Bitcoin has become very popular since its introduction and lately we have heard its name frequently. The truth is that digital cryptocurrency as its infrastructure is one of the most exciting developments in recent years and everyone is very interested. Some of us have been interested for a long time and understand it in detail, some of us have very little knowledge. Therefore, we would like to discuss what a blockchain is.
It should be noted that blockchain has many uses, not just digital currencies. It can be used to ensure the reliability of any information that should not be changed (eg voting system, title deed system, etc.). It has a similar potential to the effects of the Internet in the 1990s, particularly its ability to influence financial market processes.
The foundation of blockchain technology can actually date back to the 1990s. Each block containing information is encrypted and contains summary information of the previous block. In this way, it is based on the idea that each block is linked to the previous block, so a blockchain is created and copies of the chain are kept on multiple machines, thus in a decentralized structure. Since each block in this chain holds summary information about the previous block, when a new block is added between the two, the chain will be invalidated and the block cannot be deleted. If you want to maliciously change the chain, you must make this change to 51% of the computers in the system at the same time, which is very difficult.
Keeping information on multiple computers is more reliable than keeping all data in a centralized system. (From this point of view, the security of the blockchain system stored on a single machine is the same as the old central system. If a single machine is captured, the blockchain on it can also change maliciously.)
The way to protect structures that contain financial information and are therefore the target of malicious attempts is to distribute the information to a large number of computers. Structures scattered across just 5 to 10 machines are easy to catch and the inner chain is completely replaceable. Therefore, the transmission chain is very important. A large number of people must have a reason to constantly update this huge chain of information (a blockchain of hundreds of gigabytes) on their machines. The BitCoin system has achieved this goal by providing bitcoin rewards to machines that meet certain conditions and successfully add new blocks to the chain. Generally, all blockchain systems have their own internal currency that rewards the machine and keeps the chain on the machine up to date.
In the BitCoin example, the job of adding new blocks to the chain is called mining. The hash value of the generated block (digital value called hash) must be kept below a predetermined difficulty value so that only the most powerful machine can add new blocks to the chain as quickly as possible without winning the prize. Miners try millions of times until the total value they produce is lower than this difficulty value. Therefore, the computer that adds the first valid block may not be the fastest computer. In this context, adding blocks with mining to win prizes is a bit like a lottery. The more powerful machines can try before they create the right blocks, we might think there will be more lotteries, but there is still no guarantee of winning the jackpot.
The financial applications of blockchain technology are;
- The encrypted (crypto) currency created using BlockChain technology can easily transfer the currency from one country to another. Generally, if we want to send money with money, we need to have an account in both countries, exchange rates, commissions and a long process. When cryptocurrency transfers become commonplace, your funds will be transferred from one country to another within minutes at a reasonable commission.
- With the mobile wallet application on our mobile phones, we can no longer carry or receive less cash when traveling abroad. Wherever we go, we can use our mobile wallet to pay to hotels, restaurants and shops. We can use our mobile application to exchange cryptocurrencies and withdraw cash from ATMs.
- It will be easier to purchase intangible services (watching movies, online education, software, e-copy books). We will now be able to purchase cryptocurrency products purchased with credit cards. While watching a movie or studying online, using the smart contract structure can automatically transfer a certain amount of cryptocurrency every minute.
- Various applications that require barter transactions (buy-share, buy-buy-home) can be automated with smart contracts. Smart contracts, on the one hand, can withdraw money and can be exchanged for stocks, deeds, etc. Can transfer such assets.