Blockchain is a method of storing data that makes it challenging or impossible to alter, hack, or defraud the system. A blockchain is simply a network of computer systems that maintains duplicate copies of all transactions in a digital ledger that is disseminated throughout the network. Defining blockchain in basic terms, blockchain is the technology that makes cryptocurrencies possible. A blockchain is a peer-to-peer network. Entire transactions are recorded in a blockchain, which is a decentralized ledger. Participants can confirm transactions using this technology without the requirement for a central clearing organisation. Applications might be made for voting, settling trades, transferring funds, and a host of other things (Nofer et al., 2017).
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins. Users can also buy the currencies from brokers. Furthermore, the digital payment system known as cryptocurrency doesn't rely on banks to validate transactions. Peer-to-peer technology makes it possible for anybody, anywhere, to send and receive payments. Payments made using cryptocurrencies do not exist as actual physical coins that can be transported and exchanged; rather, they only exist as digital entries to an online database that details individual transactions. A public ledger keeps track of all bitcoin transactions that involve money transfers. Digital wallets are where cryptocurrency is kept (Kaspersky, 2019). Since transactions are verified using encryption, cryptocurrency has earned its moniker. This means that the storage, transmission, and recording of bitcoin data to public ledgers all entail sophisticated code. Encryption's goal is to offer security and protection (Kaspersky, 2019).
The development of distributed ledgers and blockchain technology has sparked several projects across numerous industries. In its current state, the blockchain concept is primarily used in the financial sector. This is caused not only by the fact that the cryptocurrency Bitcoin is the most well-known implementation of this technology similar to the US dollar, but a cryptocurrency is also a medium of exchange. However, cryptocurrencies are digital, and they utilize encryption to manage the generation of new units of money and to confirm the movement of funds (PricewaterhouseCoopers, n.d.). However, it has significant drawbacks due to process inefficiencies and significant cost base issues that are unique to this business.
Additionally, the financial crisis showed that it is not always possible to determine the correct existing owner of an asset, even in the financial services industry (Nofer et al., 2017). Retracing ownership through a longer chain of shifting buyers is an even bigger challenge for global financial transaction services for instance, when the US investment bank Bear and Stern collapsed, the number of shares offered to the buyer were greater than the number of shares outstanding in Bear Stearns' books. When Stearns fell in 2008 and was completely bought by JP Morgan Chase, the accounting irregularities could not be corrected, and JP Morgan Chase was left to pay the price for the extra digital shares. Even if it is already a crucial issue in the financial markets, the problem of tracing back ownership in lengthy transaction chains is crucial for physical items, such as (blood) diamonds or vegetables (Nofer et al., 2017).
Wal-Mart, a US store with more than 260 million weekly consumers, is looking for a technology that can be used to pinpoint those vegetable batches that are specifically contaminated, for example, by coliform bacteria. The most common method for processing transactions and confirming asset ownership in the modern world is intermediary. Along a network of intermediaries, intermediaries carefully examine each party involved. In the event that an intermediary fails, this poses a credit risk in addition to being time-consuming and expensive. Since human participation is no longer required, blockchain technology promises to address these important issues, signaling "a change from trusting people to trusting math (Lu, 2019).
The future of blockchain and cryptocurrency has many potential use cases. Blockchains appear to have a wide range of applications, particularly in industries where third parties have traditionally been necessary to build some level of confidence. According to Atzori (2015), the blockchain has the potential to reconstruct politics as well as the entire society. If people began to manage and safeguard society through decentralized platforms, many tasks might become obsolete. According to his analysis, "decentralization of government services using permissioned blockchains is both feasible and desirable, as it can greatly improve the functionality of public administration."
In developing nations, reorganizing society is of utmost importance. The blockchain can be used to secure wealth more effectively. Landowners often struggle to establish their ownership in the third world, for instance when a local government wants to expropriate a community. These potential existential dangers (Nofer et al., 2017).
It's important to think about blockchain technology as a new breed of business process improvement software from a commercial standpoint.
Blockchain and other collaborative technologies promise to significantly reduce the "cost of trust" by enhancing the commercial activities that take place between firms. Because of this, it might provide much larger returns for every dollar invested than many conventional internal investments (Nofer et al., 2017). However, as mining bitcoin continues the difficulty of the riddles rises in tandem with the number of miners attempting to unlock Bitcoins, creating a competitive computing race to stop inflation and deter monopolies. Mining servers need a huge amount of energy to continuously solve the evolving computing algorithms. Additionally, there is little incentive to continue mining if the energy costs outweigh the rewards from the money acquired, eroding the infrastructure that supports its monetary worth (The Henry M. Jackson School of International Studies, 2019).
This means that the likelihood of making money from cryptocurrency mining increases with the capacity of the computer, the speed of the internet connection, and the cost of infrastructure services like energy. Mining needs specialised tools and a place to keep fast servers. The significant computing power needed puts a heavy burden on the energy sector. The average server uses about 1.5 kilowatts of electricity when it is running continually, costing between $3,224 and more than $9,000 to mine a single coin.
Moreover, this could have a significant impact on the environment in the future. Researchers calculate that crypto mining can result in 3 to 15 million tonnes of global carbon emissions, depending on the energy source. With mines in the Xinjiang and Inner Mongolian regions mainly depending on coal energy sources to provide cryptocurrency mining firms with low energy rates, China is one of the world's major producers and consumers of coal energy. Prices for coal energy are up to 30% less expensive than those for industrial companies' typical energy consumption. However, any cryptocurrency mined in China would result in four times as much CO2 emissions as those produced by renewable energy sources in Canada (The Henry M. Jackson School of International Studies, 2019).
Atzori, M. (2015a). Blockchain Technology and Decentralized Governance: Is the State Still Necessary? SSRN Electronic Journal. doi:10.2139/ssrn.2709713.
Kaspersky (2019a). What is Cryptocurrency? Cryptocurrency Security: 4 Tips to Safely Invest in Cryptocurrency. [online] www.kaspersky.com. Available at: https://www.kaspersky.com/resource-center/definitions/what-is-cryptocurrency.
Lu, Y. (2019a). The blockchain: State-of-the-art and research challenges. Journal of Industrial Information Integration, [online] 15, pp.80–90. doi:10.1016/j.jii.2019.04.002.
Nofer, M., Gomber, P., Hinz, O. and Schiereck, D. (2017a). Blockchain. Business & Information Systems Engineering, 59(3), pp.183–187. doi:10.1007/s12599-017-0467-3.
PricewaterhouseCoopers (n.d.). Making sense of bitcoin, cryptocurrency and blockchain. [online] PwC. Available at: https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html#:~:text=A%20blockchain%20is%20a%20decentralized.
The Henry M. Jackson School of International Studies. (2019b). The Political Geography and Environmental Impacts of Cryptocurrency Mining - The Henry M. Jackson School of International Studies. [online] Available at: https://jsis.washington.edu/news/the-political-geography-and-environmental-impacts-of-cryptocurrency-mining/
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