Comprehensive Guide to Blockchain Technology

Departments

1. Introduction to blockchain

2. How does blockchain work?

3. What is blockchain used for?

Part 1 - Introduction to Blockchain

Contents

• What is Blockchain?

• How are blocks connected to each other?

• Blockchains and decentralization

• Byzantine Generals Problem

• Why do blockchains need to be decentralized?

• What is peer-to-peer networking?

• What are blockchain nodes?

• Difference between public and private blockchains

• How do transactions take place?

• How to make Bitcoin transactions?

  • How to withdraw bitcoin from Binance?

  • How to send bitcoin from Trust Wallet to Electrum?

• Who created blockchain technology?

• Pros and cons of blockchain technology

  • Pros

  • Cons

What is Blockchain?

Blockchain is a special type of database. You may have also heard the term distributed ledger technology (DLT), the two often used interchangeably.

A blockchain has its own characteristics. There are rules for how data is added, and once data is saved it is almost impossible to delete or change it.

Data is added over time in structures called blocks. Each block builds on the previous one and contains a piece of information that connects it to the previous block. By looking at the most recent block, we can check that this block has been added on top of the last block. In other words, by going back step by step on the “chain”, we can reach the first block of the blockchain, also known as the genesis block.

To give an analogy, suppose you have a two-column table. Enter the data you want to save in the first cell of the first row.

The first cell's data is translated into a two-letter token, which forms part of the next entry. The two-letter specifier KP in this example should be used when filling in the next cell in the second row (defKP). This means that if you change the first data entered (abcAA), you will get different combinations of letters in all subsequent cells.

A database where each entry depends on the previous one.

If we look at line 4, we see that our last token is TH. We said that you cannot go back and delete or change entries. The reason for this is that everyone will easily understand that such a change has been made and will ignore the change attempt.

Suppose you change the data in the first cell, in this case you get a different token, so change the data in your second block, indirectly change the token in the second row, and so on. TH is, at its most essential, a product of all the knowledge that came before it.

How are blocks connected to each other?

The example we mentioned above with two-letter tokens is a simplified example of how a blockchain uses hash functions. Hashing is the glue that holds blocks together. It consists of taking data of any size and passing it through a mathematical function to create an output (hash) that is always the same length.

Hashes used in blockchains are quite interesting in that the probability of finding two different data that will give the same output is astronomically low. Similar to our markers above, the slightest change in data inputs will create a completely different output.

Let's walk through the example of SHA256, a frequently used function in Bitcoin. As you can see, just having the letters uppercase or lowercase is enough to completely change the output.

The fact that there are no known SHA256 conflicts (i.e. two different inputs giving the same output) is extremely important in the context of blockchains. This means that each block can be linked to the previous block by containing the hash of the one that came before it, and any attempt to modify older blocks can be detected immediately.

Each block contains the fingerprint of the previous block.

Blockchains and decentralization

We explained the basic structure of blockchains. However, when talking about blockchain, we usually talk about not only the database itself but also the ecosystems built around blockchains.

Blockchains as data structures on their own are only really useful for niche applications. But things get interesting when they are used as tools that enable people who do not know each other to coordinate among themselves. When combined with other technologies and game theory, a blockchain can act as a distributed ledger that is not under anyone's control.

This means that no one has the power to change the inputs other than the system rules (we will talk about the rules in detail in a moment). In this context, the ledger can be said to be owned by everyone simultaneously: participants agree on what the ledger looks like at any given moment.

Byzantine Generals Problem

The real challenge to systems like the one we mentioned above is the Byzantine Generals Problem. This concept, introduced in 1980, speaks of a dilemma that requires isolated participants to communicate with each other to coordinate their actions. In a dilemma, a group of generals besieging a city try to decide when to attack. Generals can only communicate with messengers.

Each general must decide whether to attack or retreat. It does not matter whether they attack or retreat, as long as all generals make a common decision. If they decide to attack, they can only succeed if they act simultaneously. So how can we help them overcome this situation?

Of course, they can communicate through a messenger. So what happens if the messenger carrying the message "we attack at dawn" is intercepted and the message is changed to "we attack tonight"? Or what if one of the generals has bad intentions and deliberately misleads the other generals to ensure they lose?

All generals attack successfully (left). Some generals are defeated because they attack while others retreat (right).

We need a strategy to ensure that consensus can be reached even if participants are malicious or messages are changed. Even if succeeding in protecting a database is not a matter of life or death, like attacking a city without support, fundamentally the same principle applies. If there is no person to manage the blockchain and present the “correct” information to users, then users must be able to communicate among themselves.

To overcome the potential failure of one (or a few) users, the blockchain's mechanisms must be carefully designed to cope with such challenges. A system that can achieve this is called Byzantine fault tolerant. As we will discuss later, consensus algorithms are used to establish reliable rules.

Why do blockchains need to be decentralized?

Of course, you can run a blockchain on your own. But what you end up with is a more cumbersome database than superior alternatives. The true potential of blockchain can be harnessed within a decentralized environment where all users are equal. This way, the blockchain cannot be deleted or fallen into the hands of malicious people. Blockchain is a single source of truth viewable by anyone.

What is peer-to-peer networking?

The peer-to-peer (P2P) network is our user layer (or generals in the previous example). There is no administrator, so when a user wants to exchange information with another user, they send the information directly to the other peers rather than connecting to a central server.

When we examine the graph below, on the left side A must route the message through the server to deliver it to F. On the right side, they connect to each other without an intermediary.

A centralized network (left) and a decentralized network (right).

Normally, all the information that users would need is kept on the server. When you enter Binance Academy, you request the site's servers to show you all articles. If the website goes offline, you will not be able to see these articles. However, if you have downloaded all the content, you can upload it to your computer without querying through Binance Academy.

At its most basic, this is what all peers do with blockchain: the entire database is recorded on their computers. If one person leaves the network, the remaining users continue to have access to the blockchain and can share information with each other. When a new block is added to the chain, the data is spread across the network so everyone can update their ledger.

For a more comprehensive review of these types of networks, see What Are Peer-to-Peer Networks? You can read our article.

What are blockchain nodes?

Nodes are networked machines that share information with other machines by keeping copies of the blockchain. Users do not need to handle these processes manually. Usually all a user needs to do is download and run the blockchain's software. Other operations are performed automatically.

What a node is is defined above in its simplest form, but other users who interact with the network in any way can be added to the definition. In the case of cryptocurrencies, for example, a simple wallet app on your phone falls into what is known as a lightweight node.

Difference between public and private blockchains

As it is known, the foundations that made the blockchain industry what it is today were laid with Bitcoin. As Bitcoin began to prove itself as a legitimate financial asset, evaluations of the potential of the underlying technology for other areas began. As a result, blockchain has been utilized for numerous uses outside of finance.

Bitcoin is a public blockchain. This means that anyone can view transactions on this network, and only an internet connection and appropriate software are required for this. Since there are no other requirements for participation, such an environment is called a permissionless environment.

In contrast, there are other types of blockchains called private blockchains. These systems set rules for who can see and interact with the blockchain. Therefore, they are called permission-based environments. While private blockchains may seem redundant at first, they have some important applications for enterprise environments.

For more information on the subject, see What are the Differences between Public, Private and Consortium Blockchains? You can read our article.

Do you want to enter the world of cryptocurrency? You can buy Bitcoin via Binance!

How do transactions take place?

If Alice wants to pay Bob via bank transfer, she notifies her bank. To explain the process more easily, let's assume that they both use the same bank. Before updating the database (e.g. -$50 to Alice, +$50 to Bob) the bank checks whether Alice has the funds to perform this transaction.

This process is not much different from transactions on blockchain. After all, blockchain is also a database. The main difference between the two is that on the blockchain there is no single party performing checks and updating balances. These operations must be performed by all nodes.

If Alice wants to send five bitcoins to Bob, she broadcasts her request via a message to the network. The transaction is not immediately added to the blockchain. Nodes see this message, but there are other processes that must be completed for the transaction to be confirmed. You can learn about these processes in the How blocks are added to the blockchain section.

Once the transaction is added to the blockchain, it is visible to all nodes where this addition was made. They update their copy of the blockchain to reflect the change. Now Alice cannot send the same five units to Carol (double spend) because it is known to the network that Alice spent those five units in a previous transaction.

There is no concept of username and password – public key cryptography is used to prove ownership of funds. In order to receive the funds, Bob must first create a private key. A private key is a very long random number that is impossible for a person to guess even if they try for hundreds of years. But if Bob shares his private key with someone else, that person is in a position to prove that the funds belong to him (and therefore spend them). Therefore, it is very important to keep the private key secret.

What Bob can do is derive a public key from his private key. The public key can be easily shared because it is almost impossible to reverse engineer the private key from this key. In most cases, a public address is created by performing another operation on the public key (hashing).

Bob gives Alice his street address so she knows where to send the funds. Alice creates a transaction that says send these funds to this public address. It then creates a digital signature using its private key to prove to the network that it is not trying to spend funds that do not belong to it. Anyone can retrieve Alice's signed message, compare it with her public key, and say conclusively that she has the right to send the funds in question to Bob.

How to make Bitcoin transactions?

We will proceed through two different scenarios to explain how you can make Bitcoin transactions. In the first scenario, you will withdraw bitcoin from Binance and in the second, you will send your funds from your Trust Wallet to your Electrum wallet.

How to withdraw bitcoin from Binance?

1. Log in to your Binance account. If you don't have bitcoin yet, check out our Bitcoin guide to learn how to buy one.

2. Hover your cursor over the Wallet tab and select Spot Wallet.

3. Click on Capture from the side menu on the left.

4. Select the coin you want to withdraw – in this example BTC.

5. Copy the address you want to withdraw your Bitcoins to and enter it in the Recipient BTC Address box.

6. Enter the amount you want to withdraw.

7. Press send.

8. You will receive a confirmation email shortly. Please check carefully whether the address is correct. If correct, confirm the action in the email.

9. Wait for your transaction to go through the blockchain. You can check the status of the transaction in the Deposit and Withdrawal History tab or by using a block browser.

How to send bitcoin from Trust Wallet to Electrum?

In this example, we will send bitcoin from Trust Wallet to Electrum.

1. Open the Trust Wallet app.

2. Click on the Bitcoin account.

3. Click send.

4. Open your Electrum wallet.

5. Click the Receive tab in Electrum and copy the address.

Instead, you can click the [–] icon to return to Trust Wallet and scan the QR code indicating your Electrum address.

6. Paste your Bitcoin address in the Recipient Address section in Trust Wallet.

7. Determine the amount.

8. If everything looks correct, confirm the transaction.

9. That's it! Wait for the transaction to be confirmed on the blockchain. You can track the status of the transaction by copying your address into a block browser.

Do you want to enter the world of cryptocurrency? You can buy Bitcoin via Binance!

Who created blockchain technology?

Blockchain technology was formalized in 2009 with the launch of the first and most popular blockchain, Bitcoin. However, anonymous creator Satoshi Nakamoto was inspired by earlier technologies and suggestions.

Blockchains make great use of hash functions and cryptography, which existed for decades before Bitcoin. Interestingly, the history of the blockchain structure can be traced back to the early 1990s. However, the technology was used only for time stamping purposes so that documents could not be changed later.

For more information on the subject, you can read our History of Blockchain article.

Pros and cons of blockchain technology

Properly designed blockchains can solve a problem that challenges stakeholders from many different sectors, from finance to agriculture. Distributed networks have many advantages over the traditional client-server model, but they also come with some disadvantages.

Pros

One of the main benefits mentioned in the Bitcoin white paper is that payments can be made without intermediaries. Later blockchains took this a step further, allowing users to send all types of information. The elimination of counterparties means less risk for the users involved and fewer transaction fees paid because there are no intermediaries to take a cut.

As we mentioned before, a public blockchain network is permissionless, meaning there is no barrier to entry since no one has control. If a user can connect to the internet, they can also interact with other peers on the network.

Many people consider the most important feature of blockchains to be highly censorship-resistant. To disrupt a centralized system, all a malicious actor needs to do is target the server. But in peer-to-peer networks, each node acts as its own server.

Since a system like Bitcoin has more than 10,000 visible nodes scattered around the world, it is almost impossible for an attacker to damage the network even if they have advanced resources. It is also important to note that there are hidden nodes that are not visible throughout the network.

These are some of the advantages. What is blockchain used for? As you can see in the section, there are many usage areas that blockchains can serve.

Cons

Blockchains don't solve every problem. Although they are optimized for the advantages we mentioned in the previous section, they have shortcomings in some other areas. The most obvious obstacle to widespread use is their inability to scale.

This is true for all distributed networks. Because all participants must remain synchronized, new information cannot be added too quickly, otherwise nodes may struggle to stay up to date. Therefore, developers tend to specifically limit the update speed of blockchains to ensure that the system remains decentralized.

If many people want to make transactions at the same time, this will cause long waiting times for network users. Blocks can only contain certain amounts of data and are not added to the chain immediately. If there are more transactions than can fit in a block, the remaining transactions must wait for the next block.

Another possible disadvantage of decentralized blockchain systems is that they cannot be easily upgraded. If you are creating your own software, you can add new features as you wish. You don't have to work with other people or ask permission to make changes.

It is very difficult to make changes in environments where there are millions of potential users. You can change some parameters of your Node software, but as a result you will find yourself disconnected from the network. If the modified software is not compatible with other nodes, others will notice this incompatibility and refuse to interact with your node.

Let's say you want to change a rule for how large blocks should be (from 1MB to 2MB). You can try to send this block to the nodes you are connected to, but others follow the rule of “Do not accept blocks larger than 1MB”. If they receive a larger block, they do not include it in their copy of the blockchain.

The only way to implement changes is for these changes to be accepted by the majority of the ecosystem. On major blockchains, extensive discussions take place in forums for months—or even years—before changes are coordinated. For more information on this subject, you can read the Hard forks and soft forks section.

Part 2 - How does blockchain work?

Contents

• How are blocks added to the blockchain?

• Madencilik (Proof of Work)

  • Pros of Proof of Work

  • Cons of Proof of Work

• Staking (Proof of Stake)

  • Pros of Proof of Stake

  • Cons of Proof of Stake

• Other consensus algorithms

• Can I reverse blockchain transactions?

• What is blockchain scalability?

• Why does blockchain need to scale?

• What is a blockchain fork?

  • Soft fork'lar

  • Hard fork'lar

How are blocks added to the blockchain?

We have talked about many topics so far. We know that nodes are connected to each other and maintain copies of the blockchain. They share information about transactions and new blocks with each other. So how are these new blocks added to the blockchain?

There is no single source telling users what to do. Since all nodes are of equal power, a mechanism is needed to fairly decide who can add blocks to the blockchain. A system that makes it costly for users to cheat but also rewards them for being honest is needed. A rational user will choose to act in a way that is economically beneficial for him/her.

Since the network is not permission-based, block creation must be publicly accessible. Protocols often achieve this by requiring the user to “put something up”—that is, to risk their money. Thus, the person can participate in the block creation process and is entitled to a reward if he creates a valid block.

On the other hand, if he attempts to cheat, the rest of the network will notice and the user will lose the money he put in. These mechanisms are called consensus algorithms because they enable network participants to reach consensus on the next block to be added.

Madencilik (Proof of Work)

Mining is by far the most commonly used consensus algorithm. Proof of Work (PoW) algorithm is used in mining. In PoW, users must use their computing power to solve a puzzle determined by the protocol.

Users must hash the transactions and other information in the block to solve the puzzle. However, for the hash to be considered valid, it must be below a certain number. Since there is no way to predict what the output will be, miners must repeat the hashing process, tweaking the data until they find a valid solution.

Hashing data repeatedly is computationally expensive. In Proof of Work blockchains, the "risk" posed by users is the investment in mining computers and the electricity spent on these computers. While making this investment, they aim to earn the block reward.

We said earlier that it is impossible to reverse a hash, but it is easy to check the authenticity of the hash. Once a miner shares a block with the rest of the network, all other nodes use it as input to the hash function. Hashing the block just once is enough to understand whether this block is valid according to the blockchain rules. If it is not valid, the miner cannot receive a reward and will waste electricity.

The first Proof of Work blockchain is Bitcoin. Since the creation of Bitcoin, many other blockchains have also adopted the PoW mechanism.

Pros of Proof of Work

• Tried and tested – Proof of Work is currently the most mature consensus algorithm and has secured hundreds of billions of dollars of value to date.

• It's not permission-based – anyone can participate in a mining competition or run a verification node.

• Decentralized – miners compete with each other to produce blocks, which means hashing power is never in the hands of a single party.

Cons of Proof of Work

• Waste – mining requires huge amounts of electricity.

• Increasing barrier to entry – as more miners join the network, the protocol increases the difficulty of the mining puzzle. To stay competitive, users need to invest in better equipment. This may become too costly for many miners.

• 51% attacks – although mining supports decentralization, there is a risk that one miner can capture the majority of the hashing power. If it can achieve this, it could theoretically reverse transactions and compromise the security of the blockchain.

Staking (Proof of Stake)

In Proof of Work systems, it is the money you pay for mining computers and electricity that drives you to act honestly. If you do not mine the blocks correctly, you will not get a return on your investment.

There are no external costs in the Proof of Stake (PoS) algorithm. Instead of miners, there are validators who mine (or “forge”) blocks. Standard computers can be used to create new blocks, but validators must stake a significant portion of their funds for this privilege. The fund provided is from the blockchain's own private cryptocurrency and is a predetermined amount according to each protocol's own rules.

Different implementations may have different variations, but when a validator puts up funds it can be randomly selected by the protocol to determine the next block. If he can successfully identify the block, he wins the block reward. Alternatively, there may be more than one validator who will agree on the next block, but in this case the reward earned is distributed in proportion to the amount of funds put forward by each validator.

“Pure” PoS blockchains are less common than DPoS (Delegated Proof of Stake) ones. In DPoS, users vote (witness) to determine which nodes will verify blocks rather than the entire network.

Ethereum, the leading smart contract blockchain, will soon start using Proof of Stake with its transition to ETH 2.0.

Pros of Proof of Stake

• Environmentally friendly – ​​The carbon footprint of PoS is a very small percentage of PoW mining. Staking eliminates the need for resource-intensive hashing operations.

• Faster transactions – according to some PoS proponents, transaction efficiency can increase because there is no need to spend additional computing power on abstract puzzles determined by the protocol.

• Staking rewards and interest – rewards are paid directly to token holders rather than miners as the network is kept secure. In some cases, PoS allows users to earn passive income through airdrops or interest simply by staking their funds.

Cons of Proof of Stake

• Relatively less tested – PoS protocols have not yet been tested on a large scale. They may contain undiscovered vulnerabilities in their applications or crypto economies.

• Plutocracy – there has been criticism that PoS supports an ecosystem that “makes the rich get richer” as validators who stake higher amounts often earn greater rewards.

• Problem with no stake – in PoW users can only “invest” in one chain, meaning they mine on the chain they believe will be most successful. During a hard fork, they cannot operate on more than one chain with the same hash power. However, validators in PoS can operate on multiple chains with little additional cost, which can create economic problems.

Other consensus algorithms

Proof of Work and Proof of Stake are the most common consensus algorithms, but there are many others. Some are hybrid systems that combine elements from these two systems, while others are other methods entirely.

We will not go into detail about this subject in our article, but if you want to learn more, you can read the following articles:

• What is Delayed Proof of Work?

• What is Leased Proof of Stake?

• Proof of Authority Nedir?

• Proof of Burn Nedir?

Can I reverse blockchain transactions?

Blockchains are, by design, very secure databases. Due to its features, once blockchain data is recorded, it is extremely difficult to extract or change it. In the case of Bitcoin and other large networks, this process is almost impossible. Therefore, when making a transaction on the blockchain, you need to consider that what you do is irreversibly permanent.

However, there are many different blockchain applications, and the main difference between them is how consensus is reached within the network. That is, in some applications, a relatively small group of participants can come together and gain enough power to reverse the transactions. This is especially true for altcoins that operate on small networks (with low hash rates due to little mining competition).

What is blockchain scalability?

Blockchain scalability is often used as a general concept representing the ability of a blockchain system to respond to increasing demand. Although blockchains have the desired features (such as decentralization, censorship resistance, immutability), they also have some disadvantages.

Unlike decentralized systems, centralized databases can operate with greater speed and efficiency. This result makes sense considering that thousands of nodes scattered around the world do not need to be synchronized every time the content changes. But the situation is different in blockchains. As a result, scalability has been a heavily discussed topic among blockchain developers for years.

There are different solutions proposed or implemented to eliminate some performance problems of blockchains. However, a clear best solution has not yet been determined. Many different solutions will likely need to be tried until a direct answer to the scalability issue is found.

A more fundamental question regarding scalability more broadly can be asked: should we improve the performance of the blockchain itself (on-chain scaling) or should we allow transactions to occur without burdening the main blockchain (off-chain scaling)?

Both solutions have clear advantages. On-chain scaling solutions can reduce the size of transactions or optimize how data is stored in blocks. On the other hand, in off-chain solutions, transactions are moved outside the main chain and added to the main chain later. Some of the most well-known off-chain solutions are sidechains and payment channels.

For more information on this topic, you can read our article Blockchain Scalability - Sidechains and Payment Channels.

Why does blockchain need to scale?

In order for blockchain systems to compete with centralized systems, they must perform at least as well as them. But realistically, they need to perform even better to encourage developers and users to switch to blockchain-based platforms and applications.

In other words, compared to centralized systems, the use of blockchain should be faster, cheaper and easier for both developers and users. It is not easy to achieve this while preserving the unique features of blockchains that we mentioned before.

What is a blockchain fork?

Like any software, blockchains need updates to fix problems, add new rules, and remove old rules. Since most blockchain software is open source, in theory anyone should be able to suggest new updates to be added to the software that manages the network.

Remember that blockchains are distributed networks. Once the software is updated, thousands of nodes around the world need to be able to communicate and implement the new version. So what happens if participants can't agree on what updates to make? Often there is no organization with a clear decision flow to make the decision. This brings us to soft and hard forks.

Soft fork'lar

If there is a general consensus on what an update will be like, the issue is usually easily resolved. In such a scenario, the software is updated with a backwards-compatible replacement, meaning that updating nodes can continue to interact with non-updating nodes. But in reality, all nodes are expected to update over time. This process is called soft fork.

Hard fork'lar

Hard fork is more complex. When a hard fork is made, the new rules become incompatible with the old rules. Therefore, if a node that applies the new rules tries to communicate with a node that applies the old rules, it will not be able to do so. Ultimately, the blockchain splits into two – one side continues to use the old software, the other side implements the new rules.

After the hard fork, two different networks emerge that use two different protocols in parallel. When forking, the balances of platform-specific units of blockchains are copied from the old network. So, if you have balance in the old chain at the time of the fork, you will also have balance in the new chain.

For more information on the subject, you can check out our Hard forks and Soft Forks article.

Part 3 - What is blockchain used for?

Contents

• Blockchain for supply chain

• Blockchain and gaming industry

• Blockchain for healthcare

• Blockchain for currency remittance

• Blockchain and digital identity

• Blockchain and Internet of Things (IoT)

• Blockchain for governance

• Blockchain for charities

• Blockchain for speculation

• Community funding with blockchain

• Blockchain and distributed file systems

Blockchain technology can serve many different uses. We will talk about some of them below.

Blockchain for supply chain

Effective supply chains are at the heart of many successful companies and involve the handling of commodities from supplier to consumer. It is known that it is difficult to coordinate multiple stakeholders in an industry. But blockchain technology can make many industries more transparent. An interoperable supply chain ecosystem revolving around an immutable database is what many industries need to become more reliable and robust.

For more information on the subject, you can read our article Blockchain Uses: Supply Chain.

Blockchain and gaming industry

The gaming industry has become one of the largest entertainment industries in the world and can benefit significantly from blockchain technology. Game lovers often have to stick to the decisions of game developers. In most online games, players have to act according to the server capacities of the developers and follow the ever-changing game rules. In this context, blockchain can help decentralize the ownership, management and administration of online games.

But probably one of the biggest problems is that since game items cannot exist outside of games, the opportunity for real ownership and secondary markets disappears. By choosing a blockchain-based approach, games can become more sustainable in the long run, and in-game items mined as crypto collectibles can have real-world value.

For more information on the subject, you can read our Blockchain Usage Areas: Game article.

Blockchain for healthcare

Reliable storage of medical records is critical to any healthcare system, and using centralized servers places sensitive information in an open location. Blockchain technology is an ideal platform for storing medical records thanks to its transparency and security.

By cryptographically securing their records on the blockchain, patients can share their medical information with any healthcare institution they wish while protecting their privacy. If all participants using the existing healthcare system, which consists of different parts, are included in a secure, global database, information can flow much more quickly.

For more information on the subject, you can read our article Blockchain Usage Areas: Healthcare.

Blockchain for currency remittance

Sending money internationally is quite challenging in traditional banking. Due largely to the tangled network of intermediaries, transaction fees and payment times make traditional banking both expensive and unreliable for urgent transactions.

Cryptocurrencies and blockchains eliminate this ecosystem of intermediaries and can enable cheap and fast transfers anywhere in the world. Although blockchains compromise performance in exchange for some of their advantages, there are various projects that take advantage of this technology to enable cheap and almost instantaneous transactions.

For more information on the subject, you can read our article Blockchain Usage Areas: Currency Transfer.

Do you want to enter the world of cryptocurrency? You can buy Bitcoin via Binance!

Blockchain and digital identity

There is a great need for a fast solution to securely manage identity information on the internet. Huge amounts of personal data are kept on central servers and analyzed with machine learning algorithms without our knowledge or consent.

Blockchain technology allows users to retain ownership of their own data and share data of their choosing with third parties when needed. This kind of cryptographic magic enables a smoother online experience without compromising privacy.

For more information on the subject, you can read our article Blockchain Usage Areas: Digital Identity.

Blockchain and Internet of Things (IoT)

The number of physical devices connected to the Internet is very large and this number is increasing. Some people think that communication and collaboration between these devices can be strengthened by blockchain technology. Automated machine-to-machine (M2M) micropayments can create a new economy based on secure and highly efficient database solutions.

For more information on the subject, you can read our article Blockchain Uses: Internet of Things (IoT).

Blockchain for governance

Distributed networks can specify and implement their own forms of regulation in the form of computer codes. It is not surprising that blockchain technology could eliminate the need for various administrative processes at the local, national and even international level.

Moreover, it could address one of the biggest problems currently facing open source development environments: the lack of a reliable mechanism for distributing funding. Governance with blockchain ensures that all participants can be involved in decision-making processes and transparently reveals which policies are implemented.

For more information on the subject, you can read our Blockchain Usage Areas: Management article.

Blockchain for charities

The work of charities is often disrupted by restrictions on accepting funds. Worse, it can be difficult to keep track of where donated funds ended up. This situation may prevent many people from supporting these organizations.

“Crypto philanthropy” uses blockchain technology to overcome these problems. This emerging field aims to maximize the impact of charities by reducing costs while providing greater transparency and global participation through the use of the unique features of technology. One of these organizations is the Blockchain Charity Foundation.

For more information on the subject, you can read our article Blockchain Uses: Charity.

Blockchain for speculation

One of the most popular uses of blockchain technology is undoubtedly speculation. Seamless inter-exchange transfers, non-custodial trading solutions, and a growing ecosystem of derivatives products make blockchain technology an ideal playground for speculators of all stripes.

Due to its unique features, Blockchain is a very good tool for people who want to take the risk of participating in such a rapidly developing asset class. Some even think that entire global speculative markets could be tokenized on blockchain as the technology and regulations for it mature.

For more information on the subject, you can read our article Blockchain Uses: Prediction Markets.

Community funding with blockchain

Online community funding platforms have been the foundation of the peer-to-peer economy for nearly a decade. The success of these websites shows that there is a genuine interest in community-funded product development. However, since these platforms act as custodians of funds, they may receive a significant portion of the collected funds as transaction fees. In addition, platforms may apply different rules to govern agreements between different users.

Blockchain technology, and more specifically smart contracts, can enable more secure and automated community funding where the terms of the agreement are determined by computer codes.

Another application of community funding using blockchain is Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs). In token sales like this, investors deposit funds with the belief that the network will be successful in the future and that they will receive a return on their investment.

Blockchain and distributed file systems

Distributing file storage over the internet offers many benefits over traditional centralized alternatives. The majority of data stored on the cloud depends on centralized servers and service providers, which tend to be more vulnerable to attacks and data loss. In some cases, users may face access problems due to censorship from central servers.

From the user perspective, blockchain file storage works the same way as other cloud storage solutions – you can upload, store and access files. But what happens behind the scenes is quite different.

When you upload a file to blockchain storage, the file is distributed and copied by several nodes. In some cases, each node stores a different part of the file. Nodes are very limited in what they can do with partial data, but you can then ask nodes to share their portion and combine them to get the full file.

Storage comes from users sharing their storage and bandwidth with the network. Often these participants are economically incentivized to share these resources and are penalized if they do not comply with the rules or fail to preserve and make available the files.

You can consider this type of network as a network similar to Bitcoin. However, in this case, the main purpose of the network is to enable censorship-resistant, decentralized file storage rather than supporting the transfer of material value.

Other open source protocols, such as the InterPlanetary File System (IPFS), are already paving the way for this new, more persistent and distributed Web. While IPFS is a protocol and peer-to-peer network, it is not exactly a blockchain. But it applies some principles of blockchain technology to increase security and efficiency.