What Is Blockchain Technology?
Since of Bitcoin's rapid growth in value and the difficulty in comprehending its functioning procedures and complexities, there has been a great amount of uncertainty. When it comes to misunderstanding, maybe the most frequent and high-profile one is that the chaining of transaction blocks into a ledger will somehow cure or improve economic or social issues, or even "revolutionize" them, as is the source of every newfangled overhyped toy made these days.
According to banking executives, journalists and politicians who all share one thing in common: a lack of understanding of how Bitcoin actually works, the mantra "Bitcoin is not important but the underlying blockchain technology holds promise" has been repeated over and over again between 2014 and 2017.
Although Bitcoin's system for verifying the validity and authenticity of the ledger is highly sophisticated, it serves a specific purpose: creating a currency and transferring value online without the need for a trusted third party. Blockchain technology, if it exists, is not an efficient or inexpensive or rapid method of internet transactions. Compared to centralized solutions, it is inefficient and sluggish. Its sole benefit is that it eliminates the requirement for third-party confidence.
If eliminating third-party intermediation is of such importance to end users that it justifies the higher cost and reduced efficiency, then this technology may be used. That's because the code of the blockchain doesn't have any integrated control over anything that happens outside of it, thus it can only eliminate third-party intermediation by relocating the network's native token.
Decentralization must first provide enough value to warrant the additional expenditures. The additional costs of decentralization cannot be justified for any process that requires confidence in a third party to execute even a minor portion of it. Legal monitoring of the real-world execution of these contracts, which may overrule the network consensus, will still apply for contracts dealing with real-world enterprises under legal jurisdictions, rendering the additional costs of decentralization meaningless. The same holds true for decentralizing the databases of financial institutions that will continue to serve as trustworthy third parties in their own operations with one another or with their customers.
A second consideration is that the initial procedure must be simple enough to allow the distributed ledger to be executed on a large number of nodes without causing the blockchain to become too hefty. This process will continue to repeat itself, making it more difficult for dispersed nodes to have a complete copy of the blockchain, making decentralization outdated and making it impossible for the blockchain to be spread.
As this is a very basic and straightforward technical procedure to implement, its ledger grows relatively slowly throughout the course of its existence. This implies that anybody with a computer and internet connection at home may join the Bitcoin network. Even though it takes minimal computing power, stable, controlled inflation has significant benefit for end users because of its decentralization and lack of central authority. All of today's monetary media are in the hands of those who can manipulate supply and demand to their advantage. While this holds true for both fiat currencies and non-precious metals like nickel and palladium, central banks have a huge stockpile of gold and are ready to sell it to prevent it from replacing fiat currencies.
For the first time since the demise of the gold standard, Bitcoin has opened up access to sound money to anybody in the globe. The Bitcoin network's processing power has grown to its biggest ever size because of the very unusual mix of low computational load and strong economic relevance. Over the course of the last eight years, it has been difficult to come up with any use case that is both useful and lightweight enough to warrant being dispersed across thousands of node members.
Transactions may be recorded in many other ways, but this is the only one that does not need a third party to be trusted. Verifiers fight for profit when they attempt to commit a transaction to the blockchain. However, none of them can be depended on or trusted to complete the deal.
Rather, other members of the network who have a vested interest in keeping the network safe identify and stop fraud as soon as it occurs.