The Blockchain

The Blockchain

What makes the blockchain so unique is the decentralization factor, and its high scalability, accessibility. A blockchain is a program that will keep on building onto the data that has previously been stored. Usually, there is a form of consensus, like Proof-Of-Work or Proof-Of-Stake. On top of that, every transaction is made anonymous, but by looking up this anonymous address, all funds and transactions can be seen by everyone.

This architecture allows programmers to define rules which can never be altered after creation, which was one of the two obvious reasons why digital goods weren’t considered goods at all; everything could be copied, taken away, or stopped to exist. Nowadays that is different. Storing money, documents, art, and even votes on a blockchain are yet to come.

Native coins and tokens

On many blockchains, new tokens may be created by the users and the native coin (or token) does already exist. New ones are made by operating the corresponding smart contract, which certain rules for transactions.

This is also defined as tokenomics: a token can be defined to distribute a percentage of the gass fee to its holders, to destroy a few tokens for each transaction which will lead to deflationary pricing, or to check if certain requirements are met. The place those tokens are stored is called wallets. Wallets live on the blockchain and contain a public and private address. The private address can be saved in applications, browser plugins, or mobile apps and the public address is publicly available on the chosen blockchain.

Proof of work, proof of stake

Consensus is made by checking the conditions of a smart contract and confirming this with others. The network will pay rewards to the people who maintain it. This can be done by participating in staking, which is proof of stake. With proof of stake there are computer-programs which live on the blockchain. Those programs do also need to pay gass fee in order to use the network for validation. By staking crypto you are making sure the validation-programs have enough gass fee to maintain the network.

Proof of work however lets users “mine” for cryptocurrencies. By validating new blocks, which are made hard to compute, contracts can also be abided and the miners get rewarded. The implications on the environment are therefore bigger than blockchains with the proof-of-stake consensus. Mining cryptocurrencies is not profitable in most countries now due to the high energy-costs and high hardware requirements. Those requirements can only be met with state-of-the-art processors or multiple video cards; which are almost unobtainable now due to global chip shortage.

Blockchain’s impact on society

Sending money overseas, and swapping currencies is very expensive. If you have never sent money to the other side of the world, the price may even scare you. Nonetheless, it will take a lot of time to arrive and has risks involved. It could be lost, or even stolen. The easier the access to cryptocurrencies, the easier those things get. Because the money will arrive in seconds, minutes, or hours, depending on the chosen blockchain. There is less risk involved and the fees are way less. With Solana for example, the fee for a transfer is about $0,0000025, and it’s processed within a second.

What are smart contracts?

Smart contracts are little programs that are placed on the blockchain, which cannot be interfered with, are always available and will only execute if the conditions are exactly met. This helps to eliminate the long administrative tasks while knowing that they cannot go wrong, otherwise it will revert. Smart contracts also enable exchanges to make sure people can buy crypto and enables dApps (decentralized apps) to achieve a digital revolution even broader than the payment industry.

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