Blockchain and Cryptocurrency – What you need to Understand

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Blockchain and Cryptocurrency – What you need to Understand

“Blockchain” & “Cryptocurrency” have over recent years gained popularity across public and private agencies, businesses, media & international organizations, for their potential industry disruption, yet it seems to leave more questions than answers. Here is what you need to understand about blockchain and cryptocurrency and why the two have gained so much popularity across the world.

Blockchain technology is part of the 4th Industrial Revolution built on technological advancements. These include artificial intelligence, internet of things among others. Picture the Excel spreadsheet you have on your computer, and how it is similarly distributed across thousand devices. Blockchain is a peer-to-peer distributed ledger that is secure and used to record transactions across many computers. The secured blocks of data are bound to each other and this data is distributed across hundreds or thousands of computers which make a network. A party to the transaction initiates the process by creating a block. The block gets verified by the various computers distributed across the net. Once verified, the verified block is added to the chain. The added new block is linked to the previous block. It creates a unique record and updates the record.

Cryptocurrency is a medium of exchange of value created and stored electronically in the blockchain using encryption techniques. It is these encryption techniques that control the creation of monetary units and verify the transfer of funds. Recorded transactions in a block of data and secured using cryptography hence the term cryptocurrency. Cryptocurrency is not tangible nor does it take other forms of currency. It only exists on the blockchain and is accessible using codes also known as public and private keys. Cryptocurrency is pseudonymous in nature, as such to prove that you own it you have to have the keys to it. The most famous cryptocurrency is Bitcoin. This is a blockchain application invented in 2008 by Satoshi Nakamoto. Yet other cryptocurrencies such as Litecoin, Ethereum have come up since then. Blockchain technology has three key features that that make it desirable. They are accountable to it’s potential growth across the globe. These include decentralization, immutability and transparency.

In a decentralized system, data stored is across all users’ devices and as such, there is no single common database. The users control and manage their own data themselves without a need for a third party. This feature is based on the data ledger distributed and shared across hundreds or thousand entities on the network. In a centralized system data control and management by a single entity poses risks. Single entities are target spots for potential hackers. In a decentralized system, a hacker stands no chance because altering information on a single ledger would mean having to alter all the ledgers distributed across the network which is virtually impossible. Should your device get stolen or destroyed, there is no loss of data because the stored ledger still exists across many other devices.

Immutability from the word immutable, means it is unable to be changed over time. Data stored on the chain is immutable and secured using cryptography an art of writing codes. Each block of data is linked to a previous block referenced using a hash generated by the cryptographic hash function. Tampering with data of one block subsequently generates a different hash. Users can easily trace any alteration at any point in the blockchain without having to verify the contents of each block on the ledger.

Considering that blockchain is pseudonymous in nature, one would wonder how transparent it is. Blockchain strikes a balance between transparency and privacy. Personal identities on the blockchain are hidden. Digital public address are what identify individuals or entities. But, each transaction is open for viewing to the users across the network. While all the transactions can be tracked and recorded across the network, users’ personal identities remain hidden and only their public addresses visible. This key feature is the reason why blockchain has gained popularity.

The advantages of blockchain technology are clear from these features for example; it allows verification of information without depending on third parties, data ledgers are secured using cryptography, transactions that take place are transparent even when the users are hidden, various consensus protocols are needed to confirm the entries to the ledger removing the risk of fraud or duplicate entry as Ian Khan argued; “As revolutionary as it sounds, Blockchain is a mechanism to bring everyone to the highest degree of accountability.”

Industries such as banking, healthcare, property, transport, media and entertainment among others, stand to enjoy blockchain technology. Some of the benefits of blockchain include;
Supply chain management; Blockchain can aid in tracking the movement of goods, their quantity, origin, among others. E.g goods with a batch number. It offers the benefit of trace-ability and cost effectiveness.
Accounting; transactions recorded on the blockchain are tamper proof and free from human error. The records have to be validated to make a new entry. This leaves a traceable audit trail.
Smart Contracts; this is defined as a computer program that controls the transfer of digital currencies or assets between parties upon fulfillment of certain conditions. Upon fulfilling the conditions, the actions are automatically triggered. This means users can confirm, sign and enforce agreements through blockchain which saves time and money.
Static Registry; an example is the land title registration. The ledger contains records contains for reference purposes. Property titles can be ledgers accessible by the public. Blockchain makes record keeping more efficient because you cannot alter the information. A case in point is Bitland which offers imputable digital land registration.
Peer to Peer Global transactions; The rise of Bitcoin and every other cryptocurrency has enabled fast, cheap and secure means of transfer of funds across the globe. Services like PayPal process international payments at a required fee per transaction. But with cryptocurrency on the rise, businesses prefer free movement of their funds across the globe without having to incur extra costs.

As the world becomes more digital, blockchain technology plays an important role, offering better solutions of securing data and making transactions between individuals easier. We have the task of adoption of this technology as well as tackling the potential challenges to its adoption.

Ijuka Joab is a lawyer and advocate. Follow him on twitter @Ijuka_J

CGPSS’ Note

All views, positions, and conclusions expressed in this publication does not represent CGPSS but solely reflect those of the author(s).

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