Blockchain is an advanced database that utilizes decentralized accounting technology.
The three most important characteristics of blockchain are: decentralization (distributed), tamper-proof (information transparency), and consensus mechanism. Blockchain technology has been increasingly applied in areas such as virtual currency, supply chain management, gaming, music, and charity.
What is Blockchain?
In simple terms, blockchain (in English, Blockchain) is an advanced shared database that utilizes decentralized accounting technology. For complete novices to blockchain, it is essential to break down the definition above into the following smaller questions:
What is Centralization?
Currently, when we want to transfer money to someone else, we need to do it through a bank. After the bank receives our transfer request, it will carry out the fund transfer in its system, and the bookkeeping method will be: 'User A -1 yuan, User B +1 yuan.'
This is a very centralized process: because in this process, our money is stored in banks, the actual transfer of money is operated by the banks, and the bookkeeping is also handled by the banks – the actual control of the entire transfer process is not in the hands of the users. Therefore, when a bank experiences a system error, is hacked, or even goes bankrupt, the safety of users' funds cannot be guaranteed.
The dilemma for both parties in a centralized transfer process is that the recipient can claim they haven't received the money even when they have, and the payer can claim they have paid without actually making a payment.
What is Decentralization?
Decentralization refers to the exclusion of centralized institutions or individuals from a centralized system, distributing control among multiple participants.
Using the transfer process as an example: In a decentralized world, every user's computer has a shared ledger of the whole world. When user A transfers money to user B using blockchain technology, everyone's computer ledger will show: 'User A -1 yuan, User B +1 yuan'. This way, neither party can lie. If a bad actor tries to attack and tamper with the ledger, they would need to change 51% of the global computers' ledgers simultaneously, greatly enhancing security and credibility. This is why blockchain technology is also known as Distributed Ledger Technology (DLT).
The above example of centralization also illustrates the challenges faced by traditional finance today, as well as the importance and necessity of developing blockchain technology.
Differences Between Blockchain and General Databases
The three main differences between blockchain and general databases are:
Blockchain is decentralized and cannot be modified by anyone; while a traditional database is centralized, and the administrator can change the content.
Blockchain only accepts uploaded data; while a traditional database can edit and delete data.
In blockchain, all parties have consistent ledgers; whereas companies generally do not share their own databases. For instance, Bank of China and Bank of America cannot share a set of databases, but users in China and the United States use the same decentralized database.
Differences Between Blockchain and Cloud Storage
In blockchain technology, you need to provide your hardware resources to store the ledger; while in cloud storage (like Google Drive, Baidu Cloud), you only need to upload your data or software, and the hardware used for storage is provided by the service provider.
Thus, blockchain is more suitable for scenarios that require decentralization, traceability, and immutability. There is a certain threshold for ordinary users, while cloud storage is more suitable for convenient, scalable, and low-cost scenarios, making it easier for ordinary users to use.
What is the relationship between blockchain and virtual currencies like Bitcoin?
Many people equate blockchain with Bitcoin, but in fact, the two are fundamentally different. The main differences can be summarized in two points:
Blockchain is the underlying technology used by virtual currencies like Bitcoin. Besides Bitcoin, blockchain has many different application scenarios: charity, gaming, music, supply chain, etc. However, Bitcoin's current applications are only in cryptocurrency speculation and a few store payment scenarios.
Bitcoin is considered a valuable 'currency' that can be bought and sold through virtual currency exchanges. In contrast, blockchain as a technology has no inherent value; no one ever says they 'buy and sell' blockchain, but rather they say they 'learn' or 'use' blockchain technology.
Practical Applications of Blockchain
Applications of Blockchain in the Charity Sector
The applications of blockchain in the charity sector mainly include the following three aspects:
Increased Transparency for Charitable Organizations: Relying on blockchain's traceability, the income and expenditure of charitable organizations can be recorded on the blockchain and made available for public viewing and tracking, allowing donors and overseers to easily understand the destination of each donation.
Enhanced Data Security: Relying on the immutable nature of blockchain, data on donations and expenditures is stored on the blockchain and cannot be modified or deleted, ensuring data integrity and security.
Increased Efficiency: Smart contracts on the blockchain can automatically execute donation and funding agreements, thereby reducing administrative costs for charities. For example, when a charitable goal is achieved, the smart contract can automatically trigger the donation.
The well-known Alipay app introduced blockchain technology to improve transparency in public welfare projects back in 2017.
Applications of Blockchain in the Gaming Industry
The applications of blockchain in the gaming industry mainly include the following three aspects:
Virtual Asset Management: Blockchain can be used to manage virtual assets in games, such as in-game currency, equipment, and items. These assets can be recorded on the blockchain and exchanged and transferred between different games, thus increasing their value and usability. This can also reduce the involvement of intermediaries, increasing transaction transparency and efficiency.
Cheat Prevention: Blockchain can be used to prevent cheating in games. For example, blockchain can record every operation and transaction in the game, making it more difficult to crack and cheat.
Incentive Mechanism: Blockchain can be used to design better incentive mechanisms to encourage player participation and contribution. For instance, blockchain can implement a reward system that allows players to receive rewards and recognition, thus encouraging them to engage with the gaming community and ecosystem.
Applications of Blockchain in the Music Industry
Blockchain technology can bring more transparency, efficiency, and fairness to the music industry, while providing better copyright protection and revenue opportunities for music creators and owners. Currently, the applications of blockchain in the music industry mainly include the following three aspects:
Copyright Management: Blockchain can be used for music copyright management, allowing music creators and owners to better control the copyright of their works. Blockchain technology can track and verify music copyright information, preventing piracy and misuse.
Decentralized Distribution: Blockchain can be used for decentralized music distribution, allowing music creators and listeners to interact and trade directly without the involvement of intermediaries. This can improve the accessibility and usability of music while reducing distribution costs.
Cross-Border Payments: Blockchain can be used for cross-border payments, allowing music creators and owners to conduct transactions and transfers globally. Blockchain enables decentralized payments and transfers while ensuring transaction security and privacy.
Applications of Blockchain in Supply Chain Management
The three main elements in the supply chain industry are: goods, money, and people. Blockchain technology can be applied in all three aspects.
Product Logistics Tracking: Blockchain can track all information during the logistics transportation process, including the product's origin, destination, shipping company, transportation time, etc., allowing participants to better control the logistics segment, thus ensuring the quality, safety, and legality of the products. This can help consumers better understand the quality and history of products while reducing the circulation of counterfeit goods.
Fund Management: Blockchain can be used for fund management, achieving safer, faster, and cheaper transactions. Blockchain enables decentralized payments and transfers while ensuring transaction security and privacy.
Supplier Management: Blockchain can be used for supplier management, achieving better supply chain management and collaboration. Blockchain can record supplier credit ratings, transaction records, contract terms, and other information, making cooperation between suppliers and customers more transparent, fair, and efficient.
Others have also asked the following questions:
What are the disadvantages of blockchain technology?
Although more and more enterprises and individuals recognize and use blockchain technology, for it to be widely adopted, several challenges still need to be overcome.
Next, three major issues:
Privacy Issues: Blockchain technology has characteristics of anonymity and decentralization, which means all information and transactions are permanently recorded on the blockchain. This could lead to issues of personal privacy leakage.
High Energy Consumption: Due to the way blockchain technology works, it requires a lot of computational resources and energy, leading to high energy consumption, which can have negative environmental impacts. According to estimates by the American environmental organization Earthjustice, virtual currency mining activities in the United States from mid-2021 to 2022 generated over 27.4 million metric tons of carbon dioxide emissions, equivalent to three times the emissions of the largest coal-fired power plant in the U.S. in 2021. Additionally, the high technical threshold: Blockchain technology, even after years of development, remains relatively new, requiring high-level technical talent and complex technical support during development and application. This is currently a major limitation to the application of blockchain technology in most fields.
Why are there always blockchain-related scams?
Blockchain as a technology is neutral and does not involve fraud, but due to its anonymity, decentralization, and immutability, blockchain technology can be misused by some criminals for fraudulent activities. The prevalence of blockchain-related fraud can be attributed to two main reasons:
High Learning Threshold: Because blockchain technology is a field with a high entry barrier, the general public may only know that it is a powerful thing, but the learning threshold is too high, making it easy to be deceived by 'fake teachers.' Some fraudulent projects may disguise themselves with blockchain technology but essentially are 'selling dog meat while hanging sheep's head.' Thus, people who just want to participate in blockchain projects can easily fall victim to scams.
Lack of Regulation: Currently, there is a general lack of effective regulation and legal frameworks for blockchain technology in countries around the world, which allows some individuals to use blockchain technology for fraudulent activities. This also makes it difficult for law enforcement agencies to act when criminals are caught, leading to challenges in sentencing and recovering victims' losses.