Blockchain and cryptocurrencies proved to be a transformative force in the modern world. Blockchain technology provides a decentralized and secure platform that has the potential to reshape and transform traditional financial systems. It also opened unimaginable possibilities for innovation and research. Blockchain technology provides a fundamental base for cryptocurrencies; it also enables the establishment of cryptocurrencies and pathways for their secure transfer. Blockchain technology provides core components of decentralization, cryptographic security, and transfer mechanisms. The combined effect of these two concepts has provided a platform for a new transformative push in the arena of the financial ecosystem by creating new avenues for transparency, efficiency, and inclusion. However, there are challenges which impede the path of harnessing its true potential. The challenges are in the form of regulatory concerns, anonymity adoption, and widespread acceptance.
Understanding the Concept of Blockchain Technology
As its name suggests, Blockchain is a technology based on blocks of transaction added together irreversibly. Each transaction creates a block, which is added to previous blocks of transactions in the form of irreversible chains. Blockchain technology offers some essential features in the modern world to establish a more secure and reliable financial ecosystem.
Essential features of Blockchain Technology
1. Decentralization is the foremost feature that attracted technology and financial experts to design a new financial ecosystem. Traditional databases are centralized and are controlled by a central authority, whereas Blockchain is decentralized and operates on a network of P2P (peer-to-peer) nodes to establish an agreement/consensus for making a transaction.
2. Financial systems have always been striving for the most robust security. Development in technology has compromised the security of financial institutions many times. Blockchain, through cryptography, offers way more secure channels for data processing and data storage. Cryptographic techniques provide an opportunity for anonymity, which further adds an extra layer of security, especially for back flooding after a network is compromised.
3. Another feature of Blockchain is being unchangeable and irremovable after a block is added to the Blockchain. It is challenging for a block to alter or remove; this immutability makes Blockchain a tamper-resistant network. Moreover, all the transactions that occur in a network are visible to all the participants in the same network, making it more transparent and trustworthy. It also discourages any possibility of fraud and intrusion.
Essential features of Blockchain Technology
1. Decentralization is the foremost feature that attracted technology and financial experts to design a new financial ecosystem. Traditional databases are centralized and are controlled by a central authority, whereas Blockchain is decentralized and operates on a network of P2P (peer-to-peer) nodes to establish an agreement/consensus for making a transaction.
2. Financial systems have always been striving for the most robust security. Development in technology has compromised the security of financial institutions many times. Blockchain, through cryptography, offers way more secure channels for data processing and data storage. Cryptographic techniques provide an opportunity for anonymity, which further adds an extra layer of security, especially for back flooding after a network is compromised.
3. Another feature of Blockchain is being unchangeable and irremovable after a block is added to the Blockchain. It is challenging for a block to alter or remove; this immutability makes Blockchain a tamper-resistant network. Moreover, all the transactions that occur in a network are visible to all the participants in the same network, making it more transparent and trustworthy. It also discourages any possibility of fraud and intrusion.
The Science of Cryptocurrencies
Cryptocurrencies are digital virtual currencies with no on-ground existence. Most cryptocurrencies are based on Blockchain (a practical manifestation of Blockchain in the financial ecosystem), hence offering all the key features of Blockchain technology. The history of cryptocurrencies dates back to the development of Bitcoin in 2009 by an unknown creator, who generally used the pseudonym, Santoshi Nakamoto. Within 15 years, more than ten thousand cryptocurrencies have been developed. Some cryptocurrencies are declared inactive; even then, more than eight thousand active cryptocurrencies are in existence. To gauge the revolution caused by cryptocurrencies, in a mere 1.5 decades, the market cap of all the cryptocurrencies has surpassed the $ 1.5 trillion mark.
Apart from what blockchain technology is adding, cryptocurrencies offer global outreach for their users. Traditional banking systems offer limited reach or much implication in global access. International transactions are complicated in the traditional financial ecosystem, whereas cryptocurrencies offer easy and simplistic access to international transactions. The limitations caused by international boundaries have been blurred and, in some cases, diminished by cryptocurrencies.
What holds Cryptocurrencies back from becoming a true revolution? Let’s discuss some challenges.
- With so many advancements in the field of cryptocurrencies, most countries still need to recognize Bitcoin as a legal entity or currency. Although it is legal in many countries and territories like the US, Canada, the EU, and many more, there are only two countries (El Salvador and the Central African Republic) where Bitcoin functions as a legal currency. This is the case of the most famous cryptocurrency, Bitcoin, which carries more than 90% of the market cap of all cryptocurrencies so that one can understand the situation of other such currencies.
- Secondly, Blockchain works on a network of decentralized chains of blocks, so it isn’t easy to understand the scalability of the network. According to Statistica, there are 425 million users out of 8 billion people, an increase of 8000% from 2016. So, with more users, these networks/ transactions will take more work to handle.
- Lastly, cryptocurrencies are facing the issue of widespread recognition and acceptance. A majority still have trust issues, heavy flux of new currencies with each passing day, lack of understanding of authentic currencies, and fluctuating prices of currencies, which have made things worse. Still, hopes are high because Blockchain chain technology is evolving, and more people are getting it day by day so these issues will be resolved shortly.
Bottom Line
Blockchain technology brought revolutionary changes in the tech industry. The decentralization and security features of blockchain technology encouraged the development of cryptocurrencies based on this technology. The introduction of cryptocurrencies to the world brought a new revolution in the financial ecosystem. Cryptocurrencies have moved a long way within a short period; however, there are still many hurdles to overcome in becoming mainstream currencies.
Best of Luck!
