Blockchain Technology: A Safe Haven For Modern Investment
INTRODUCTION
This paper tends to explore the emerging use of blockchain technology and its safety in modern day investment and the security which has given rise to the investment of cyptocurrencies. Blockchain is a Distributed Ledger Technology (DLT), which is a secure way of conducting and recording transfers of digital assets without the need for a central authority. DLT is said to be ‘distributed’ because multiple participants in a computer network (individuals, businesses, etc), share and synchronize copies of the ledger. New transactions are added in a manner that is cryptographically secured, permanent, and visible to all participants in near real time.
In recent time, Blockchain has made its way into modern business, finance, and many other industries. Its introduction to the mainstream following the rise in the popularity of cryptocurrencies has created new investment vehicles, opportunities, and other new sectors. Blockchain was developed from the distributed ledger concept which is a network of stored files in which every transaction is recorded, and it enhances public use and security. Due to the security blockchain has presented over the past few decades, there is a huge amount of its usage from individual, corporate bodies, government institution etc.
UNDERSTANDING BLOCKCHAIN
A blockchain is a distributed ledger with growing lists of records (which consist of blocks) that are securely linked together via cryptographic hashes.[1] Blockchain is best known for its crucial role in cryptocurrency systems, maintaining a secure and decentralized record of transactions, but it is not limited to cryptocurrency uses. Blockchain technology is a structure that stores transactional records, also known as the block, of the public in several databases, known as the “chain,” in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘digital ledger’.[2] A block cannot be changed or altered, and the only trust needed is at the point where a user or program enters data. This reduces the need for trusted third parties, such as auditors or other humans, who add costs and can make mistakes.
Put simply, blockchain is a technology that enables the secure sharing of information and transactions are recorded in an account book called a ledger. Blockchain allows for the permanent, immutable, and transparent recording of data and transactions. This, in turn, makes it possible to exchange anything that has value, whether a tangible or intangible asset. Since Bitcoin's introduction in 2009, blockchain uses have exploded via the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.[3]
Blockchain facilitates the process of recording transactions and tracking assets in a business network. These assets can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
It is pertinent to state the importance of Blockchain in modern day global business, because no doubt, business runs on information. The faster information is received and the more accurate it is, the better for every business. Blockchain is ideal for delivering that needed information because it provides immediate, shared, and observable information that is stored on an immutable ledger that only permissioned network members can access. A blockchain network can track orders, payments, accounts, production and much more. And because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, and new efficiencies and opportunities.
Some key features of blockchain may include firstly, that it is cryptographically secured and focuses predominantly on ensuring the security of participants, transactions and double-spending which will be properly evaluated in this article. Secondly, blockchain is a digital log or database of transactions which happens fully online. Also, a blockchain is a database that is shared across a public or private network. One of the most well known public blockchain networks is the Bitcoin blockchain. Anyone can open a Bitcoin wallet or become a node on the network. Other blockchains are private networks which are more applicable to banking and fintech.[4]
BLOCKCHAIN APPLICATIONS
Blockchain has many applications, including NFT, cryptocurrency, metaverse, Defi, etc. Cryptocurrency is a type of digital money that operates independently from the government or banks and is intended to be used as a medium of exchange across computer networks. Cryptocurrency is a medium of exchange, created and stored electronically on the blockchain, using cryptographic techniques to verify the transfer of funds and an algorithm to control the creation of monetary units.[5] Blockchain is the technology that powers the Bitcoin cryptocurrency system.[6] Digital media, including music, books, videos, games., and other contents, have progressively entered the mainstream as the Internet continues to improve. Intellectual property has evolved into the mainstay of market competition because of the risk associated with the information economy. Due to the seriousness of intellectual property rights infringement in the current Internet context, copyright protection of digital assets has become a sensitive point in the industry. Disintermediation, consensus processes, and immutability are all attributes of blockchain.[7]
The usage of blockchain has increased significantly. Not long ago, it was little-known technology powering a payment method popular only with a small clique of early adopters, mostly tech-savvy individuals on the internet's fringes. In less than a decade, major mainstream companies such as IBM, Microsoft, and Amazon have embraced it. It is being applied as the backend of numerous enterprise applications, some of which are on the verge of revolutionizing various industries. However, the common use cases of blockchain applications coming into the mainstream ranges from Money Transactions and International Payments to Smart Contracts, Security and Cyber Security, Record Management, Financial management, Non-Fungible Tokens (NFTs), Copyrights Protection, Borrowing and lending money e.t.c.[8]
THE SECURITY OF BLOCKCHAIN
There is a comprehensive risk management system for blockchain network. It uses cybersecurity frameworks, assurance services and best practices to reduce risks against attacks and fraud. Blockchain technology produces a structure of data with inherent security qualities. It is based on principles of cryptography, decentralization and consensus, which ensure trust in transactions. In most blockchains or distributed ledger technologies, the data is structured into blocks and each block contains a transaction or bundle of transactions. Each new block connects to all the blocks before it in a cryptographic chain in such a way that it's nearly impossible to tamper with. All transactions within the blocks are validated and agreed upon by a consensus mechanism, ensuring that each transaction is true and correct.[9]
Blockchain is safe to use because it manages a large-scale record of transactions and additional data wrapped in several layers of data security. As a result, these systems are generally regarded as safe and secure. It is easy to read the ledger and to add additional data to the chain of transactions, although each new transaction must clear several security hurdles before it is added to the blockchain. Nobody can change, alter or delete existing data. Any attempt to tamper with the ledger is easily traced back to the prospective hacker, who then typically loses access to the network.
A proof that Blockchain is secured is not farfetched as every new transaction is added to a blockchain in a process called “minting” a new block of data. All block-minting systems have a few qualities in common which includes but not limited to the fact that:
Ø Every block has a unique address.
Ø Each new block contains a link to the block before it, forming a sequence of data blocks stretching all the way back to each blockchain’s first block.
Ø Together with a fresh batch of data for validating transactions, the link is protected by data encryption ensuring the correct link to the previous block is written in stone and cannot be changed.
Ø Each new block must be confirmed by a certain number of validation nodes reaching a consensus and minting a new token to match the freshly minted data block.[10]
However, there is no financial system or data platform that is totally free from security issues, and blockchain is no exception. Blockchains are not unhackable but it is very difficult to breach them and nearly impossible to hack because it will require a massive amount of computing power to breach which is nearly impossible.
CONCLUSION
Blockchain is here to stay and there are some popular blockchain investments like Ethereum, Binance Coin, Solana etc which has become popular for their active development, diverse use and strong community. When considering blockchain for investment, it is important to note that irrespective of the fact that it is highly secured, it is important to always carry out a thorough research before investing in any blockchain to minimize risk. However, blockchain application is not just about the technology behind the popular cryptocurrencies but its application extents across industries and services too.
By Happy John,
ACER WRITING HOUSE, Mentee-Writer
[1] Morris, David Z. (15 May 2016). "Leaderless, Blockchain-Based Venture Capital Fund Raises $100 Million, And Counting".
[2] Available at < https://www.investopedia.com/terms/b/blockchain.asp> Last Accessed 5/10/2024.
[3] Supra.
[4] Available at < https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-blockchain> Last Accessed 05/10/2024.
[5] Available at < https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html > Last Accessed 05/10/2024.
[6] Yaga, D., Mell, P., Roby, N., & Scarfone, K. (2019). Blockchain Technology Overview. ArXiv PreprintarXiv:1906.11078.
[7] Ruisi Li, Research on the Investment Value of Cryptocurrency and Blockchain Technology. ResearchGate April, 2023.
[8] Available at < https://casper.network/en-us/web3/blockchain/applications/> Last Accessed 05/10/2024.
[9] Available at < https://www.ibm.com/topics/blockchain-security> Last Accessed 06/10/2024.
[10] Available at < https://www.fool.com/terms/b/blockchain-security/> Last Accessed 06/10/2024.