What is a blockchain?

A blockchain is a decentralized digital ledger which is shared between every node on the network. For a device to become a node on a blockchain, a user must acquire that blockchain's token on the device so that it can be recognized as such and then be a part of the digital ledger. This ledger stores all of the data on each node across the system in such a way that it is all immutable; that is, it can never be modified or deleted. This process occurs simultaneously on all the machines on the network by having them solve a mathematical cryptographic puzzle which is heavy on the machine's computational power and can take a significant time to complete. This is the process which is called mining and a machine which is used for this is called a miner. Miners are typically in competition with each other to completely mine the transaction first as its only that miner who is rewarded with more tokens for completing the task. This is what has led to the cost of computer components costing so much as the demand for better hardware for miners has increased the price. One of the most popular of blockchains right now is the Bitcoin blockchain which functions as a cryptocurrency with a public digital ledger and was one of the very first to do this.

Initially, the first generation of blockchain technology allowed for blockchain technology to be used for a wide variety of things; however, it was the second generation of blockchain technology created a massive boom in the world of technology thanks to Ethereum. Ethereum allows people to realize their own applications through the use of their Ether token (ETH) which allows a user to create their own decentralized application (dApp). A dApp is simply an app which works on a decentralized network and could be created by anyone for any reason whatsoever, which means that ultimately, blockchain technology was no longer used solely for cryptocurrencies and could expand. This meant that whenever a dApp was in use, a miner on the Ethereum blockchain had the chance to generate more ETH. The boom was then created as these tokens could actually be traded to Bitcoin tokens which in turn, can actually be traded into a fiat currency and this became the more common way for parties interested in cryptocurrencies to get involved. As Bitcoin grew to thousands and tens of thousands, its token also grew in worth making buying one a rather pricey investment of some several thousand US dollars. However, if a person was to join a smaller and newer blockchain instead, it would be more affordable and cheaper; and then, they would mine that blockchain's token for some time before trading them in for Bitcoin and then, in turn, fiat currency for a hefty return.

How a dApp Works

Ethereum's Ether token uses one core feature which has made it possible for it to be used by anyone in the creation of a dApp: smart contracts. A smart contract is a digitized agreement which involves both parties who agree to the terms of the agreement which will involve a service to be rendered by one party and the cost of that service to be paid by the other. As this is a digital agreement, the cost to be paid is usually digital as well and the smart contract is deemed successful when the conditions for the contract have been met. For instance, let's say there is a dApp called FileStoragePlus with the smart contract which states that Party A will allow Party B to use five gigabytes (5GB) of storage on their system in exchange for one Bitcoin. The contract would be considered complete once Party A allows Party B to use the allocated storage space and Party B pays Party A his one Bitcoin for the service. When this is completed, a miner on the Ethereum blockchain will validate and confirm the contract and then add it to the blockchain via mining. That miner is then awarded ETH for completing the transaction and then the blockchain is updated across all the nodes.

Why is Blockchain Technology Important

As I've mentioned before, with the introduction of the ETH token, there are a lot more uses people can find blockchain technology for even more things by having their own dApp; and while the main motivation may be for making money, it is not all entirely just for that. For instance; there exists a blockchain called vTrace which isn't a cryptocurrency and is instead focused on keeping a current ledger on nations and/or companies known for counterfeiting. This type of ledger would allow its users to help with identifying known counterfeiting entities and avoid doing business with them; a secure and accurate ledger whose information cannot be changed. There are also other examples such as the TRACE blockchain which keeps a digital ledger of the origins of goods being traded from countries. Together, these two blockchains would serve as a great means for anti-counterfeiting and crack down on such criminals in a very positive way which shows the power and use of blockchain technology.

The Problems Blockchain Technology Face

While the recent boom in the blockchain space is definitely a positive thing, it also comes with some woes. For starters, blockchains are usually private and reveal information only to nodes in the blockchain; and even then, not even the nodes have to reveal their information to each other. In fact, there are very few blockchains which are public, Bitcoin and Ethereum being two of them. Because of this, it is very easy for some to manipulate the benefits of the technology for malicious purposes; for instance, the black market. This technology has allowed the black market to thrive extensively as their transactions can be secured on private blockchains, making it even harder to cut down on their transactions. Sure, the information stored on a blockchain can never be modified but if it can never be infiltrated and if the nodes on it can never be identified either, it makes it that much more difficult to find. This means it would be harder for authorities to crack down on black market dealings as finding a money trail behind them becomes just that much more difficult. Another problem the technology faces is how unstable it has become in lieu of its boom in popularity. One of the key goals of the creation of Bitcoin was to see the idealization of using cryptocurrency as a hard currency globally instead of fiat currency. Some nations have started to see do this on a smaller scale by creating their own cryptocurrency to be used within their own nation but for the most part, this goal has yet to be realized and it's partly due to the technology's spike in popularity. With its popularity came a lot of instability as thousands upon tens of thousands of cryptocurrencies are now being created; each vying against each other to be better than the others. This has made the economic market of the entire thing fluctuate greatly as it is not possible for all of these cryptocurrencies to be strong at the same time and as such, most of them are expected to eventually die-off eventually as the market stabilizes.

Although a lesser problem in the face of the aforementioned two, there is somewhat a need for some level of interoperability between blockchains which is a current ongoing issue they face. As mentioned before, there are blockchains like veChain and TRACE which exists which shows what good they can do in the world when used together; however, for them to be used together, they would have to be linked together. The only way this can be achieved at the moment is by creating a third blockchain to act as a “middle-man” between the two so that they can be connected together. The process itself is a use of resources that could be used in other places as the third blockchain created is not always likely to grow and expand as other blockchains depending on the reason for why it was made. For instance, the United Nations would have a need of a “middle-man” blockchain between veChain and TRACE but very few organizations would ever be interested in it. This type of problem also contributes to the unstable nature of blockchains overall as well.

What the Future Holds

There are many who don't believe that cryptocurrencies and the blockchain space won't stabilize but it seems very likely to happen over time. At the moment, space is fluctuating sporadically but as time progresses, several thousands of the current cryptocurrencies will hardly see use and eventually die-off and leave the handful few standing at the top. When that does happen, the realization of having a digital currency as a hard global currency worldwide becomes a very achievable and realistic dream which would be an amazing step in the future as fiat currencies become obsolete. Before this, however, there would definitely need to be a solution to the problem of interoperability and actually; at the moment, there is one blockchain technology which seeks to solve the problem soon; a technology called the AION Network. This technology aims to have blockchains connected to a centralized HUB with features for them to communicate with each other without the need for creating a third blockchain and completely solve the issue of interoperability. Along with this, it seeks to offer deeper levels of security and privacy as well to blockchains on the network and be recognized as the third generation of blockchain technology; which would be once again, revolutionary.