What is blockchain technology?
For the past several weeks, you’ve likely heard some of the following terms if you’ve paid attention to the world of finance: Cryptocurrency, Blockchain, Bitcoin, Bitcoin Cash, and Ethereum. But what do they mean? And why is cryptocurrency suddenly so hot?
First, we’ll explain the blockchain basics.
As society become increasingly digital, financial services providers are looking to offer customers the same services to which they’re accustomed, but in a more efficient, secure, and cost effective way.
Enter blockchain technology.
The origins of blockchain are a bit nebulous. A person or group of people known by the pseudonym Satoshi Nakomoto invented and released the tech in 2009 as a way to digitally and anonymously send payments between two parties without needing a third party to verify the transaction. It was initially designed to facilitate, authorize, and log the transfer of bitcoins and other cryptocurrencies.
How does blockchain technology work?
Blockchain tech is actually rather easy to understand at its core. Essentially, it’s a shared database populated with entries that must be confirmed and encrypted. Think of it as a kind of highly encrypted and verified shared Google Document, in which each entry in the sheet depends on a logical relationship to all its predecessors. Blockchain tech offers a way to securely and efficiently create a tamper-proof log of sensitive activity (anything from international money transfers to shareholder records).
Blockchain’s conceptual framework and underlying code is useful for a variety of financial processes because of the potential it has to give companies a secure, digital alternative to banking processes that are typically bureaucratic, time-consuming, paper-heavy, and expensive.
Saving the planet, fixing healthcare, replacing conventional currency—there is apparently nothing that the shared-database technology known as blockchains can’t fix. At least, that’s the impression given by the horde of governments, banks, entrepreneurs, and tech companiesworking on the technology. But what is a blockchain and why the excitement? If you’ve got 2 minutes, check out the video above- WIRED can explain.
What are cryptocurrencies?
Cryptocurrencies are essentially just digital money, digital tools of exchange that use cryptography and the aforementioned blockchain technology to facilitate secure and anonymous transactions. There had been several iterations of cryptocurrency over the years, but Bitcoin truly thrust cryptocurrencies forward in the late 2000s. There are thousands of cryptocurrencies floating out on the market now, but Bitcoin is far and away the most popular.
Bitcoin, Litecoin, Ethereum, and other cryptocurrencies don’t just fall out of the sky. Like any other form of money, it takes work to produce them. And that work comes in the form of mining.
But let’s take a step back. Satoshi Nakamoto, the founder of Bitcoin, ensured that there would ever only be 21 million Bitcoins in existence. He (or they) reached that figure by calculating that people would discover, or “mine,” a certain number of blocks of transactions each day.
Every four years, the number of Bitcoins released in relation to the previous cycle gets reduced by 50%, along with the reward to miners for discovering new blocks. At the moment, that reward is 12.5 Bitcoins. Therefore, the total number of Bitcoins in circulation will approach 21 million but never actually reach that figure. This means Bitcoin will never experience inflation. The downside here is that a hack or cyberattack could be a disaster because it could erase Bitcoin wallets with little hope of getting the value back.
Always store large amounts of your Digital Currency Offline! Anything that is not used for trading on an exchange should be stored in cold storage. We will cover more on this in an upcoming article to help ensure you keep your investment safe.
We recommend the Ledger Nano S, the Trezor Wallet and the Ledger Nano Blue (for those with a little more to spend.)
Back to “Mining”
As for mining Bitcoins, the process requires electrical energy. Miners solve complex mathematical problems, and the reward is more Bitcoins generated and awarded to them. Miners also verify transactions and prevent fraud, so more miners equals faster, more reliable, and more secure transactions.
Thanks to Satoshi Nakamoto’s designs, Bitcoin mining becomes more difficult as more miners join the fray. In 2009, a miner could mine 200 Bitcoin in a matter of days. In 2014, it would take approximately 98 years to mine just one, according to 99Bitcoins.
Super powerful computers called Application Specific Integrated Circuit, or ASIC, were developed specifically to mine Bitcoins. But because so many miners have joined in the last few years, it remains difficult to mine loads. The solution is mining pools, groups of miners who band together and are paid relative to their share of the work.
Current & future uses of blockchain technology & cryptocurrency
Since its inception, Bitcoin has been rather volatile. But based on its recent boom — and a forecast by Snapchat’s first investor, Jeremy Liew, that it would hit $500,000 by 2030 — and the prospect of grabbing a slice of the Bitcoin pie becomes far more attractive.
Bitcoin users expect 94% of all bitcoins to be released by 2024. As the number moves toward the ceiling of 21 million, many expect the profits miners once made from the creation of new blocks to become so low that they will become negligible. But as more bitcoins enter circulation, transaction fees could rise and offset this.
As for blockchain technology itself, it has numerous applications, from banking to the Internet of Things. In the next few years, BI Intelligence expects companies to flesh out their blockchain IoT solutions. Blockchain is a promising tool that will transform parts of the IoT and enable solutions that provide greater insight into assets, operations, and supply chains. It will also transform how health records and connected medical devices store and transmit data.
We are in the infancy of a technology that has greater potential for revolutionizing technology and making a bigger impact than the coming of the internet in the 90’s. There is a use case for almost every industry, if we posted all the infographics this would be the longest blog post ever.
If you understand and believe in the impact Blockchain Technology could have and the potential for it to revolutionize technology- buying and holding long term is the best strategy for anyone who is not a seasoned trader.
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