Blockchain and Cryptocurrency
Introduction
In the last few years, there is a surge in the interest of cryptocurrency and Non-Fungible Tokens (NFTs) both by consumers and the scientific community. Researching and developing new cryptocurrencies and NFTs, as well as investing in them. However, one shouldn’t ignore the fact that both of them are based on a highly advanced technology called Blockchain. In other words, blockchain is the basis where cryptocurrencies and NFTs are installed and published, for them to gain financial worth and being purchased by the public. In this article the terms of Blockchain, NFTs, and cryptocurrencies are going to be explained, as well as analyzing how they are interconnected and combined into one single technology.
Blockchain
a) Description
As mentioned in the introduction, Blockchain is the basis behind the cryptocurrency and NFT trend. It’s a software protocol, decentralized in nature, consisted of a chain of blocks that contain information and data. Each block’s content is digitally timestamped for security purposes and avoidance of backdating or tempering. Generally, Blockchain is widely known for the secure transfer of items that have financial worth, such as money, contracts, ownership, investments, and stocks, without requiring a third-party involvement or further bureaucracy from banks and governments for transactions.
On the contrary, it is focused on a peer-to-peer network, the recordings of which are extremely hard to edit, and confirmation is completed by the participants, without the need of authorization from a central clearing authority.
b) Transaction Process
Blockchain, as a process, follows a specific series of steps to be fulfilled in terms of functionality. The steps taken are the following
1. A user requests a transaction. As mentioned before the transaction could involve money, contracts, investments, stocks, cryptocurrency, etc.
2. The requested transaction is then broadcasted to the Peer-to-Peer (P2P) network, through the assistance of computational systems, hardware and software called nodes.
3. The next step is the validation process, where the user’s status and the transaction made are validated using different types of algorithms.
4. Once the transaction is verified, it takes the form of a block that contains new data for the ledger and involves other similar transactions.
5. The block of the data is then added to the rest of the blockchain. As mentioned, it is extremely hard to edit the content of a block once validated. That’s because the block is installed in the blockchain in such a way that it cannot be altered.
6. And then the transaction is completed.
C) Benefits and Drawbacks
i. Benefits
Some of the most important advantages offered by Blockchain are the following:
· Increased transparency: If a public blockchain has been edited or altered, the changes are visible in public status, making all transactions immutable.
· Security: Blockchain is designed in such a way that each part of the network holds a copy of the original chain, making the whole system operational even if some of the nodes shut down. Similarly, possible data losses from fraud are minimal.
· Decentralization: Due to its nature, blockchain transactions undergo a certain process, checking and validating each transaction one by one. While enabling the validation among the peers without third-party authorization.
· Time reduction: Since it allows quick validation and transactions among the members of the network, the financial industry is highly benefitted by allowing fast settlement of trades and clearance.
ii. Drawbacks
The most important disadvantages of Blockchain are the following:
· Slower transactions: Unfortunately, nodes of a blockchain are programmed to give priority to transactions offering higher rewards or financial worth. As a result, there is a buildup of transaction logs that need to be validated.
· Wasteful: Nodes of a blockchain have to maintain a consensus for the stored data and validation process, offering very low downtime and unchangeable blocks, making nodes repeat a certain task until they reach a consensus status.
NFTs
Non-Fungible Tokens, or NFT as they are widely known, are digital assets and objects, that represent or depict real-life items and fields, such as art, music, in-game items, videos, and many more objects that one can see in their daily lives. They can be bought or sold online, through specific marketplaces that are specially designed for the NFT features and environment. Some of the most popular marketplaces that one can trade NFTs are OpenSea, SuperRare, and Mintable.
There is a common misconception that NFTs are the same as cryptocurrency. The answer is yes and no. NFTs exist inside a blockchain, and they are usually being traded alongside cryptocurrencies, but there are slight differences. The most significant is the fact that NFTs are programmed frequently through a blockchain supporting Ethereum cryptocurrency. However, there are indications that other cryptocurrencies can support NFTs as well with slight adjustments. Apart from that, NFTs have unique signatures making them impossible to be exchanged for or equal to one another.
Cryptocurrency
For the sake of understanding the cryptocurrency as a term, like NFTs, they are digital assets being programmed to utilize computational coding, blockchain technologies, and features to exist independently. They are heavily based on cryptography making them hard to counterfeit or double spend.
They are widely used as a form of payment for exchanging and purchasing goods and services online. Up until now, many consider cryptocurrency as the currency of the future and the replacement of printed monetization. Such evidence can be found all over the internet, where entrepreneurs, programmers, and internet users in the general program their cryptocurrency in the form of tokens in exchange for services and benefits, or even as a means of a side income.
Some of the most significant features of cryptocurrencies are the following :
· Cryptography: Their core coding is consisted of algorithms and techniques utilizing cryptography, securing information, data, and communications. More specifically cryptocurrencies use the technique called “Public Key Cryptography”, which is a public key that can be shared among buyers and sellers to exchange cryptocurrencies and monetization.
· Transparency: The majority of the code is open-source, allowing modifications, improvements, and upgrades.
· Incentives: They are designed in such a way that motivates the users interested in cryptocurrency to maintain their focus on it, through the game theory. Such an example is mining, where each cryptocurrency requires different types of resources to mine a sufficient amount of worth.
Currently, there are more than 10000 different cryptocurrencies available, with the majority of them being available for trading on the stock market. The most popular of them are Bitcoin, Ethereum, Stellar, and Binance. Apart from mining, a user can acquire cryptocurrency by exchanging their worth in money through online applications and marketplaces, while owning a special wallet, which is programmed with high-tech security protocols for cryptocurrency storage .
The interconnection between Blockchain and Cryptocurrency
Due to the high trend of cryptocurrencies and NFTs by the public, governments and higher authorities conduct researches about their existence and impact. Detailed research on blockchain and cryptocurrency was conducted by the European Parliament, including the interconnection between the two.
They recognize that cryptocurrencies and blockchain have acquired a hot status in the last few years. There is a common misconception that NFTs and cryptocurrencies are similar to blockchain technologies when that is not the case. As mentioned above, blockchain is a decentralized technology that forms the core of the cryptocurrency and NFTs market. However, due to blockchain’s vast capabilities, it is not limited to the digital monetization field. It can be applied in different types of sectors and applications. In other words, it should be made clear that cryptocurrencies and NFTs are just a form of application that blockchain technology is used.
One of the reasons cryptocurrencies utilize blockchain technology is for the monitoring and recording of transactions. It distributes all the information and data of the cryptocurrency transactions across the P2P network so that they can be available to all of them. Including data on mining and trading, while maintaining a secure environment that cannot be accessed without a private cryptographic key.
Conclusion
In this article, we covered different types of topics, while clearing possible confusion about them. We covered a comprehensive analysis of Blockchain technology, its process, and its features. We then introduced the concept of NFTs and their differences from cryptocurrencies and blockchain. Continued by describing cryptocurrencies, features, and explaining their worth, while analyzing their interconnection with blockchain technology and how they operate simultaneously.
References
Making sense of bitcoin and blockchain: PwC
