What are Blockchains - clearly explained
What are Blockchains?
In all its simplicity, a blockchain is a digital chain made up of blocks. Specifically for cryptocurrencies, one block represents one cryptocurrency coin, i.e., one Bitcoin, for example. In addition to this, blocks can contain many different types of data, intelligent contracts, and even digital identities.
As there are more blocks in the chain, one can start talking about a network that, depending on the blockchain, can enable the development of intelligent contracts and distributed applications (dApps) on a large scale. For example, developing these can create digital blockchain games, and much, much more.
The first operating blockchain, the Bitcoin blockchain, was launched by a group called Satoshi Nakamoto in 2009. Blockchains are distributed, open, often public, digital accounts in vernacular. In practice, this means that it is a system that does not have any kind of centralized management.
Instead, blockchains, and the transactions they make, are, in most cases, completely democratic, non-corrupt, and traceable. As a result, cheating with cryptocurrencies is almost impossible, and even stolen cryptocurrencies can be traced. In practice, therefore, blockchains are in a way the opposite of the Internet.
What can blockchains be used for?
As we mentioned at the beginning, blockchains are very versatile systems, and their cryptocurrencies are not always intended to be used in the consumer market in the same way as the use currency. Instead, there are also plenty of blockchains whose cryptocurrency can only be used to execute transactions within their own network.
While this sounds like a limiting factor for the layman’s ear, in fact, the potential for use of all blockchains, and the ability to scale, is completely limitless. And most interestingly; Blockchain technology has already begun to be integrated into society, for example by universities, companies and organizations, and even states.
Let’s take a few simple examples of where blockchains can be used: Health data can be stored in a blockchain so that no one other than the person who owns the data, such as you, has access to that data. If the doctor then needs the information, you can give him or her the right to see the information, but no one has access to it.
Like data warehouses, blockchains are superior. In addition, blockchains can be used, for example, as trading platforms, as a development platform for digital financial services, and as a distribution network for various types of content.
Cryptocurrencies without a blockchain
In general, cryptocurrencies are based on a chain. But there are also cryptocurrencies that do not have a blockchain. One of the best knowns of these is the IOTA. This project is also based on a digital network, but instead of a blockchain, this network consists of the so-called 'Tangle', ie an ecosystem of different nodes. These nodes validate different types of transactions on the IOTA network.
IOTA is a special case in many ways, and its cryptocurrency, MIOTA, is meant for only one activity on its network: it maintains and secures the operation of the IOTA network. Thus, it cannot be used, for example, as a payment currency, as many blockchain-based cryptocurrencies could. Instead, IOTA focuses mainly on the Internet of Things (IoT). The more devices that operate online, for example, in businesses and consumer homes, the more important the security and reliability of that network becomes.
Unlike the Internet, IOTA provides IoT devices with a universal network platform that enables fast and cost-effective cross-border transactions between these devices. It is estimated that the number of such devices connected to the network will be in the order of more than 20 billion in the next few years, and if IOTA becomes the main network of these devices, it could become one of the most valuable projects in the cryptographic world.
Cryptographic facts
How do cryptocurrencies work?
The operating logic of cryptocurrencies depends on their nature and the blockchain they use as a basis: cryptocurrencies can be payment currencies, the “fuel” used to validate blockchain transactions, or the currency that allows blockchain staking.
.How do you know which cryptocurrencies are good investments?
The value of cryptocurrencies is very different from the values of traditional investments: they are affected by supply and demand, but the most important thing is to consider whether the cryptocurrency and its blockchain have the potential for use in the future, for example in companies and governments.
The main difference between cryptocurrencies and fiat currencies is that fiat currencies are centralized currencies and their value is controlled by central banks. Cryptocurrencies are non-centralized digital currencies whose value is based on the amount of their use and demand relative to the amount of their supply.
How does a market economy affect cryptocurrencies?
Traditional economic markets do not affect cryptocurrencies in the big picture, although radical events such as a global pandemic could cause their rates to plummet. However, the general picture shows that when the economy is doing badly, the exchange rates of cryptocurrencies start to rise.
Are cryptocurrencies a good investment?
As early as the end of 2017, for example, Bitcoin made millionaires out of many who invested in it on time. In 2021, its price multiplied again, and it picked up the entire cryptocurrency market. Thus, cryptocurrencies offer very potential investment targets for both long-term investment and active trading.
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