Blockchain is the Backbone of Digital Currencies
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Blockchain is the backbone of digital currencies
Mahdi Hanoun Al-Alaq
Blockchain stands for Blockchain, which is a digital ledger in which online transactions are recorded and is the primary database and digital archiving system for cryptocurrencies such as Bitcoin which was the first currency to be organized within its framework.
Permanently, it is similar to a bank ledger, but it is open and accessible to users of the cryptocurrency, as all transactions are stored in it and anyone can see these transactions, which is the reason for the emergence of cryptocurrencies. This innovation ensures the accuracy and security of the data record and generates trust without the need for a third party Trusted (bank).
In addition to its position in the context of cryptocurrency, the blockchain is used to process transactions in paper currency such as the dollar and the euro, and it has the ability to send money faster than banks and financial institutions and process transactions outside working hours, or transfer a title deed without submitting papers manually to update government records as it is updated At the moment, another innovation of the blockchain is "self-executing contracts" or what are usually called "smart contracts".
These digital contracts are applied automatically once specified conditions are met, for example a sum of money may be released for a commodity immediately, and once the buyer and seller meet all the specified conditions of the transaction, a properly encrypted smart legal contract can reduce, or eliminate the need for parties Third party verification of the process, experts are also looking for ways to implement blockchain to prevent vote fraud during elections which will remove the need for people to collect and verify paper ballots manually.
The assets traded in the Blockchain take two forms, the first is tangible (house, car, cash, land) or intangible (intellectual property, patents, copyrights, trademarks) and anything of value can be traded on the Blockchain network, reducing the risks and lowers costs for all involved, including “compliance” costs.
To illustrate this with a simple example, if we suppose that a company owns 10,000 computers that it uses to maintain 44 databases containing all the account information of its customers and employees and stores its devices in a warehouse that includes all computers under one roof and has full control over each of those devices and their information. , a failure may occur such as a power outage, disconnection from the Internet, a fire, or a bad user erasing everything with one click, this causes data loss or corruption.
So what the blockchain does is allow the data in the database to be spread among many network nodes in different locations, this step not only replicates the process, but also maintains the accuracy of the stored data - if someone tries to change a record in one location of the database, Other nodes will not be changed and thus will prevent any data sabotage. If one user tampers with the Bitcoin transaction history, all other nodes will review each other and the node with incorrect information is selected, meaning that the majority of nodes confirm the validation and confirmation of the legitimacy of the new data before adding a new block to the ledger, which helps the system to establish an accurate and transparent arrangement of transactions as it is difficult to make a change in information.
There are two types of Blockchain, one is Public Blockchains
and the other is Private Blockchains.
In public, anyone can read, write or audit the data on the chain of nodes, and it is very difficult to change the transactions that have been recorded in the Public Blockchain. .
As for the private, the data is controlled by an organization or group that decides who is invited to enter the system and has the control to change it.
Disadvantages of the Blockchain Given that the blockchain relies on a larger network to approve transactions, there is a limit to how fast it can move, for example Bitcoin can process only 4.6 transactions per second versus 1,700 transactions per second with Visa. In addition, the increasing number of transactions can lead to network speed problems, so it is a huge challenge if it is not improved in the future.
Another drawback that can be pointed out, is that some digital assets are secured with an encryption key, such as the cryptocurrency in a blockchain wallet, which calls for close monitoring of the encryption key, when the owner of the digital asset loses his encryption key, which gives him access to his assets , he will not be able to retrieve it permanently, because the system is decentralized, so you cannot contact a central authority (the bank for example) that you deal with, to request the restoration of access.
As decentralization and the expansion of privacy and secrecy attract criminals, it is difficult to track illegal transactions on this system, and today the most common use of blockchain is confined to cryptocurrencies, as it is the fertile ground for them, such as Bitcoin, Ethereum and other currencies. Transactions are on the blockchain, and the more people use the cryptocurrency, the more widespread this technology becomes.
In connection with the above and within the clarification of some digital concepts, cryptocurrencies are a form of digital (electronic) currency that can be used to verify the transfer of assets, control the addition of new units, and secure financial transactions using encryption, which are not subject to any central control.
There are many cryptocurrencies available in the market, the most popular of which are (Bitcoin, Ethereum, Tether, Pines..etc)and the lights will be highlighted here on Bitcoin and Ethereum, as they are the two most popular currencies at the present time.
Bitcoin and Ethereum are similar in many ways, both are a digital currency that is traded online in a decentralized manner, which means that they are not issued or regulated by a central bank or other authority, and both use the blockchain distributed ledger technology (as mentioned above) in transactions and trades
And the intention was to Ether could supplement rather than compete with Bitcoin, but it has emerged as a competitor on cryptocurrency exchanges, Bitcoin is compared to digital gold because it was the first and largest cryptocurrency with a market capitalization exceeding $1 trillion, while the limited supply (the maximum number of Bitcoins that can be mined is 21 million), and Ethereum is compared to digital silver as it is the second largest cryptocurrency by market capitalization.
Bitcoin was launched in January 2009, and it presented a new idea that was put into a white paper by a mysterious person named Satoshi Nakamoto (Satoshi Nakamoto), the pseudonym who coined the original Bitcoin whitepaper, which is the identity that is attributed to the invention of this currency, while many claimed The people are Satoshi, and so far the true identity has not been verified or revealed! .
This currency contributed to the emergence of a new form of digital money that operates outside the control of any government or company, although Bitcoin was not the first digital currency on the Internet, it was the most successful in its efforts, and it was known as the reference for all cryptocurrencies that were developed Over the past decade, it has been recognized by major global companies such as AT&T, Microsoft, Nike, Starbucks, some car dealers and the Swiss insurance company AXA.
Some people buy Bitcoin because they want to store it somewhere other than the bank, while others buy it to invest, believing that its price will be more than now in a few months or years, as the value of one Bitcoin is about (39,000) dollars.
As for Ethereum, it is the second most popular digital currency in terms of market capitalization, and it was launched in July 2015 with a value of less than $3. It is the largest open-ended decentralized software platform that also allows the deployment of smart contracts and decentralized applications as it was built and operated without any downtime or Fraud, control or third-party interference, which has also been relied upon by British law firm Gunnecooke and Microsoft chip maker AMD.
The use of “Ether” is limited to two paragraphs, the first of which is its trading as a digital currency on exchanges in the same way as other cryptocurrencies, and the second of its use by people around the world ETH to make payments, a store of value, or a guarantee, as the value of one ethereum is about (2630) dollars.
As for the difference between the two aforementioned currencies, it is related to the general objectives, as Bitcoin was created as an alternative to national currencies and therefore aspires to be a medium of exchange and a store of value, while the goal of Ethereum is to be a platform to facilitate contracts, immutable applications and programming through its own currency.
In terms of scaling, the Ethereum system is growing continuously thanks to the increasing popularity of dApps in several areas such as (decentralized finance), arts, games and technology, and this enabled ETH to increase demand to 510% in November 2021, compared to a gain of 93% for BTC, as a result, the market capitalization of ETH was 528 in January 2020 which has a market share of 23.4%, while the value of BTC of $ 1.08 trillion since November which represents about 48% of the total cryptocurrency market valued The market value of more than 2.25 trillion dollars, while according to the latest report in the current month of March, the market value of Bitcoin reached more than 750 billion dollars, while Ethereum amounted to more than 320 billion dollars.
In conclusion, it is possible to raise some questions that may be answered in the near or far future:
Will we see an expansion of the blockchain in the future, especially in our Arab world?
Are there indicators of the reliability of digital currencies?
Will the rest of the less popular currencies disappear in the future?
Will central banks tighten their monetary policies affect the volume of cryptocurrency trading link