More on blockchain technology

This is the second in a series looking at cryptocurrencies, blockchains, tangles, bubbles and other interesting concepts like mining, forks and paper wallets.

Tech Xplore

Disclaimers:

  1. Neither the author nor WhaleOil are Registered or Authorised Financial Advisors and nothing written here should be construed as advice to buy or sell anything.  
  2.  The author owns a few cryptocurrencies, so is likely to be biased.

The last article introduced the blockchain concept which, surprisingly, is a chain of blocks of data.  And therein lies its usefulness.  The information stored in the distributed ledger called the blockchain is just data, it does not have to be financial data as in Bitcoin or some other cryptocurrency.  

Many other uses are being trialled or are already commercially developed:
Digital Identities, Passports, E-Residency, Birth Certificates, Wedding Certificates, Land Registry, Supply chain auditing, Health records, Cloud storage, Proof of ownership, proof of existence of a digitally time stamped document, digital rights management (music etc), buying spare power from the neighbour’s solar panels, and so on.

Just as AirBnB, Uber and so forth have been disruptive technologies, there is a whole lot more “disruption” yet to come and it will be based on the blockchain backbone.

So, why is blockchain likely to be the “next big thing”?  What is so special about blockchain technology?  Here is a summary from the web.

Decentralization
This is a core concept and benefit of blockchain. There is no need for a trusted third party or intermediary to validate transactions; instead a consensus mechanism is used to agree on the validity of transactions.

Transparency and trust
As blockchains are shared and everyone can see what is on the blockchain, this allows the system to be transparent and as a result trust is established. This is more relevant in scenarios such as the disbursement of funds or benefits where personal discretion should be restricted.

Immutability
Once the data has been written into the blockchain, it is extremely difficult to change it back. It is not truly immutable but, due to the fact that changing data is extremely difficult and almost impossible, this is seen as a benefit to maintaining an immutable ledger of transactions.

High availability
As the system is based on thousands of nodes in a peer-to-peer network, and the data is replicated and updated on each and every node, the system becomes highly available. Even if nodes leave the network or become inaccessible, the network as a whole continues to work, thus making it highly available.

Highly secure
All transactions on a blockchain are cryptographically secured and provide integrity.

Faster dealings
In the financial industry, especially in post-trade settlement functions, blockchain can play a vital role by allowing the quicker settlement of trades as it does not require a lengthy process of verification, reconciliation, and clearance because a single version of agreed upon data is already available on a shared ledger between financial organizations.

Cost saving
As no third party or clearing houses are required in the blockchain model, this can massively eliminate overhead costs in the form of fees that are paid to clearing houses or trusted third parties.

The Sleeter Group

“All transactions on a blockchain are cryptographically secured” and that is where the computing power comes in. There is some seriously heavy duty mathematical computation going on every time a piece of data is stored in the distributed ledger.  (Warning: That link is not for the faint-hearted – your head may hurt after reading that article.)

It is the processing of the data stored in the blocks and securing each block against future tampering that takes masses of computational power.  The reward for doing the work in the Bitcoin blockchain is payment in fractions of a Bitcoin.  This is called mining.  Unless you have some very serious computer kit and access to cheap electricity, do not try this at home.


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Dr Seuss may have been describing WH when he wrote, “He was shortish. And oldish. And brownish. And mossy. And he spoke with a voice that was sharpish and bossy.”  WH, however, is tallish and only just fits in his MG.

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