What is blockchain
Blockchain technology has been one of the most trending topics in the world. It's not just a market phenomenon, but a revolution that will change how we use and do transactions. Businesses have started to notice it too. Bitcoin Magazine says, "Many market observers believe blockchain could shake up various industries from accounting and banking to medical records and even government." In layman terms, blockchain is a system where transactions are recorded publicly by people called 'miners' who take part in it with their computers for solving complex problems. This process verifies all the transactions done by users on this platform which makes them absolutely safe from hacking. It creates a record which cannot be hacked or manipulated as there are thousands of computers working simultaneously to create records. The best thing about blockchain is that it's absolutely free for you to use and very transparent as everything is recorded openly.
So how does it work?
Imagine a library which has all the books of history since time immemorial, this is our blockchain platform. Now, the head librarian wants to update the book 'Blockchain Technology Explained.' All he needs to do is make a quick entry saying 'added on 1/1/2016' and sign his name beside it. He can't change or delete any earlier entries because everyone knows who entered what when and no one would trust him if he tried going against the rules of the system. The latest entry becomes part of history too so no one can question it.
This is how blockchain works. It's a distributed, decentralized database that keeps the records of every transaction done by people since time immemorial. Here there are no intermediaries like in traditional transactions so the users save on time and money which otherwise goes in paying banks or other financial institutions for their services. All they need to do is submit their proposal in bitcoin, litecoin etc., pay the necessary fees for miners to process the deal and voila! You get your funds transferred to you.
The best part about this system is that everything is transparent because of entries being recorded publicly on open books called 'blockchains' for all to see. People who are curious can about historical transactions which are available to everyone.
Problems with Blockchain Technology
1. Security:
As safe as it may seem, blockchains are only protected unless there is a weak link. For example, if someone wants to access shared data within a specific blockchain, you only need to access one node in it. That means that an easy-to-hack device on a blockchain threatens the privacy of the entire blockchain. Unfortunately, that is not the only danger with blockchains. It may be almost impossible to do a job on the blockchain, but it may be possible to authorize fraudulent transactions.
Proof of Identity
Blockchains are very democratic. They use different voting methods to reach consensus. In this case, each owned node receives a vote. Most win! There are problems with authentication authentication algorithms, such as minor overruns or fraudulent small blockchain networks.
It is easy for criminal gangs to get into a blockchain with so many different devices, so they have bought themselves a lot of votes.
Once they have built a majority, they can acquire any authorized transaction.
Proof of Stake
This affects blockchain participants. The weight of your vote is exactly the same as the stake you hold in the blockchain. That means that if you own a lot of assets in the blockchain, you are in control.
If a group of people buys more than 50 percent of the goods on the blockchain, they control the blockchain.
Both Proof of Identity and Proof of Stake Methods can be defeated by 51 percent attacks.
We'll talk about the third method, Work Proof, in a moment. In the meantime, let's talk about how transparency can be reversed.
2. Transparency:
There has been a lot of discussion about the integration of blockchain technology into supply chains. Looks like a great idea! After all, making the chains on offer transparent can provide the closure that everyone needs to make ethical decisions.
However, a public blockchain (the most common form) in a commercial environment is not always a good idea. Why? Because when the supply chain becomes clear, so does the data of all the customers and partners who work with that business. When operating in a commercial environment, complete accuracy is not appropriate, as it allows participants to see what each member is doing in real time. Just as customers will not want all businesses involved in the inventory to access any of their data, an entity will not want their competition to be influenced by the spirit of their intellectual property, privacy, and strategy.
3. Scalability
The larger a blockchain grows, the more vulnerable it gets. If that isn’t enough to convince you, there’s more we need to talk about before you plan on introducing blockchain to your business.
The redundancy of blockchains makes them hard to scale. Every device in your network must have a copy of every transaction made. That means hundreds of copies of the same data!
It requires massive storage, and the bigger the blockchain, the more power the nodes need to process everything.
And even if you have all the digital, software, and hardware needs met, it will be almost impossible to regulate your blockchain.
4. Regulation
Decentralization of authority means there’s no one power to enforce law and order in the network. No moderators, no leaders, not even a regulatory body!
Not to mention how contracts made on a blockchain (known as smart contracts) are not legally recognized as substantial agreements or proofs in most countries.Moreover, since every user can be from a different country, and blockchain surpasses all borders, which laws should apply to smart contracts, agreements, transactions, and cases?
5. Energy Consumption
Blockchain technology consumes more energy than any centralized system. Not only does their redundancy cause them to consume more power than an average centralized cloud-based system, but their transaction validation method plays a great role too.
First, they require more storage than any other system. The electricity required is multiplied by the number of nodes added to a blockchain. Each node stores and processes almost as much data as a central body in any other system.
But that’s not even our major concern here. Remember the third method of validation we were going to talk about? It requires major resources to run.
Proof of Work
In Proof of Identity, every device has equal weight. In Proof of Stake, the largest stakeholders rule. But Proof of Work requires effort on the part of the users and their devices.
When a miner uses Proof of Work to validate a transaction, they are given a complex mathematical problem that requires a great amount of computational power to solve.
The complex mathematical problem has more to do with verifying the transaction through its hash. Why is it hard? Because a hash is merged with another hash upon each transaction.
To make sure a transaction is authentic, one has to track the hash and its history all the way to its origin. Cryptocurrency miners solve these complex algorithms and hash matches, receiving a cryptocurrency reward for each block they validate.
The point of all of that work is to secure the blockchain by making it harder and unfeasible for any criminals to validate fraudulent transactions—all at the expense of high electricity bills and enormous amounts of energy consumption.
It is estimated that Bitcoin alone consumes as much energy as whole countries like Malaysia and Sweden.
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