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While blockchain is known for being the technology behind cryptocurrencies, in truth there are more than one. Blockchains can exist without cryptocurrencies, and some form of cryptocurrencies might exist without it. We see them together because they synergize perfectly, but they’re separate things.
However, it’s blockchain technology that has made current-day cryptocurrencies possible. Many of blockchain’s standards, particularly when it comes to security, set the stage for cryptocurrencies. Today, most security features in crypto come straight from actual blockchain specifications.
And while blockchain is currently used mostly for crypto, that could change in the future. There are plenty of proposals for projects that could change the world. While those projects arrive, perhaps it would be good to know what the blockchain can do for crypto traders.
Global transaction notification
This is one of the defining features of blockchain systems. Both privacy and data integrity are of the utmost importance. In order to attain this, the technology uses multiple copies of the ledger, specifically one for each node.
Each node, by the way, represents a user in the blockchain. Everyone who owns cryptocurrency therefore owns a node. It also has a copy of the full ledger for that blockchain.
When transactions take place, every node in the blockchain is notified about the transaction. Then the nodes that are validating grab the transaction data and verify its authenticity. These nodes then order their validated transactions inside of a block.
Since all nodes validate different transactions, consensus is then used to choose which blocks are put on the chain. Whoever wins consensus is paid in cryptocurrency. Once this happens, the block is again broadcast to all other nodes so they can update their ledgers.
It’s a complex, yet beautiful system that aims for total security. By sending notifications to everyone when a transaction take place, blockchain makes sure a node can’t go rogue and start making them up.
That’s only one of the ways in which blockchain keeps hackers away, however. There are plenty more. Moreover, other functionalities can be utilized on the blockchain. In a sense, this feature reveals the nature of a cryptocurrency trading bot, which you can activate for several uses.
Public view of transaction history
An immutable, secure ledger wouldn’t be useful if nobody could ever audit it. This is why public ledgers are, for many in the community, a necessary feature of a blockchain. In fact, recently several private efforts have come under fire since their ledgers are private as well.
No matter how secure a ledger system is, if you can’t audit it then you only have the developer’s word to trust. And, as we know, people tend to lie. Particularly when money is involved. As such, blockchain’s public ledger system is one of those features that lend credibility to it.
All public blockchain ledgers can be audited freely. While only a few blockchains (Ethereum, Bitcoin) allow for easy access, they all can be accessed, nonetheless.
Now, I know what some might be thinking. Such a public ledger would be dangerous, since that means people can see who has what money, and what you spend your crypto on.
Not a problem. Blockchain ledgers store node-related information, but they don’t store any identifiable info. Instead of personal info, hashed keys for the nodes are stored. These keys allow authentication to happen without giving away any data one could use to track down a node.
This last security feature is also why, once somebody has stolen your crypto, you can’t ever get it back.
Your identity is safe in the blockchain, but not so much in crypto exchange sites. A thief’s best bet is to spend their crypto as crypto, and even then, they can be caught.
Easy to audit blockchain records
This one is related to the previous point. Blockchain ledgers are public. They are also incredibly difficult to manipulate, and in most cases, changes rolled back or edited still leave a trail.
That doesn’t mean you can’t ever edit a blockchain without leaving a trace. It is actually possible, although incredibly difficult.
Editing a blockchain to cook the books generally would require either that that chain is private (which is why private blockchains are an oxymoron, see the point above) or owning most of the blockchain. The former method would require that you own the blockchain alone. The latter would require you to take over the blockchain.
Neither is truly feasible.
Since blockchain can be considered practically immutable, this means auditing is absurdly easy. No blockchain user can ever hide a transaction. No user can ever fail to report a transaction. And if they do, auditing is as easy as looking at the blockchain. Done.
As for making sure blockchain records are valid, comparing the records in several nodes shall do.
Cryptocurrencies are universal
You can’t ban or put special taxes on cryptocurrencies. Since they exist in the internet, they don’t belong to any specific place. They also can’t be properly traced, so no country can ever know if their nationals are using it.
What this means in practice is that everyone can use crypto. It can’t be banned or properly regulated by itself. Sure, certain movements, like cashing out, could be noticed by your local government. But they can’t know you have crypto, or how much.
Cryptocurrencies have also helped establish universal coinage. A bitcoin is worth the same the world over. They can be used between individuals of any nationality to pay for goods and services. They also aren’t issued by any country, so by using them you aren’t helping any particular economy.
Cryptocurrencies aren’t governed by just a central government, and therefore can’t be monopolized, this is a big cryptocurrency trading advantage.
Cryptocurrencies are universal, but also neutral. Using any specific coin as the international standard is problematic, since that lends that coin more power. Cryptocurrencies are as close as we’ll ever go back to a gold standard and more utility can be ascribed to them in the days to come.
Denise Quirk is a Health Advisor who is fascinated by Crypto and Blockchain Revolution. She is a believer of transforming complex information into simple, actionable content. She is keenly interested in finding the value of the crypto world. She consistently writes for Coin Review. You can find her on Linkedin, Twitter and Facebook.