Why Do Cryptocurrencies Need Blockchain?

Even with the crypto revolution gaining more and more momentum by the day, there still seems to be a tangible knowledge gap within this sphere. For example, many people are still not clear as to what the blockchain and crypto assets really are.

Life was quite simple when Bitcoin stood as the lone blockchain, because it allowed the words cryptocurrency and blockchain to be used interchangeably. However, with the maturing of the crypto ecosystem, a large number of blockchains have flourished and become entities unto themselves.

A lot of confusion has ensued, since the term blockchain is now also used within contexts pertaining to P2P delivery systems and decentralized registries, and as a result of this, the word has found use within a host of crypto avenues.

The Blockchain In depth

The blockchain can be visualized as a decentralized system that consists of an array of participants who are motivated to perform actions within the parent ecosystem depending upon the incentives that are provided to them.

When we look at the functional capacity of the blockchain, we can clearly see that this technology is slightly hampered by issues related to the Byzantine Fault Tolerance conundrum.

Byzantine Fault Tolerance (BFT) is a term that describes the capacity of a digital system to resist faults that are incurred when an electronic component failure is observed during the transfer of data.

Since blockchains are decentralized ledgers, they are not controlled by any singular authority or power figure. Thus, there is a chance that third-party miscreants could cause faults within the system as there is real value to be found in these ledgers. Additionally, when BFT is missing, there is a chance of false transactions circulating within the ecosystem, thereby reducing the reliability of the blockchain.

Overview of the BFT model (courtesy of Thomas Marckx)

However, with the advent of Bitcoin, this problem has been severely curtailed. This has occurred primarily due to a protocol called the Proof-of-Work (PoW). It was designed by Satoshi Nakamoto to serve as a probabilistic solution to the Byzantine issue. In fact, there is an e-mail from Satoshi himself in which he discusses this problem in quite a lot of detail.

Why does Bitcoin get so much attention?

Apart from being the first cryptocurrency to enter the digital asset market, Bitcoin also sets the benchmark when it comes to providing users with a host of functional features. To back up a bit, this currency was created by a person (or persons) who goes by the pseudonym Satoshi Nakamoto.

Satoshi first proposed the idea of Bitcoin all the way back in 2008, envisioning this currency to serve as an electronic payment service based entirely on mathematical proofs. The end goal was to create an asset exchange route that was not dependent on centralized institutions such as banks, but which would still be verifiable and secure.

To start off, we can see that Bitcoin is able to largely eliminate problems related to double-spending thanks to the fact that its base layer transactions are immutable and cannot be reversed once they have been executed on the blockchain.

Similarly, it makes use of “confirmation protocols” which require all of the involved parties to validate a transaction, thereby restricting double spending frauds.

Final thoughts

With the blockchain revolution now in full swing, it is quite important to educate potential investors and enthusiasts about the crypto domain as a whole. This will not only help remove common doubts pertaining to this field but will also allow users to make smarter investment choices in the future.