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How blockchain works and how it affects you

Although you may have heard of blockchain technology (also sometimes referred to simply as "the blockchain") somewhere in the news, little effort is made to explain exactly what it does and why it is becoming so attractive. for several companies in various sectors. . For many years this technology has been associated with Bitcoin and other cryptocurrencies, but it is much more than that. If we understand how it works, only then can we realize what kind of potential it brings and how it is already helping many industries run more efficiently.

ContentsDefine blockchainWhat makes blockchains so usefulThe downsides of using a blockchainIt's power hungryThere can only be so much storageImmutability has its downsides

Define the blockchain

How blockchain works and how it affects you

It is easy to understand how blockchains could be used in the financial world. It is an immutable record of every transaction ever made on a distributed network. What could be better than that for a bank?

Since the blockchain itself is spread over multiple nodes, it is easy to recover lost data in the event of a disaster. Let's say you operate a bank in Germany and your branch in Berlin had a technical accident that deleted all of its transaction data. You can simply get the data from Frankfurt. It's all the same! Once the issue is resolved, your Berlin branch will download all transaction data from all other operating branches.

If someone wants to do bad business and alter a ledger to embezzle funds, that can't happen either. The change can only be made if someone manages to get approval from half of all nodes in the network.

But blockchains are not just financial instruments. Technology is strictly a method of storage .

That means anyone can use it!

Air France-KLM, for example, is experimenting with simplifying their supply chain management and making it more efficient.

Ukraine has also put its cadastre on the blockchain to fight corruption in the cadastral services sector.

Mastercard has released a blockchain API that would theoretically make transactions faster across borders.

The fact that everything in the ledger is confirmed by consensus allows for a network that operates independently of institutional procedures. To simplify, let's take the example of the German bank.

Suppose you have a customer who wants to send 2000 euros to someone else in Turkey. Normally, the money would pass through several collaborating banks, then would be converted by the recipient's bank into the local currency. This process takes at least one or two working days, or even longer.

Through the use of blockchain technology, the transaction can take place once it receives automatic confirmation from the distributed network of banks using it. In this particular scenario, the transaction would likely take place within ten minutes or less.

The disadvantages of using a blockchain

How blockchain works and how it affects you

While blockchain technology itself has its charm, it also presents a series of hurdles that we might not overcome too soon. All the hype surrounding it may blind people to the fact that there are very clear downsides to using it that industries will need to mitigate before implementing it on a large scale.

He's hungry for electricity

Since a blockchain must copy itself to every node operating it, this also presents an incredible amount of redundancy. Each time a Bitcoin transaction is made, it is confirmed as many times as there are nodes on the network. This, in turn, consumes a ton of electricity. Private industrial blockchains might not suffer too much because they might limit their blockchains to a handful of computers. However, this problem can arise in companies like banks, which have to process thousands of transactions per minute on a global scale.

There can only-be-so-storage

Currently, to run a node on the Bitcoin blockchain, you need to upload 60 GB of data. What if it was a terabyte? If the Bitcoin market grows significantly, multi-terabyte blockchains could become a reality. After that, only server farms and people interested in large-scale trading with cryptocurrency would run full nodes. This would re-centralize a network that was meant to be a decentralized marvel.

Immutability has its disadvantages

Suppose you have a wallet on the network and you have lost the key you need to authenticate. There is no "reset password" link. There is no support number. Your money has just disappeared. That's it. There is no recovery. You are broke.

On the one hand, if you know how to treat your data responsibly, you will not encounter this problem. Your money will belong to you and you will have absolute control of it. But with that power comes a responsibility that few exercise. This is why up to a quarter of all Bitcoins are lost forever.

Also, if you put something on the blockchain, you have to make sure it's something you wanted to put there. You cannot undo transactions, event logs or anything. It's there forever. Literally.

Weighing it all up, what applications do you see for blockchain in the future? Tell us what you think in the comments!