Blockchain technology is made up of a decentralized network of computers that interact through a cryptographic, secure protocol that guarantees security but is far more complicated that you think. And this has caught policy makers off guard.
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If you are wondering, what blockchain is then, here is a very simple explanation. Blockchains are digital ledgers that record information that is distributed among a network of computers with each computer having identical records. A blockchain has the ability to ‘codify’ transactions by deploying small snippets of code directly onto the blockchain. The code, also referred to as a ‘smart contract’, executes automatically when certain conditions are met.
According to Information Technology & Innovation Foundation (ITIF), the blockchain consists of a series of digital ‘blocks’ that are securely linked together in a sequential order using cryptography to create a virtual chain of data. The blocks record information such as financial transactions, agreements between parties and ownership records. “The blockchains maintain agreement between all participants using a ‘consensus protocol’ – a set of rules that allows nodes to determine when to add new information to the blockchain. Consensus protocols are designed to make the ‘blockchain resistant to tampering’ and ensure consistency in the data among all participants in the network.”
However, attackers have successfully used several methods to undermine the security of blockchain-based applications. ITIF says that developers can make coding mistakes when creating new blockchain software. “For example, development helping to maintain the Bitcoin network discovered a bug in 2018 that would have allowed attackers to create new bitcoins and inflate the supply of currency. Developers of Zcash, a cryptocurrency, found a flaw in its underlying cryptography in February 2019 that malicious parties could exploit to generate unlimited currency.”
But experts also acknowledge the fact that these are initial glitches. Technology, and blockchain as a matter of fact are undergoing innovation. And its just the beginning. Developers all over the world are working day and night to improve this technology. Experts are of the view that blockchain will have the most impact on six applications – cryptocurrencies, shared data services, smart contracts applications, decentralized marketplaces, authenticity tracking, and digital identity applications.
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Presently, the world is abuzz with cryptocurrencies like Bitcoin and Ethereum but governments and bankers are shy of fully embracing it. But investors, businesses and common men are welcoming it. It will take years for the governments to finally come to terms with cryptocurrency. But economists and policy makers are doing research and looking at ways to use it for like everyday money.