Cryptocurrency All-in-One For Dummies. Peter Kent
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Название: Cryptocurrency All-in-One For Dummies

Автор: Peter Kent

Издательство: John Wiley & Sons Limited

Жанр: Личные финансы

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isbn: 9781119855828

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СКАЧАТЬ Contracts on Hyperledger

      7  Chapter 7: Financial Technology Hauling Out Your Crystal Ball: Future Banking Trends Going International: Global Financial Products Squeezing Out Fraud

      Introducing Blockchain

      IN THIS CHAPTER

      

Discovering the new world of blockchains

      

Understanding why blockchains matter

      

Identifying the three types of blockchains

      

Deepening your knowledge of how blockchains work

      Originally, blockchain was just the computer science term for how to structure and share data. Today, blockchains are hailed as the “fifth evolution” of computing.

      Blockchains are a novel approach to the distributed database. The innovation comes from incorporating old technology in new ways. You can think of blockchains as distributed databases that a group of individuals control and that store and share information.

      Many different types of blockchains and blockchain applications exist. Blockchain is an all-encompassing technology that is integrating across platforms and hardware all over the world.

       Public blockchains: Public blockchains, such as Bitcoin, are large, distributed networks that are run through a native cryptocurrency. A cryptocurrency (introduced in Book 1) is a unique bit of data that can be traded between two parties. Public blockchains are open for anyone to participate at any level and have open-source code that their community maintains.

       Permissioned blockchains: Permissioned blockchains, such as Ripple, control roles that individuals can play within the network. They’re still large and distributed systems that use a native token. Their core code may or may not be open source.

       Private blockchains: Private blockchains, also known as distributed ledger technology (DLT), tend to be smaller and do not utilize a token or cryptocurrency. Their membership is closely controlled. These types of blockchains are favored by consortiums that have trusted members and trade confidential information.

      All three types of blockchains use cryptography to allow each participant on any given network to manage the ledger in a secure way without the need for a central authority to enforce the rules. The removal of central authority from the database structure is one of the most important and powerful aspects of blockchains.

      

Blockchains create permanent records and histories of transactions, but nothing is really permanent. The permanence of the record is based on the dependability and health of the network. In the context of blockchains, this means that if a large portion of the blockchain community wanted to change information written to their blockchain, they could. Cryptocurrency is used as a reward to incentivize lots of users to facilitate the healthy function of the network through competition. If the records are changed inappropriately, this is known as a 51 percent attack. Small networks with few independent minors are vulnerable because it doesn’t take much effort to change their information, and powerful miners could do so and gain extra cryptocurrency. Ethereum Classic experienced just this type of attack.

      When data is recorded in a blockchain, it’s extremely difficult to change or remove it. When someone wants to add a record to a blockchain, also called making a transaction or entry, users in the network who have validation control verify the proposed transaction. This is where things get tricky because every blockchain has a slightly different spin on how this works and who can validate a transaction.

      What blockchains do

Snapshot shows the structure of the Bitcoin blockchain network.

      FIGURE 1-1: The structure of the Bitcoin blockchain network.

      To prevent the network from being corrupted, not only are blockchains decentralized, but they often also utilize a cryptocurrency. Blockchain networks produce cryptocurrencies as an incentive to maintain the integrity of the network. Many cryptocurrencies are traded on exchanges like stocks.

      Cryptocurrencies work a little differently on each blockchain. Basically, the software pays the hardware to operate. The software is the blockchain protocol. Well-known blockchain protocols include Bitcoin, Ethereum, Ripple, Bitcoin Cash, Stellar, and EOS. The hardware consists of the full nodes that are securing the data in the network. Book 3 covers Bitcoin, and Book 4 covers Ethereum.

      Why blockchains matter

      Blockchains, on the other hand, establish trust in novel ways. Proof-of-work (PoW) blockchains require miners to have a full and accurate history of their transactions to participate on the СКАЧАТЬ