Showing posts with label decentralized. Show all posts
Showing posts with label decentralized. Show all posts

October 3, 2021

Digital Currency and Blockchain Explained: The Good and the Bad

Are you curious about how digital currencies and blockchain technologies work? These two technology giants are changing the face of many essential industries and won’t be leaving the digital frontier anytime soon.

Digital currency is a decentralized financial system that utilizes nodes to verify digital transaction requests and blockchain to permanently record verified transactions. A transaction can include cryptocurrency, contracts, records, or other information.

Here’s how a digital currency transaction and blockchain work together to create a permanent transaction:
  1. Someone requests a digital transaction.
  2. The requested transaction is broadcast to a P2P network of computers known as nodes.
  3. The transaction is verified when the 64 alphanumeric target is guessed by a node.
  4. Once verified, the transaction is combined with other transactions to create a chain of data to create a new block of data for the ledger.
  5. The new block is then added to a chain of verified data blocks, the blockchain, in a way that is permanent and unalterable.
And that’s it! Here’s an infographic on the digital transaction verification process:

The Good

Digital currency and Blockchain are truly revolutionary technologies touted as a democratic solution that unhinges financial and other transactions from any one government or one currency system. Blockchain records are unchangeable, permanent, and verifiable records that theoretically will exist forever as a part of the chain created.

Many different types of digital currency exist. You’ve probably heard of Bitcoin, Dogecoin, Ethereum, or the growing handful of other popular digital currencies currently taking over the market. They each make their claim that they are the best.

The same is true of blockchain verifiers - there are many permanent blockchain records already created. They also each claim to be the best in some way. Some blockchains allow you larger storage blocks and some are quite limited at 2MB of verified data block size. Some blockchains offer the person conducting the transaction complete privacy of who they are to others; while other blockchain records are completely public, showing who initiated the transaction, the type of transaction, and the blockchain sequence identifier.

These blockchain verifiers each have a number of minors independently working to verify their transactions. The verification process is a little bit like a guessing game. A random 64 digit alphanumeric code is generated and the winning miner has to essentially guess the 64 digit alphanumeric number that is closest to that target number, winning the digital currency value for that verified block of information. A 64 digit alphanumeric code allows for millions of possibilities to guess.

Blockchain is creating an ecosystem for projects in currencies, developer tools, sovereignty and security, financial technology, currency exchange, sharing data and amassing big data, and identity authentication. These named project types are just the start of the many possible technologies growing out of blockchain technology.

Image by Josh Nussbaum

The Bad

Even with all of the benefits that bitcoin Blockchain technologies bring, there are still some negatives that need to be solved. One of the primary negative aspects of all the mining activity is the generation of copious amounts of computer hardware waste and the large amounts of energy consumed to power these super-processing computers.

A regular everyday business or home computer is not capable of mining for bitcoin as the market currently stands. In order to even compete to win a blockchain validation, the miner needs a powerful gaming-type computer processor and most likely you will need many of these machines in a network together to generate the computing power necessary.

All of this computing power uses a lot of energy. And building all of the computer chips, which only lasts for a few years, creates a lot of additional waste. Digital currency miners are quite open about the cost to continually change out their computer processors for newer, faster chips; the power needed to run those machines, the power needed to cool the room that the computers are kept in, and the subsequent waste being generated by their quest to mine [to guess numbers and validate digital transactions] faster than the next miner, and ultimately win the digital currency bounty.

Digital currencies and blockchain technologies hold many opportunities for our future, if they can get over the hurdles of waste generation and energy consumption that they face today.

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