Cryptocurrency is revolutionizing the world. But although many people have heard of it, few can fully explain the intricacies of how this blockchain technology works. Well, this the beginner’s blockchain guide is a good place to start!
First, let’s talk about what crypto is. Bitcoin and other cryptocurrencies have become a whole new asset class that can serve as a store of value – like gold – and as a good medium of exchange – like the US dollar.
Designed and built for the internet age, these assets can be traded on a peer-to-peer basis (directly with someone else) or via online exchanges. Crucially, thanks to crypto’s underlying blockchain technologyall this can be done without fear that the digital transactions will be forged by our peers.
In other words, it can be done in a very safe and “reliable” way. It is the real breakthrough for blockchain technology. We can trust that our digital cash is legitimate without needing a bank verification in any way.
What exactly is blockchain technology?
Many describe the “blockchain” as a decentralized ledger of transactions – a fancy kind of Excel document, for example, that everyone can read at the same time, but whose contents no one can delete, change or manipulate.
It’s accurate… but not quite complete.
Blockchain is truly a decentralized public ledger. It is maintained through a open source software protocol, which means that anyone can read and review this software. And anyone can run the code that defines the rules of the network and its operation on their own computer, also known as a urge. Since no single person runs this network, there is no single point of failure.
So, blockchain gives users a way to validate a shared digital history without requiring an intermediary. And this is actually a very important problem that technology has solved.
This means that digital transactions cannot be forged. We can use the blockchain to create new forms of money that include all the convenience of the internet. And this opens up a whole new world of digital value.
How Blockchain works
The blockchain also combines two other technologies that make it unique and important.
The first is private key encryption, which helps prove that users are who they say they are. The second is a protocol that motivates participants to do the “housework” needed to keep it all running. It is the protocol’s security and record-keeping.
Essentially, private keys are your personal keys to your own crypto vault. They also allow users to release the minimum amount of personal information necessary for an exchange, which helps reduce exposure to hacks.
The protocol includes the rules that participants must follow so that they do necessary things, such as broadcasting the correct transaction type. And it also shows the rewards for doing so.
The bottom line is that crypto uses a blockchain to decentralize payments.
Blockchain Guide: The World of Digitized Assets
There are many other applications for a blockchain. Just about any service where intermediaries exert undue influence could potentially be improved by introducing a blockchain. Consider business payments, real estate transactions, requests for personal medical information and much more.
But one area we have spotted that may hold the most potential – the world of digitized assets.
See; the blockchain allows us to digitize real-world assets such as property and move them to a secure network. There they can be bought or sold in real time.
For example, Wall Street has packaged various mortgages, car loans and personal debt since the 1970s. It then sells these “securitized” instruments to investors. Tokenization takes this process to the next level.
Basically, the rights to an asset are digitized into a “token”, which can be traded on a blockchain.
Doing so instantly transforms what was a predominantly closed transaction into a more liquid and tradable one.
Blockchain’s endless possibilities
Having a digital token also makes it possible to split ownership units into smaller, less expensive fractions. These digital tokens can then be bought and sold across digital networks and international borders in seconds.
Do you want to be like one of the famous, worldwide real estate developers? Do you dream of taking part of the income from the shiny office tower on Manhattan’s Fifth Avenue? In today’s world, you’ll likely have to shell out millions, even billions of dollars to get in. With tokens, you can potentially pay thousands to get your part of the building.
The idea is to use the blockchain to unlock vast amounts of previously unattainable value.
The $1.9 trillion global payments market is another example of a sector ripe for disruption by blockchain’s tokenization solution. In 2018, HSBC took action to use a blockchain to support soybean financing. And Germany’s Commerzbank also launched a pilot project to test the technology.
Indeed, as blockchain entrepreneurs set up projects that offer fractional ownership of film, television, music and other intellectual property-driven content, investors will even be able to bet on the latest potential Hollywood blockbuster. Such a project will allow owners of Proxicoina digital token, to invest in hundreds of major movies and TV series.
The possibilities are tempting. And that is why we think this area is so exciting and one to keep an eye on going forward.
As of the date of publication, Luke Lango did not hold (either directly or indirectly) any positions in the securities mentioned in this article.