Quote, “ One by one, this new technology has promised a solution to each concern of our digitally-driven lives: lack of transparency, accountability, verifiable identity, control of data, and security.” Unquote.
Alison McCauley
Let’s get this simpler.
When it comes to safeguarding your money, blockchain technology is the future.
Put on your Helmet, Lets Go For A Drive
You lend money to A. He gives you a receipt. Was there a witness to this transaction? You lost the slips. So no proof. The trade stands null and void. Even a Bank cannot help.
Another great example is google docs. You transfer a document to a recipient. Denied all permissions, he can read the record, and the best he can do is suggest reviews. He cannot revise the content.
How Different Is This From Traditional Banking Systems
You do visit your bank from time to time, right?
Cryptocurrency does away with centralizing.
Currencies called fiat (the dollar, euro, rupee, and so on) are issued by banks like the Reserve Bank of India or the FDI, which are centralized, meaning they are controled by parent banks.
The Ledger was the document in older times wherein all transactions were hand-written. It was subject to changes, meaning it was not foolproof. Emissions, omissions, and simple human mistakes crept in.
Right, the ledger gave way to computers. It proved a disaster. Your account was now public domain as safeguards were inadequate.
Cryptocurrency is an encrypted digital payment method.
Banks employ many people making entries in the Ledger. So this has become a distributed ledger now. With many people involved, the ledger is decentralized. No one authority can claim responsibility for changes.
The concept of decentralization was the basis on which Satoshi Nakamoto (who he is no one knows till date) founded blockchain.
How Transactions Work In A Blockchain
An algorithm is a set of instructions for a computerized system to accomplish tasks.
For instance, let’s talk about the Google Pay application. You can only use this, not modify it. Blockchain uses complex algorithms to ensure this.
The idea was to decentralize money transactions, And rightly so. Why should be a third party playing referee. So we go for decentralization- meaning side-step the referee.
Decentralization comes with enormous fallouts. A form of currency without a guarantee is subject to volatility. So is any commodity.
A few months back, Brent crude oil hit bottom.
Many people bought up for future trading. So when crude prices rose, they made a killing.
Cryptocurrencies trading is for the same reason not inviolate. In fact the dark web uses this option for nasty purposes.
What makes blockchain technology unique? It is a database. So is SQL with one crucial difference- it involves human control. Blockchain eliminates this. It is driven entirely by computers.
If someone attempts to change one block, it would immediately show up. A hacker would need to change all the blocks as they are interconnected.
Why So Much Hype On Blockchain?
Many attempts to create digital currency have failed.
Trust is the governing principle here.
What prevents X dollar that you bought- what prevents the guy who designed crypto X dollar from stealing the money by changing the block.
Nobody is in charge of blockchain technology. You, the user, are essentially running it. The icing on the cake is that bitcoins cannot be hacked, faked, or reused.
If you own cryptocurrency, you have the assurance that your trust is not misplaced.
ChainLink – The Smart Network- And About Smart Contracts
ChainLink constitutes an oracle network that is decentralized. Real-world data is provided by ChainLink to blockchain smart contracts. Payment for services is by LINK, a token that is a digital asset.
Chainlink’s origins date back to 2014. SmartContract.com, the parent company was founded for bridging external sources of data with public blockchains. The resulting product called ChainLink permits smart contracts to hook on to data feeds from any API on the web and data sources.
ChainLink’s Mainnet went live on Ethereum in June 2019.
To grasp the merits of ChainLink and its functioning, some fundamental concepts need to be understood. What then are smart contracts?
Coming To Grips With Smart Contracts
Smart contracts are agreements that are pre-specified. These contracts are part of the blockchain and they evaluate information. If certain conditions are satisfied then the contract is automatically executed.
A good instance would be crowdfunding: if ‘X’ sum of Ether is parked in a smart contract by ‘Y’ date, then the deposit will be credited to the fundraiser’s account – if not, then payment is refunded to donors.
Picture Credits: https://dcxlearn.com/blockchain/what-is-blockchain-what-is-cryptocurrency-2/
Smart contracts, because they are part of a blockchain, are unchangeable and are visible to everyone hence verifiable. This guarantees a high trust level among parties that reflect accurately the stated criterion of the arrangement and will carry it out if, and repeat if, those specifications are met.
To tailor agreements beyond those pertaining to data on blockchains, smart contracts need data that is off-chain in a format that is on-chain. The problem in connecting external information sources with smart contracts in the blockchain is that the language both understand is a detriment in how extensively smart contracts are used.
What Is The Role Of Oracle
Here, oracles step in. Software that is called ‘middleware’ is what an oracle is. It is an intermediary that translates data between the real world and blockchain smart contracts and back.
All said a single oracle that is centralized gives rise to the issue that a smart contract that is blockchain-secured and decentralized tries to solve – a centralized point of shortcoming. If in itself the oracle is corrupt or compromised, the accuracy of the data becomes suspect.
This Is Not An Easy Concept To Grasp
Consider a ship at anchor close to a reef.
The seas get rough- the chain parts. The ship is condemned on the shoals.
Picture Credits: https://www.pngkit.com/so/chain/2/
Sources:
https://www.euromoney.com/learning/blockchain-explained/how-transactions-get-into-the-blockchain
https://dcxlearn.com/blockchain/what-is-blockchain-what-is-cryptocurrency-2/