Blockchain – The Future Of Financial Technology

blockchain development

The words cryptocurrency and blockchain are now found everywhere. Such public attention can be explained by two factors: the high cost of Bitcoin cryptocurrency and the complexity of understanding the essence of the technology. The history of the emergence of the first digital currency and the underlying P2P technology will help us to understand these “crypto jungles”.

Decentralized Network

There are two definitions of Blockchain:

• Continuous sequential chain of blocks containing information.
• Replicated distributed database;

They are both true in their essence but do not give an answer to the question of what it is. For a better understanding of the technology, it is necessary to remember which computer network architectures exist and which of them dominates the modern IT systems market.

In total there are two types of architectures:

  1. Client-server network;
  2. Peer-to-peer network.

Networking in the first way implies a centralized control of everything: applications, data, access. All system logic and information are hidden inside the server, which reduces the performance requirements of client devices and ensures high processing speed. This method has received the most attention in our days.

Peer-to-peer or decentralized networks do not have a master device, and all participants have equal rights. In this model, each user is not only a consumer but also becomes a service provider.

An early version of peer-to-peer networks is the USENET distributed messaging system developed in 1979. The next two decades were marked by the creation of P2P (Peer-to-Peer) – applications in completely different fields. One of the most famous examples is the Napster service, the once-popular peer-to-peer file sharing network, or BOINC, the software platform for distributed computing, and the BitTorrent protocol, which is the basis of modern torrent clients.

Systems based on decentralized networks continue to exist, but noticeably lose out to the client-server in the prevalence and compliance with the needs of consumers.

Data Storage

The overwhelming majority of applications and systems for normal operation require the ability to operate a data set. There are many ways to organize such work and one of them uses the peer-to-peer method. Distributed, or parallel, databases are distinguished by the fact that information in part or full is stored on each device of the network.

One of the advantages of such a system is the availability of data: there is no single point of failure, as is the case with a database located on a single server. This solution also has certain limitations on the speed of updating data and distributing them among network members. Such a system will not withstand the burden of millions of users who are constantly publishing new information.

The blockchain technology assumes the use of a distributed database of blocks, which are a linked list (each next block contains the identifier of the previous one). Each member of the network keeps a copy of all operations performed for all time. This would not have been possible without certain innovations designed to ensure the safety and availability of the network. This brings us to the blockchain’s last “pillar” – cryptography. You should contact a mobile app development company to hire blockchain developers to integrate this technology into your business.

Blockchain

After studying the main components and the history of the creation of technology, it is time to finally dispel the myth associated with the word “blockchain”. Consider a simple example of digital currency exchange, the principle of operation of the blockchain technology without computers.

Suppose we have a group of 10 people who want to be able to perform currency exchange operations outside the banking system. Consider successively the actions performed by the participants in the system, where the blockchain will be represented by regular sheets of paper:

Empty Box

Each participant has a box in which he will add sheets with information about all completed transactions in the system.

The Moment of Transaction

Each participant sits with a sheet of paper and a pen and is ready to record all transactions that will be made.

At some point, participant number 2 wants to send 100 dollars to participant number 9.

In order to complete a transaction, Participant No. 2 declares to everyone: “I want to transfer 100 dollars to No. 9, so make a note of this on your sheet.”

After that, everyone checks to see if Participant 2 has a balance sufficient to complete the transaction. If so, everyone makes a note about the transaction on their sheets.

After that, the transaction is considered complete.

Execution of Transactions

Over time, other participants also need to make exchange operations. Participants continue to announce and record each of the transactions performed. In our example, 10 transactions can be recorded on one sheet, after which it is necessary to put the completed sheet in a box and take a new one.

Adding a Sheet to the Box

The fact that a sheet is placed in a box means that all participants agree with the validity of all the operations performed and the impossibility of changing the sheet in the future. This is what ensures the integrity of all transactions between participants who do not trust each other.

The last stage is a general case of solving the problem of the Byzantine generals. In the conditions of an interaction of remote participants, some of whom may be intruders, it is necessary to find a winning strategy for all. The process of solving this problem can be viewed through the prism of competitive models.

Future

In the field of financial instruments, Bitcoin, being the first mass cryptocurrency, has certainly shown how to play by the new rules without intermediaries and control from above. However, perhaps even more important result of the emergence of Bitcoin was the creation of blockchain technology. Contact blockchain development companies to hire blockchain developers to integrate this technology into your business.

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