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Blockchain: the FinTech future or cryptocurrency HYIP?

07/04/2019 21:28
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People have learned about cryptocurrency and blockchain technology a long time ago, but we still have a lot of questions and controversy about this topic. Many people are interested in innovative technologies: they talk about cryptocurrency in the media, discuss the possibilities of legalization, talk about the equations between cryptocurrency and fiat tools, economists are interested in the prospects of the blockchain, too. Nevertheless, direct participants of the process carried out the most active disputes: traders, investors, as well as owners of various cryptocurrency startups.

What is blockchain

In fact, this is a chain of blocks that are arranged in a clear sequence. Each of these blocks contains information. For example, if it is a cryptocurrency blockchain, then each block creation will create a new coin. This process is called mining. Mining was quite popular when Bitcoin just appered on the financial market, but now this process is to expensive.

There are two main types of blockchain architectures:

Client-server network. This type of architecture is used less frequently, as it implies the presence of centralized control over what is happening in the network. The advantage of such a network is that all the information that is necessary for operation and logic are inside the server. This reduces the load on the client devices and allows you to process data quickly.

Peer to Peer Network. This is a decentralized blockchain. Such a network simply does not have any center, and all its members are equal. Thus, each member of the network not only uses the service for its own purposes but also acts as its provider for the rest. So, this type of network is good for users, as long as any fraud or mistakes here becomes simply impossible.

Types of blockchains

Distributed registries are also divided by type. Thus, today we have two main types: public and private blockchains.

A public blockchain is a database that is open to users and can be equally complemented by each of them. Such networks are peer-to-peer. This is a popular type of blockchain - for example, the same system is used for Bitcoin. In the public blockchain, each of the participants can make entries in a distributed database.

In fact, a public blockchain is a distributed database of any of the existing cryptocurrencies. Among the most popular examples are:

  1. Bitcoin. The “main” blockchain, where the Bitcoin network and other cryptocurrencies have their formation and base. This is the most popular blockchain nowadays.
  2. Ethereum – a blockchain that is functioning as an integral decentralized virtual machine. It supports cryptocurrency and can be used to create third-party applications, services, and coins.

The private blockchain is a network that can have certain restrictions for users: so, not always and not everyone in such a blockchain will be able to make changes and add new entries. In addition, in such a network, you can prioritize nodes. A private database is an exclusive blockchain that is separately established by a group of individuals, who perform all the work of processing transactions.

We can give such examples of private blockchains:

  1. Hyperledger Project - the project is developing distributed registry systems for various corporations. The system is most often used to work in the areas of banking, manufacturing, various types of insurance and the Internet of Things. Such famous companies as JP Morgan, American Express, IBM, Well Fargo, Nokia have already managed to use the project services.
  2. Mijin is another platform for building private blockchains. Mijin appeared as a fork of NEM cryptocurrency, and soon became a platform for creating systems that may replace traditional databases. Most often, the platform is used for such areas as insurance, services for the calculation, air transportation, service, and management systems, as well as online games.
  3. Axoni is a company that creates private blockchains for third-party customers, usually from the financial markets industry. The main features of this company's blockchains are an improved system of smart contracts and high throughput.
  4. Eris Industries is manufacturing tools for creating new private networks. Such blockchains can be created based on Ethereum, Bitcoin or any other independent blockchains. One of the company's first blockchains is Everledger (a database of diamonds).

There are just a few examples of private blockchains. You should remember that there are a way more private networks in the world today.

Distributed database features: the main advantages

It is worth noting that in many ways the blockchain technology has become popular due to its key features.

Decentralization. When they talk about the advantages of a distributed database, decentralization is mentioned first. In the majority of used blockchains simply has no center or the main server. The computers of each of the network participants perform its function. Each such computer is a separate private server, and all the participants’ computers together support the network functioning.

Transparency of all transmitted information. Thus, all transactions, all sorts of contracts and other actions of network participants remain in the public domain for all users (except for cases when the blockchain is private). Despite the fact that the information remains publicly available to all network participants, no one can change the data that has already been written to the block.

Reliability. Working with a distributed database, you can be completely sure that your information will not disappear or stolen by intruders. Such security is ensured by a consensus of all participants (to enter new data, confirmation of all network users is required). Thus, transactions become very easy to control, and they are recorded only if they are confirmed as legitimate. At the same time, it is impossible to replace the code that is necessary for creating a new block.

Infinity. In theory, the blockchain cannot be limited. In fact, any blockchain can be supplemented with new information blocks to infinity, and the storage of such a database will never end.

Where can we use the blockchain for

The technology of the distributed registry became popular precisely due to cryptocurrency. Nevertheless, the blockchain can easily be applied to other areas of activity. For example:

Voting. If you use the blockchain to collect votes, people will no longer have to worry about the transparency of the elections. Results will remain reliable and accurate, along with the complete anonymity of users. My Vote enthusiasts, an open source project, was the first blockchain of this type. In 2016, the Estonian government merged with Nasdaq to create a state platform for digital residence, e-Residency. The platform was used to simplify blockchain voting at shareholders' meetings of companies listed on the Nasdaq’s Tallinn Stock Exchange.

Management organizations - both private and public. Thus, the blockchain is used for organizing state administration, communication with citizens, assistance to members of society and management within organizations of different directions.

Logistics. It is possible to create blockchain-based applications that will help various stores track the movement of the goods. In such a system, it will be very easy to track information about the parcel processing and arrival time at each point along the way. The user will be able to track the status of the package, temperature, storage conditions and similar necessary parameters.

No limits. The blockchain is also used to monitor the viewing of advertisements, any class of operations with goods and raw materials, access rights and authenticity checks, and even for video game gambling. The blockchain is applicable to any other area that you only have an imagination. Therefore, we can say that cryptocurrency helped blockchain to become a popular technology, but it is not a limit.

Blockchain over banking systems: main advantages

Technology would not become so popular in the financial technology world if it did not have truly revolutionary qualities that attracted new followers. Among such advantages are:

  1. Protection and anonymity. When the information gets into the block, none of the users will get access to it, unless the author of this block authorizes them. Thus, cryptocurrencies remain anonymous and protected, and other information (for example, databases banks or other institutions that are using blockchain) will not be obtained by intruders and other unauthorized persons.

  2. No fees. Unlike banks with additional fees, the use of blockchain will not require you to spend any possible permanent expenses. All commissions in the blockchain are either set by the users themselves or absent at all.

  3. An absence of third parties. There are no intermediaries in blockchains because all the operations occur between users. Thus, only the sender and the recipient know about the transfer of funds.

Nevertheless, blockchain does not oppose banks - sometimes a technology even cooperates with government agencies. A prime example is the Ripple platform.

The service is a decentralized platform for payment systems; it focuses on currency exchange transactions. A feature of the site is that making repayments is simply impossible here. So, the Ripple technology become popular among banks and users pretty fast.

As noted by banks, technology helps to save money on transfers, because it has become so popular and beneficial to use banking directly. Among the institutions that have already implemented the Ripple technology were Santander, Yes Bank, Westpac, Axis Bank, Union Credit, UBS, and NBAD.

Blockchain disadvantages: what you need to know

Despite all the advantages and features mentioned above, the blockchain also has some disadvantages too. As a rule, most of these disadvantages are associated with the use of cryptocurrency.

  1. The need for electricity. Electricity is needed every once a new transaction needs to be confirmed. Considering the fact that several confirmations are necessary for one transfer to the network, the cost of electricity increases. This state of affairs may not be very convenient for banks - many will not have enough resources to provide technology.

  2. Anonymity. Despite the fact that anonymity is good for people and is one of the main advantages of the blockchain, it also has a negative side. In case you forget the password to your cryptocurrency wallet, you can only restore it with a special code. If such a code is lost, then access to the wallet and funds also disappears.

Future of the technology

The blockchain is considered a very promising technology. The features of the distributed database are extensive and are not limited to cryptocurrencies. In addition, the convenience and rationality of technology attract more and more people who are willing to apply innovation to their business every day. Globally, it would be difficult to predict the future of technology, but one thing is certain: in those areas where it is important for people to arrange remote interaction between network participants and at the same time it is necessary to preserve transparency and decentralization, the blockchain will certainly play its role.

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