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Blockchain and Its Relationship to Cryptocurrencies

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Mr zino Engineer graduated from the University of Batna 2, my hobby is writing, researching, and working online

Blockchain

Blockchain

What is blockchain technology and what is its relationship to digital currencies?

Blockchain technology has received wide attention over the past years, and has made a qualitative leap in the world of the digital economy, due to the protection it provides, as the information stored in this technology cannot be pirated or manipulated, and through this article we will learn about this technology and its mechanism of work and wide uses.
Blockchain: To store digital currencies away from piracy and counterfeiting, blockchain can be defined as a technology for storing and exchanging information in a decentralized way; it prevents data manipulation, piracy or counterfeiting, and its use is especially prevalent in digital currencies and associated technologies, such as smart contracts, and non-exchangeable tokens.
What is the mechanism of action of blockchain?
The basic principle of blockchain work is not to store data on a central server and distribute it to network members, but to create blocks or copies of the dataset and instantaneous changes to it, such as transfers in the case of cryptocurrencies.

Cryptocurrencies

Cryptocurrencies

What are the most important elements of blockchain?

A blockchain network consists of several basic elements that can be illustrated as follows:

1. Blocks
Each block contains information related to the real-time change to the data, and in the case of cryptocurrencies, each block contains, for example, the latest transfers and instantaneous changes to users' balances, along with other information to confirm the validity of the block.
2. Hash
It is one of the methods of one-way encryption, and each block contains its own hash and the hash of the previous block to maintain the sequence of blocks, and the hash is created through a mechanism adopted by each blockchain called the "consensus mechanism", and has two basic types, which are as follows:

  • Proof of work

According to this mechanism, those who want to create the new block and certify the transactions made within it will have to spend a lot of computer energy to create the hash of the block, and the number of attempts made by the computer is attached to the information of the base block; as proof that enough computer power has been exerted to create it, which is the method adopted in Bitcoin and many other currencies, and the user who performs this task usually receives wages in the form of new currencies that are created with each new block or wages. For certified remittances in the new block, or both.

  • Proof of stake

This mechanism is based on the participation of those who have a minimum share of the currency or virtual assets that are traded to certify the new blocks, and the participants in the process are randomly selected, and this mechanism is linked to the process of "Staking", which means that users freeze a section of their digital currencies in order to use them to create new blocks and get benefits from it.

Uses of blockchain in various fields
The uses of blockchain are as follows:

1. Cryptocurrencies

Blockchain technology is the main factor in the existence of digital currencies today. That is, this technology is the one that has been relied on since the establishment of Bitcoin and is the first digital currency, and which has achieved through reliance on it several benefits, such as: the absence of the need for a broker or a central body to manage payments and transfers, and the great security it has due to the difficulty of piracy, and preventing the withdrawal of the same balance more than once, or what is known as double spending.

Cryptocurrencies

Cryptocurrencies

2. Smart Contracts
Defined as a type of self-application token that allows contracts between two parties without an intermediary party obliging them to apply them, and is the main factor for the emergence of many new applications of blockchain, such as decentralized applications and blockchain-based games.

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Smart Contracts

Smart Contracts

3. Decentralized applications
They are defined as applications that work according to the rules that are placed for them on the blockchain, do not need a central server as is the case with normal applications, nor are they immutable after being uploaded to the blockchain.

Decentralized applications

Decentralized applications

4. Non-redeemable tokens
It is a means of registering and circulating ownership of digital files and works without the need for a central body that acknowledges the ownership of these assets by the parties.

Non-redeemable tokens

Non-redeemable tokens


What are the pros of blockchain?
Blockchain technology has many features that make it attractive for various applications as an alternative to traditional centralized methods, and its most important advantages are the following:

  • Security

In the absence of a central server, it is almost impossible for the blockchain to be attacked, paralyzing its work, and mining operations make the amount of computer power needed to penetrate it so high, that it is useless to hack any hacking attempt that does not surpass the network as a whole by the amount of computational power.​

  • Low costs

Relying on the blockchain reduces a lot of expenses related to data protection, management, and storage.

  • Decentralized structure

It enables a new approach to providing content, software and financial transactions so that you do not need to rely on large companies, and facilitates transparency and speed in various transactions.

What are the cons of blockchain?
Blockchain technology, despite its advantages and benefits, has been criticized for several key ideas, including the following:

  • Energy consumption and environmental impact

The use of blockchain technology, especially in cryptocurrencies, requires large amounts of energy, especially for the mining process, making mining companies turn to countries with low energy prices, which typically rely on highly carbon-emitting fossil fuels, along with the resulting electronic waste.

  • Inability to modify

When issuing blockchain rules, they cannot be modified or any of their transactions canceled, which makes it difficult to fix the gaps in how blockchain is designed and programmed or smart contracts built on it.


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