What is blockchain in cryptocurrency?

Blockchain is one of the key technologies that has radically changed the storage and recording of data in many areas over the past decade.

The word “blockchain” stands for blockchain, which is a chain of blocks (of information/data inside) linked by cryptographic hashes (numbers, letters, signs) that prevent changes to the document without changing the hash itself. This means no one can change/correct the information in the block. A new block is created to make additional entries and a new hash is linked to the previous block.

Although such technology was proposed by American scientists back in 1989, massively talked about blockchain in 2008, when Bitcoin and other cryptocurrencies appeared. Now it is associated not only with virtual currencies but is widely used in the banking system for customer verification and transactions, as well as in the development of cybersecurity programs, in healthcare and data entry into patients’ medical records, logistics, online voting systems, etc.

What Is Blockchain?

Blockchain is a digital ledger that its decentralized nature has characterized. This means that information is stored on several PCs throughout the network, which are also called network nodes. There is no control by the government or any organization. This system of operation avoids the involvement of a third party to confirm the transaction, as is the case with conventional banks.

Information (any type of data) is recorded in blocks, which are numbered. The block itself consists of a header and entered information (list of transactions, operations, etc.). In the header, there is a hash, which includes information about the current block and certain labels from the previous hash. This creates an uninterrupted and consistent chain. It is impossible to correct data in a block without changing the chain. The records in the blocks are not encrypted, you can see the whole history of transactions (who owned a certain currency, who sold it to, etc.). The hash should also be considered as a kind of electronic seal, which confirms that there have been no changes and that all records are valid.

How Does Blockchain Work?

Blockchain is also called an unmodified or distributed digital registry. What makes it different from a regular database is the system of recording data and the process of accessing it.

The data is collected in a block (each blockchain has its block size), once the block is filled, the process of encrypting certain values using the SHA-256 function is started and the hash of the block is formed. The defined labels of one block are written to the header of the next block. As a consequence, the transaction information in each consecutive block is confirmed. If someone were to amend one block, another block would become invalid, as changes must be made to all other blocks. In addition, since there are many copies of the bases, it is impossible to do this; changes by most nodes in the network would not be considered true.

This technology is especially valuable in finance, where the threat of fraud is too high.

Public Blockchains

Public blockchains differ in that anyone can see transactions, read them, and send data to the block. There is no single centralized management body, and users remain anonymous. The minuses are limits in the volume and speed of writing data in a single block.

Most cryptocurrencies involve public blockchains.

Private Blockchains

Private blockchains are characterized by the fact that the right to record transactions belongs to either the administrator or a participant authorized by him. The data is still distributed across multiple nodes. Information gets into the block, without the need to confirm it, and the high speed of the network, a high level of confidentiality.

Most often used in land registries, where access is limited and it is easy to block access to malicious nodes.

How Is Blockchain Used?

Blockchain has become particularly popular due to cryptocurrencies, but this type of data storage has also started to be used in other areas.

According to analytics from Finn Bold, about half of the top 100 companies are already using this type of registry. Most of them (36%) are of course tech companies like Meta, Salesforce, Adobe, and Nvidia.

Then retail business, financial sector, and industry: PayPal, Visa, Walmart, McDonald’s, and Nike.

PayPal allows users to use virtual currencies and withdraw them to external wallets. The giant Walmart uses unchanged registers in the sphere of financial transactions. Visa for Latin America launched a payment kraut with the ability to work with digital currencies. Meta is developing NFT for Instagram.

About 63% of these companies have placed their GOs in the US, only 12% in China and Hong Kong.

The United States Patent and Trademark Office (USPTO) has already registered more than 6,000 trademarks related to NFT or distributed ledger.

Cryptocurrency

Bitcoin and Ethereum have become the conduit for blockchain. Because cryptocurrencies can be bought/sold without the involvement of financial structures, or central authorities, their rate is shaped by the market, and payment transparency is guaranteed by this type of digital registry, they have become very popular, as has the technology behind them.

The huge market of $2.46 trillion with more than 20,000 virtual currencies has been approached by giants such as PayPal, Square, Visa, and Swift, developing products using virtual currencies.

Banking

It was traditional for banks to have payments processed by operators for up to several days. The immutable register has become the mechanism that allows payments to be made securely in a few seconds at any time and any day of the week.

Also, this technology began to be applied to loan agreements. All terms and conditions, accrual of fines, penalties, etc. can be recorded in a coded smart contract, which will be stored in such a database.

AML/KYC procedures are mandatory for banks, blockchain has simplified this. After all, the registry can store all customer data, and provide information about their actions to the regulator to confirm that banks have followed all procedures.

Silvergate Capital, Signature Bank, and JPMorgan have decided to invest in developing banking solutions based on this technology.

Banking sector leader Goldman Sachs even created a website detailing the value and application of such a database. Goldman Sachs began to consider Circle’s USD Stablecoin as an investment.

JPMorgan is already actively using the innovation in the Confirm app to make payments around the world. They have also invested in TRM Labs, a company that uses blockchain to fight financial crime.

At Signature Bank, the portfolio from deposits consists of 16% of cryptocurrencies.

Sweden’s central bank plans to introduce an electronic krona based on distributed ledger technology.

European bank HSBC has created the Digital Vault platform, which allows clients to instantly access their assets.

Asset Transfers

Blockchain speeds up the process and reduces costs when making payments.

Data from a study by Jupiter Research showed that the introduction of an unchanged registry will allow banks to save $27 billion by 2030 on payments alone.

The benefits of the technology:

• fast and secure international payments;
• real-time verification of the truth of values;
• no need to use SWIFT;
• works with fiat currencies, stablecoins, and cryptocurrencies.

Smart Contracts

A smart contract is a digital contract that is stored on the blockchain network. The information is spelled out using programming languages like Solidity. It is a contract between two parties, when one party fulfills certain terms and conditions of the contract (T&C), then the other party fulfills their agreements and a transaction occurs.

Back in 1994, the idea of smart contracts was proposed by an American scientist (conducting digital transactions when conditions are met), but at that time there was no blockchain and it was not possible to realize his idea.

Supply Chain Monitoring

The supply chain from producer to consumer is now very easy to trace. After all, the distributed digital register records when and where the goods were purchased, and how they moved from one continent to another. It became very easy to trace where there were difficulties, where the flight with the goods was delayed, which manufacturer sold a low-quality product.

IBM developed a blockchain platform called IBM Food Trust. It connects all market participants from farmers to the point of sale of produce. Big producers like Nestle, Carrefour, Kvarøy Arctic, Walmart, and Tyson Foods have already joined this system.

For example, the Norwegian farm Kvarøy Arctic provides a QR code for clients. If it is scanned the user gets full information, from the age of the fish, date of catch to the date of arrival at the supermarket.

Voting

In online voting, this digital register serves in a certain way as a ballot box for the ballots of those who have voted. This eliminates any fraud, there is no possibility of voting twice, no need to hire staff to count votes and verify ballots, no need to rent voting premises, and results are shown instantly.

Since 2018, blockchain has been used for voting in Thailand, Japan, and the US state of Virginia.

Other ways

According to EY‘s survey, more than 38% of businesses said they are already implementing such registries in their businesses, and 44% said they plan to implement them within the next three years.

Areas where distributed registries are used:

• In the sale of luxury goods, to create a transparent process of ownership transfer.
• Government agencies for storing identification information, such as date of birth, date of marriage registration, obtaining a certificate, data on driver’s license, etc.
• In agriculture, they help to keep records from seed quality and yield to delivery of goods to the consumer. Farmers also have proof of losses when insuring their crops.
• In publishing, blockchain guarantees the author protection of ownership of text and photo materials. For large libraries, this system is interesting because it can store a large volume of materials and effectively manage it.
• Cyber-sports, where smart contracts are used to achieve a fair distribution of winnings.
• Jurisprudence, with the help of technology it is possible to prove ownership of property. This is especially relevant in a war zone where paper media is not left intact.

Advantages and disadvantages of blockchain

Blockchain technology has only just begun to be massively used in various spheres, its potential has not yet been fully realized.

What are the business benefits of blockchain?

Many industry giants have begun to utilize or explore these digital registries in their respective fields.

For example, JPMorgan has created an entire department called Onyx to develop new blockchain solutions. In 2023, JPMorgan Chase worked with banks in India to test a new program for real-time U.S. dollar transactions.

Some of the most famous luxury goods brands like Tiffany & Co., Dolce & Gabbana, and Gucci have already tested the application of NFT.

In healthcare, industry giants have formed the Synaptic Health Alliance, which is developing a delivery optimization system.

The BurstIQ platform will use smart contracts to decide for users how their data can be applied to medical products.

Pharmaceutical company Novo Nordisk is using blockchain to protect the information of diabetic, obese patients.

Propy is a real estate marketplace where properties are purchased using cryptocurrency or NFT.

Google has set up a whole division of its own, where they are studying the potential of the system.

What’s the future of blockchains?

Blockchain already allows even those who are far from IT technologies to earn money. For example, by purchasing Bitcoin or an ETF exchange-traded fund, the user receives income from the use of the technology underlying cryptocurrencies, financial products, and company decisions. It is predicted that businesses that will use such registries by 2030 will be valued at $3.1trillion.

This innovation has already significantly changed various industries, creating many applications, and platforms that greatly facilitate and accelerate internal processes.

It has become particularly valuable and effective for the financial sector, where the main fight is against fraud. Central banks are actively exploring the possibility of introducing national cryptocurrencies. Thus, central banks want to control the amount of currency on the market, but the transaction will be without the participation of intermediaries in the form of commercial banks.

For health care, innovations allow to management of the supply chain of medicines, to check the authenticity of vaccines. IBM is investing in the development of such solutions when it is possible to trace the supplier of vaccines and their further use.

Blockchain has changed the entertainment industry in the way it has created an effective system for controlling intellectual rights. In the future, it can be used to control censorship and eliminate fraudulent advertising.

Now IT specialists are actively looking for ways to combine the work of blockchain platforms with data and services unrelated to this technology.

In cybersecurity, solutions are being developed to strengthen data protection.

Blockchain is also unique in that it creates new business models that utilize innovative technologies, reduce costs, and control the entire process of the system.