The Benefits Of Blockchain And Distributed Ledger Technology
A distributed ledger gives control of all its information and transactions to the users and promotes transparency. They can minimise transaction time to minutes and are processed 24/7 saving businesses billions. The technology also facilitates increased back-office efficiency and automation.
Distributed ledgers such as blockchain are exceedingly useful for financial transactions. They cut down on operational inefficiencies . Greater security is also provided due to their decentralized nature, as well as the fact that the ledgers are immutable.
Alternatively, blockchain technology offers a way to securely and efficiently create a tamper-proof log of sensitive activity. This includes anything from international money transfers to shareholder records. Financial processes are radically upgraded to offer companies a secure, digital alternative to processes run by a clearinghouse. Altogether avoiding these often bureaucratic, time-consuming, paper-heavy, and expensive processes.
When you write data to a blockchain, it gets etched on the network. When you have a series of transactions over time, you gain an accurate and immutable audit trail. This is very useful for financial audits. Having data stored in a place where no single entity owns or controls it, and no one can change whats already written, gives you benefits similar to double-entry book-keeping. Ultimately, this means that there are fewer chances of errors or fraud.
Indias Regulation On Cryptocurrency & Blockchains
Cryptocurrency and the Blockchain technology that underpins it are often seen as innovative and disruptive. However, not only the governments of various nations, but also the people of various sections and groups, have responded differently to this unique phenomenon, and everyone has observed Cryptocurrency through their own lens.
Cryptocurrency is a virtual or digital money that is protected by encryption, making double-spending and counterfeiting nearly difficult. The term cryptocurrency comes from the encryption technology that is utilised for network security. Cryptocurrency is supported by the conviction of its users in a market that will hold its worth. The majority of cryptocurrencies are decentralised networks built on blockchain technology, which is a distributed ledger system that records and verifies transactions via a peer-to-peer consensus method.
A cryptocurrency, sometimes known as a virtual currency, is a digital asset meant to function as a means of exchange, with transaction records kept in a digital ledger. It does not exist in the form of paper currency. It is not centralized, which means it is not issued by a government or central bank . This property of cryptocurrencies makes them theoretically impervious to government intervention or control.
What Is A Distributed Ledger
Despite confusing acronyms such as DLT in financial and Fintech circles, the good news is that this technology is relatively easy to understand. A distributed ledger is a database that exists across several locations or among multiple participants. By contrast, most companies currently use a centralised database that lives in a fixed location. A centralised database essentially has a single point of failure. However, a distributed ledger is decentralized to eliminate the need for a central authority or intermediary to process, validate or authenticate transactions. Enterprises use distributed ledger technology to process, validate or authenticate transactions or other types of data exchanges. Typically, these records are only ever stored in the ledger when the consensus has been reached by the parties involved.
All files in the distributed ledger are then timestamped and given a unique cryptographic signature. All of the participants on the distributed ledger can view all of the records in question. The technology provides a verifiable and auditable history of all information stored on that particular dataset.
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How Is Blockchain Used
As we now know, blocks on Bitcoins blockchain store data about monetary transactions. But it turns out that blockchain is actually a reliable way of storing data about other types of transactions, as well.
Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG, Siemens, Unilever, and a host of others. For example, IBM has created its Food Trust blockchain to trace the journey that food products take to get to its locations.
Why do this? The food industry has seen countless outbreaks of e Coli, salmonella, listeria, as well as hazardous materials being accidentally introduced to foods. In the past, it has taken weeks to find the source of these outbreaks or the cause of sickness from what people are eating.
Using blockchain gives brands the ability to track a food products route from its origin, through each stop it makes, and finally its delivery. If a food is found to be contaminated then it can be traced all the way back through each stop to its origin. Not only that, but these companies can also now see everything else it may have come in contact with, allowing the identification of the problem to occur far sooner, potentially saving lives. This is one example of blockchains in practice, but there are many other forms of blockchain implementation.
Understanding The Different Types Of Cryptocurrency
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When Bitcoin launched in 2009, it didnt have much or any competition in the newly minted realm of digital currency. By 2011, though, new types of cryptocurrency began to emerge as competitors adopted the blockchain technology bitcoin was built on to launch their own platforms and currencies. Suddenly the race to create more crypto was on.
Today there are thousands of different types of cryptocurrency, and while each is designed to provide some new feature or function, most are founded on similar principles to those that established bitcoin:
Cryptocurrencies are not issued, regulated, or backed by a central authority like a bank.
They are created using a distributed ledger and peer-to-peer review.
Bitcoin and other coins are encrypted with specialized computer code called cryptography.
As assets, cryptocurrencies are generally stored in digital wallets, commonly a blockchain wallet, which allows users to manage and trade their coins.
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Tokens Act As Incentives
This one is sort of a culmination of a number of points above but still an important factor to consider. While ideas are great and a vision can be inspiring, like a world with no fiat currency or bureaucracy, there almost always has to be some kind of motivation behind everything. Thats where tokens come in. Investors, miners, and crypto traders or buyers are all incentivized to participate in a specific network because they are rewarded with tokens of said blockchain. This trade volume, as well as the future potential of each coin, is what ultimately determines its price.
What’s The Future Of Blockchains
The blockchain idea has turned out to be a platform that a huge range of applications can be built on top of. Its still a new and rapidly developing technology, but many experts have described blockchains potential to change the way we live and work as being similar to the potential public internet protocols like HTML had in the early days of the World Wide Web.
The Bitcoin Cash and Litecoin blockchains work in a very similar way to the original Bitcoin blockchain. The Ethereum blockchain is a further evolution of the distributed ledger idea, because unlike the Bitcoin blockchain its not solely designed to manage a digital money. . Think of the Ethereum blockchain more like a powerful and highly flexible computing platform that allows coders to easily build all kinds of applications leveraging the blockchain.
For example, imagine a charity that wants to send money to a thousand people every day for a year. With Ethereum, that would only take a few lines of code. Or maybe youre a video game developer that wants to create items like swords and armor that can be traded outside of the game itself? Ethereum is designed to do that, too.
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How To Get A Hold Of A Cryptocurrency
Mining: Some cryptocurrencies such as Bitcoin and Monero can be obtained through a process called mining. In this case, people connect powerful computers to accrue the desired processing power to be able to solve complicated puzzles.
People are usually incentivized with new coins, transactions fees or both for getting the correct answer to a puzzle. Miners are also incentivized to ensure transactions on a blockchain are valid. They do so by ensuring people trying to send coins have enough to send.
Buying: You can get hold of a cryptocurrency of choice by buying them using fiat currencies from cryptocurrencies exchanges that facilitate buy and sell operations.
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Example Of Blockchain Etfs
Blockchain ETFs can be actively managed or passively managed, will cover companies with international exposure, and will track the performance of blockchain-based indexes specially designed to serve as benchmarks for the ETFs.
Two popular blockchain ETFs include the Siren Nasdaq NexGen Economy ETF and the Amplify Transformational Data Sharing ETF.
The Siren Nasdaq NexGen Economy seeks to replicate the returns of the Siren Nasdaq Blockchain Economy Index. As of Sept. 21, 2021, the fund had $275.5 million in net assets and an annualized performance of 23.39% since inception.
As of Sept. 21, 2021, the fund invests a third of its money in information technology companies, with its top holdings being Coinbase Global, Inc., Huobi Technology, and Accenture PLC Ireland, Z Holdings Corp, Square, Inc., and Fujitsu. The fund has a gross expense ratio of 0.68%.
The Amplify Transformational Data Sharing ETF has net assets of $1.9 billion as of Sept. 21, 2021, an annualized performance of 30.37% since inception, and a gross expense ratio of 0.71%. The fund invests 55.8% of its assets in the software and services sector and 18.3% in financial services. Its top holdings, as of Sept. 21, 2021, are Microstrategy , Hut 8 Mining Corp, and Square, Inc.
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Proof Of Work Vs Proof Of Stake
A 51% attack on a new blockchain called Ethereum Classic in January 2019 prompted a change in strategic direction from Proof-of-Work mining to Proof-of-Stake voting for the Ethereum blockchain.
However, Proof of Stake is more vulnerable to schisms or splits known as forks, where large stakeholders make different decisions about the transactions that should comprise blocks and end up creating yet another new currency. Ethereum briefly tried this validation method but, due to forking issues, reverted back to Proof of Work. It is expected to introduce a revised Proof of Stake validation system in 2020.
Traditional Finance And Blockchain Investment Strategies
In some ways, the process of investing in shares and cryptocurrencies is the same. First, you can buy cryptocurrencies on exchanges like you can buy shares through an online broker.
Second, you are also able to apply traditional investment principles to investing in cryptocurrencies and the blockchain. For example, you can invest the same amount of money into Bitcoin each month regardless of price to remove any emotion out of the investment process.
But there are also investment strategies that are unique to the blockchain and cryptocurrencies, like yield farming.
Read on to learn about ten common traditional finance and blockchain investment strategies you can use when investing in public blockchain companies and cryptocurrencies.
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The Databases Represent An Immutable Shared History
IT IS COMMON, in tech circles, to hear a business pitch that is simultaneously simple and baffling. It is going to be like X , but on a blockchain. The eager entrepreneur is quick to assume that everyone is both familiar with the technology and agrees on its merits. But what is a blockchain? And what are the benefits of using it meant to be?
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A blockchain is a database that contains the history of whatever information it was designed to store. It is made up of a string of blocks of information that build on top of one another in an immutable chain. Bitcoin, one of the first blockchains, was built in 2009. It stores data on transactions in bitcoin, providing proof of who owns what at any time. What distinguishes a blockchain from other databases is that its ledger is distributed, publicly available and replicated on thousands of computersor nodesaround the world. Rather than a centralised entity, like a bank or a tech platform, ensuring that the ledger is accurate, it is verified by a network of individuals.
This article appeared in the Briefing section of the print edition under the headline “Building consensus”
The Problem With Proof Of Work
To create economies of scale, miners often pool their resources together through companies that aggregate a large group of miners. These miners then share the rewards and fees offered by the blockchain network.
As a blockchain grows, more computers join to try and solve the problem, the problem gets harder and the network gets larger, theoretically distributing the chain further and making it ever more difficult to sabotage or hack. In practice though, mining power has become concentrated in the hands of a few mining pools. These large organisations have the vast computing and electrical power now needed to maintain and grow a blockchain network based around Proof of Work validation.
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How Does A Transaction Get Into The Blockchain
Before a transaction is added to the blockchain it must be authenticated and authorised.
There are several key steps a transaction must go through before it is added to the blockchain. Today, were going to focus on authentication using cryptographic keys, authorisation via proof of work, the role of mining, and the more recent adoption of proof of stake protocols in later blockchain networks.
Investing In The Future
Businesses and governments around the world are continuing to test and implement blockchain technology, but none of this will happen overnight. If we ever reach a point where government currency is blockchain-based or medical records are converted to a blockchain, it wont be anytime soon.
In the meantime, you can bet on the power of blockchain by adding a blockchain-based cryptocurrency like Bitcoin to your portfolio, though thats not the only way to put your dollars behind the technology.
You can also adjust more traditional investments so theyre blockchain-forward. For example, look into whether your ETFs or mutual funds include companies that are developing blockchain technologies or beginning to use blockchain in their business operations.
There are even ETFs wholly made up of these types of companies, known as blockchain ETFs. One example, launched in 2018, is the Siren Nasdaq Blockchain Economy Index , which has outpaced the S& P 500s overall return both year-over-year and on a three-year average. These funds dont put any of your money in crypto specifically instead, they invest in select company stocks ranging from long-established businesses like IBM to lesser-known startups like Galaxy Digital.
While it still doesnt guarantee a return, this can be a more conservative alternative to putting your money into the notoriously volatile cryptocurrency market directly.
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The Basics Of Bitcoins And Blockchains By Antony Lewis
Antony Lewis, formerly of early cryptocurrency exchange itBit, has been an expert in the cryptocurrency and blockchain spaces for nearly a decade. In this book, Lewis clearly and concisely breaks down technical aspects of blockchain technology in a way that is digestible and understandable for those within and outside of the space. While this book also covers the fundamentals of cryptocurrencies as well, it is also a useful guide for those particularly interested in blockchain technology and its many applications.
How Does Blockchain Work
A blockchain is literally a chain of blocks that each contain transactions that have occurred on the network. There is not a single blockchain, but many of the projects you hear about operate on their own blockchain.
The state of a blockchain is determined using consensus algorithms. The most common are proof of work and proof of stake and these allow decisions to be made on a decentralized network.
Miners and validators are scattered all around the world and are incentivized to put transactions into blocks and add blocks onto the blockchain.
This incentivization prevents bad actors producing invalid blocks, but how?
In PoW blockchains, miners have to spend lots of money on equipment to be able to mine blocks and in PoS, validators stake the blockchains native token .
What Is The Purpose Of Cryptocurrencies
Cryptocurrencies can be envisioned as another form of money that can be used for various purposes. For instance, it can be used to buy goods and pay for services. Some people and merchants accept cryptocurrencies as a mode of payment in addition to fiat currencies.
Virtual currencies are becoming increasingly popular as a means of sending and receiving payments at low costs and high speeds. For instance, Litecoin was once used to send $99 million, and the sender only incurred $0.40 in transaction fees.
Cryptocurrencies are also being used to make anonymous transactions that users dont want other people to know about. Monero and Zcash are the most popular in this case given their focus on privacy. In this case, one can use the two to send money without having to explain to a bank why they are sending and to who they are sending.
Digital Currencies have also emerged as reliable tools for bypassing strong censorship. It is common for people bank accounts and assets to be frozen. Cryptocurrencies act as a censorship-resistant alternative for storing wealth that only one person can access and control with the help of a private key.