Blockchain, cryptocurrency, Bitcoin, Ethereum. Surely, if you have entered the internet, or left home, at some point you have heard reference to the aforementioned terms.
With the evolution of human beings, technology evolves. And with the advancement of technology, our way of accessing information, people, purchasing processes, or the way we save money and carry out transactions varies. Today we are in the digital age, also known as the information age or the computer age. An era of constant change that leads us to manage our day to day in many different ways.
If we focus on the financial sector, the way of recording transactions has gone from the general ledger to being stored on servers. But these servers remain centralized and managed by banks and government entities. It is in this situation when Blockchain appears, changing the way in which financial information is handled.
From Money Investors, we encourage you to increase your financial training, so that you know how to handle information and develop yourself in the world of finance. If you want to know the sector closely, we can offer you courses adapted to your level, whether you are a beginner or looking for an advanced level, so that you can defend yourself against financial decisions.
Table of Contents
Blockchain: What is it
Blockchain is a decentralized accounting system. Registers the origin and existence of digital assets through a P2P (Peer to Peer) network. In other words, it is a database that continuously records transactions made with digital currency. These transactions are carried out on a peer-to-peer basis, unlike banking systems.
Peer2Peer consists of a peer-to-peer system. It allows users to connect with each other, and share files that are on their computers.
The data is added in the form of encrypted blocks, only after all the nodes that make up the structure verify or authenticate the transactions, reaching a common consensus.
Blockchain is a revolutionary technology that eliminates third parties and intermediaries and minimizes the risks of fraud.
The blocks are made up of data related to digital asset transactions, a unique “hash” number, and a unique block header. The next block maintains the previously formed “hash” number, and connects to the previous one, forming a chain of blocks. Hence the structure is called Blockchain.
To define it more simply, blockchains are data stores, but once you enter the data in the store, it cannot be modified, but new blocks must be created.
How does Blockchain work?
Blockchain works as a public and decentralized accounting ledger, It is a list of records that are continuously attached and stored in the form of blocks.
These blocks are joined, forming a chain of blocks that are protected by cryptography, which causes the confidentiality of the transactions carried out by users to be kept intact.
A chain of blocks is a series of data that is impossible to manipulate after its registration, and that is not managed by a central authority, if not, by a series of computers that we call nodes.
We are going to describe its operation by means of an example:
Imagine that a person named Pedro wants to invest in digital assets. To do this, you must carry out transactions, and these are carried out through an electronic device. When Pedro requests Blockchain or a chain of blocks to carry out the transaction, he connects directly with a person without having to intervene with a third-party mediator.
At the time of the request, a block is started to store the details of the transaction. The data that is formed at this level is sent through the network to identify the authenticity of the transaction. This is when the first node that is in charge of verifying the transaction intervenes.
When Peter’s transaction is verified, it becomes part of this database permanently. This database is used to validate other transactions of this type in a P2P network, if necessary.
If Pedro decides now that he wants to sell his digital assets to someone else, the original block that was created with the purchase of those assets will remain the same. So, to make the sale between Pedro and the buyer, a new block is created in the Blockchain network with another unique identification number.
This creation of new blocks and the impossibility of modifying data in a block makes hacking or manipulation of transactions impossible. For any type of operation, a new block must be created.
When the transaction is complete it produces data related to the transactions and is stored in blocks, which are chained together, with the help of the Hash number of the previous block.
The security provided by this structure is also due to the decentralization of the blockchain. No person can alter the asset based on their specific needs, but it has to be validated by most nodes.
Types of Blockchain
We can find several types of Blockchains or blockchains, but in this post, we will mention the 3 main types of chains:
Public blockchains
They do not have access restrictions, they are usually transparent to all people with an internet connection. These types of chains are totally decentralized since they are not created to be owned by an individual or organization. For example, the blockchain Bitcoin, or Ethereum belongs to this type of blockchain.
Private blockchains
These types of chains restrict who can access the network. An administrator is in charge of restricting or authorizing access to the network.
Users can be companies or people who want security in their transactions and control who has access to them. The advantage of this chain is that the verification mechanisms take less time. An example is Ripple’s blockchain, which owns a private network.
Hybrid blockchains
These chains are a combination of public and private Blockchains, depending on the needs of users and applications.
This type of Blockchain benefits mainly companies. It is intended for corporations that want to have secret projects hosted on a private blockchain, but who in turn have a product that their clients must use, so they should handle public chains.
Benefits of cryptocurrencies and blockchain
Cryptocurrencies get benefits from Blockchain. The security of making transactions within a chain of blocks, and the speed, are some of the benefits.
We are going to mention below some of the advantages of the use of cryptocurrencies and the use of blockchain.
- Elimination of third parties.
- Increase the speed of transactions.
- Improves connectivity through the P2P system, peer to peer.
- Transactions can be made regardless of time or place.
- It is accessible from anywhere in the world.
- Transaction fees are much lower, and there is less risk of transaction failure.
- There is no risk that the expense will be increased by the transaction.
- Eliminate the fear of account suspension.
- There is no minimum balance to carry out transactions.
Most popular blockchains
Ethereum
Ethereum (ETH) is a block system that manages the leading cryptocurrency after Bitcoin.
While Bitcoin uses Blockchain, an infrastructure destined to become a successful P2P financial system, Ethereum focuses on executing the programming code of its own network. This network is similar to that of Bitcoin, but with some peculiarities.
Within Ethereum we can find the main cryptocurrency, Ether, which haunts the leading cryptocurrency, Bitcoin.
We can also find the network’s own tokens that are used to carry out transactions and obtain rights and privileges. The most important token on the Ethereum network is ERC-20
Polygon
While decentralized applications do not stop progressing, the blockchain system is not evolving at the same speed. The current structure is not prepared for the growth in demand, since currently there are problems of slowness, in addition to problems with high rates that appear due to high energy consumption.
In this context, Matic Network was born. Matic is a project to update the Ethereum architecture and aims to improve interaction with users. It also seeks to solve the problems of low speed and high rates. Among the objectives of Matic also stands out trying to solve the problems of the complexity of the system, for any inexperienced user.
Polygon is what we knew as the Matic network or Matic Network, and its main objective was to solve the existing scalability problems in Ethereum. To do this, the Matic network relies on huge, high-quality libraries, which allow the creation of applications for the web and mobile devices that go beyond current technology.
Cardano
Cardano is a smart contracts platform, similar to Ethereum, with a focus on security through a layered architecture. The so-called ‘third-generation blockchain’ is the first of its kind created from scientific philosophy and built on peer-reviewed academic research.
The team behind Cardano is creating it with the end-user and regulators alike in mind. They are trying to find a middle ground that balances the need for regulation with the principles of privacy and decentralization that are at the core of blockchain technology.
The platform also exclusively uses Haskell, a programming language with a high degree of fault tolerance. With the relatively unknown future and the complexity of blockchain-based systems, it is important to build flexibility into projects. It is almost impossible to know what a system can have in months or even years, so it is important to have a robust language like Haskell that allows a certain margin of error.
Summary
Blockchain constitutes a structure to carry out financial transactions or store information, which allows greater speed, security, reliability, and comfort for users. It is the best environment for the transaction of cryptocurrencies and to make the purchase/sale of digital assets without the need for a third party to validate the operation.
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