockchain can be a node in the process, but you must be aware that being a node takes a massive amount of computer power to operate because nodes verify, approve, and then store data within the blockchain ledger.
A blockchain organizes data added to the ledger into blocks or groups, with each only holding a certain amount of information, making it necessary for new blocks to continually get added to the ledger, which forms a chain; hence you have a “blockchain.”
Every single block has its own unique identifier, a cryptographic “hash,” which is a series of numbers and letters that can be as long as 64 digits that protect the data inside the block from people who don’t have the needed code and protect the block’s place along with the blockchain by identifying the block that came before it.
The Way Blockchain Works
This is how blockchain can be used to authenticate and record a Bitcoin transaction.
- A consumer purchases some Bitcoin.
- The transaction data is pushed through Bitcoin’s decentralized network of nodes.
- Nodes validate the transaction that has taken place.
- Once the transaction is approved, it gets grouped with other transactions to form a block that gets added to a growing chain of transactions.
- The finished block is encrypted, and the transaction record becomes permanent and can’t be removed from the blockchain or altered.
Bitcoin’s blockchain is public; therefore, whoever owns Bitcoin can view the transaction record.
It may be hard to trace the identity behind an account; the record depicts which accounts happen to be transacting on the blockchain.
Public blockchains allow any user with the necessary computing power to get involved in authorizing transactions and recording them onto the blockchain as a node.
Not all blockchains are public, and they can be designed as private ledgers, which can make it possible to limit who can make additions or changes to the blockchain.
Private blockchains are still decentralized among the smaller group of participants that they have who participate, and they maintain the security of any data stored within the database with the same encryption strategies as bigger blockchains.
A Blockchain-Based Future
Blockchain provides us with the technology to transport information securely and has almost complete certainty in knowing the authenticity of a bit of information that you would like to protect.
For example, when buying and selling digital property such as NFTs (non-fungible tokens, being that the underlying blockchain record is immutable, NFTs make it easy for their sellers to verify a digital asset’s authenticity.
When buyers purchase an NFT, that transaction gets added to the blockchain ledger and becomes a way to verify ownership.
For people that desire the ability to verify how authentic a piece of digital work is, blockchain technology helps value digital collectibles similarly to their physical counterparts, which makes it helpful for the creators of those works of art to maintain the value by earning royalties on copies made of their digital art.
If banking information was stored on a blockchain, when accounts get opened up with a new financial institution or information gets transferred between various institutions, a blockchain ledger could securely ensure that the details are accurate and legitimate using already-stored information.
If elections get to run on blockchain technology, they could benefit from a voting record that is locked in and cannot be altered or changed later on.
Block technology may also assist food suppliers in more efficiently tracing recalled products or consumers to ignore the purchasing of goods that were created using exploitative labor practices.
Investing with the Future in Mind
Businesses and governments around the world all have a vested interest in understanding and even implementing blockchain technology.
Knowing this in advance makes adding a blockchain-based cryptocurrency like Bitcoin to your portfolio, along with investing in mutual funds that include companies that are developing blockchain technologies, even more important.
These types of mutual funds don’t directly put any of your money in crypto; rather, they invest in select company stocks, which offers a more conservative alternative to especially putting your money into the volatile cryptocurrency market.
You may also like: Blockchain and What It Means to Future
Disclaimer
The information contained above is provided for information purposes only. The contents of this article are not intended to amount to advice and you should not rely on any of the contents of this article. Professional advice should be obtained before taking or refraining from taking any action as a result of the contents of this article. Sandra Hinshelwood disclaims all liability and responsibility arising from any reliance placed on any of the contents of this article.
Image source: Shutterstock.com
