Description of Blockchain Technology and what problems does it solve?
WHAT IS BLOCKCHAIN ?
What is Blockchain? Description of Blockchain Technology and what problems does it solve?
Blockchain technology was born out of a crisis. When the Bitcoin whitepaper was released in 2008, the world was in the midst a recession the International Monetary Fund described as the most severe economic and financial meltdown since the Great Depression.
While the world has moved on, the issues that caused the depression still remain. The financial system that underpins this world has maintained its monopoly. The world's global elite exert more control than ever. Governments have been 'too slow' in tackling the existential threat posed by climate change. And marginalized communities struggle to have their voices heard at a local and global level.
Breaches in people's privacy, identity, hacking, and other matters has made the internet 'unsafe' for many uses. Simply put, the existing Web2 network is exploited by corporations and governments making it a potential threat to democratic values and free speech. Blockchain technology was designed as an antithesis to what came before. Blockchain technology is at the heart of Web3 - a vision of a decentralized Web which evenly distributes power and control and helps level the playing field when it comes to inclusion and participation. Above all, it ensures protection of privacy and identity.
What problems does blockchain solve?
People seem to be raving about blockchain technologies and new startups are popping up to apply it to new industries every week. How does blockchain actually help a sector like healthcare, finance, education, transportation, manufacturing, retail, etc? How will blockchain technology be used in the Metaverse?
For one, blockchain keeps track of who owns what, even as those things change hands, without requiring some central body to keep track of it all. The easiest way to think of it is an instant, incorruptible market that somehow magically just works. So in the Metaverse ecosystem, you digital assets will be secure and in your control.
To know why that matters you have to understand the problem(s) it's solving - it's something people have been working on since the beginning of money. Historically societies have been trusting centralized authorities with their money and assets. In the past you've needed something like a bank or a government or a company with the authority to store your money and assets, to declare what you own etc. And when you sold your asset or moved it from one place to another, these 'middlemen' charged a heft transaction fee. Each year, the banks and middlemen earn trillions of dollars in profits from float, transactions and various escrow and custody fee.
The digital nature of the blockchain ledger technology means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions without any middlemen and just pay a tiny fraction in transaction fee. Below are the powerful features of blockchains that almost all individuals, and private and public sectors sectors benefit from as they move into the Web3 and Metaverse realm:
Immutability: There are some exciting blockchain features but among them "Immutability" is undoubtedly one of the key features of blockchain technology. But why is this? Immutability means 'Irreversibility of Records' - something that can't be changed or altered forever. Once a transaction is entered in the blockchain database and the accounts are updated, the records cannot be altered, because they are linked to every transaction record that came before them (hence the term "chain").
Decentralized: The blockchain network is decentralized - meaning it doesn't have any governing authority or a single person controlling the network. Rather, a group of computer nodes scattered across the globe maintain the network equally making it decentralized. This is one of the powerful features of blockchain technology as the system doesn't require any governing authority to run it. No one can shut anyone out of the network. Malicious actors are blocked automatically by computational logic and powerful algorithms. Anyone can directly access and use the blockchain network if they have an internet connection. You can store anything starting from crypto-tokens, cryptocurrencies, nft's, important documents, contracts or other valuable digital assets and you have direct control over them using your private key. This decentralized structure is giving the common people their power and rights back on their assets.
Encryption and Enhanced Security: Since Blockchain gets rid of the need for a central authority, no one can just simply change any characteristics of the network or transactions for their benefit. Added with decentralization, cryptography lays another layer of protection for users. Cryptography is a complex mathematical algorithm that acts as a firewall for attacks. Every information on the blockchain is hashed cryptographically. In simple terms, the information on the network hides the true nature of the data and is practically 'unhackable'. There are many other applications of cryptography in Web3 beyond transactions. One example that stands out is Decentralized Identity (Self Sovereign Identity).
Distributed Ledgers: Distributed ledger (database) technology prevents suspicious activity or tampering. No one can change the ledger and everything updates real fast. Tracking what's happening in the ledger is quite easy by all these nodes. Every active node has to maintain the ledger and participate for validation and removing the intermediates quickens the system response. Any change in the ledger is updated in minutes or even seconds.
Consensus: Blockchain architecture is cleverly designed, and consensus algorithms are at the core of this architecture. Every blockchain has a consensus mechanism to help the network make decisions. In simple terms, the consensus is a decision-making process for the group of computer nodes active on the network and the computer nodes come to an agreement quickly and relatively faster. The consensus is responsible for the network being trustless. Nodes might not trust each other, but they can trust the algorithms that run at the core of it. That's why every decision on the network is a winning scenario for the blockchain.
Frictionless and Fast Settlements: Frictionless business is how it should be in a world of wireless and light-speed technology. However, business has instead been bogged down dramatically by archaic and 'sticky' processes, with the never-ending growth of bureaucracy making business action ever more difficult to take. Traditional banking systems are quite slow. Sometimes it can take days to process a transaction after finalizing all settlements. The transactions can also can be corrupted quite easily. Blockchain enables super fast settlements compared to traditional banking systems. Users user can transfer money almost instantly at a fraction of the cost of the banking fee.
Self-Sovereign Identities & Decentralized Identities (SSiD/DiD): Decentralized ID (DID) and Self-Sovereign ID (SSID) are related concepts in the field of digital identity management. They both aim to give users more control over their personal data and reduce reliance on centralized authorities since Blockchain is the fabric on which these identities exist.