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Nov 24, 2024
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Uploaded by MateRook1443
Blockchains and distributed ledgers are used in practice across various industries to streamline
processes, increase transparency and trust, and enable secure and efficient peer-to-peer transactions
(Nakamoto, 2008).
How do they work?
Blockchains and distributed ledgers work on the principle of decentralization, where multiple
participants maintain copies of a shared database or ledger. These participants, also known as nodes,
validate and add new transactions or data to the ledger through a consensus mechanism. According to
Tapscott and Tapscott (2016), the most well-known consensus mechanism is proof-of-work (PoW), used
by Bitcoin, which requires nodes to solve complex mathematical puzzles to validate transactions and add
them to the blockchain.
Are there any downsides? Are they safe?
While blockchains and distributed ledgers offer several advantages, there are also a few downsides to
consider. Firstly, the high computational power required for consensus mechanisms like PoW can result
in high energy consumption. Secondly, the scalability of some blockchain systems can be a challenge as
the number of transactions and data grows. Additionally, blockchain technology relies heavily on
cryptography, making the security of the system as strong as the underlying cryptographic algorithms
and implementations.
In terms of safety, while blockchain technology provides a high level of security due to its decentralized
nature and cryptographic algorithms, it is not completely immune to attacks. Potential vulnerabilities
include 51% attacks (where a single group of miners controls the majority of the computational power),
double-spending attacks, and smart contract vulnerabilities (Swan, 2015). However, advancements are
continually being made to mitigate these risks and improve the overall security of blockchain systems.
Examples
1. Cryptocurrencies: Blockchains are extensively used in cryptocurrencies like Bitcoin and Ethereum to
record transactions securely and create a decentralized digital currency system.
2. Supply Chain Management: Distributing ledger technology is used to track and trace products
throughout the supply chain to enhance transparency, reduce counterfeiting, and streamline processes.
For instance, IBM's Food Trust uses blockchain technology to ensure the traceability of food products.
3. Financial Services: Blockchains are employed in financial services for various purposes, such as cross-
border payments, trade finance, and identity verification. Ripple, a blockchain-based payment protocol,
enables faster and more cost-effective international money transfers.
References
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from
https://bitcoin.org/bitcoin.pdf
Swan, M. (2015). Blockchain: Blueprint for a New Economy. O'Reilly Media.
Tapscott, D., & Tapscott, A. (2016). Blockchain Revolution: How the Technology Behind Bitcoin is
Changing Money, Business, and the World. Penguin Random House.
IBM. (n.d.). IBM Food Trust. Retrieved from https://www.ibm.com/blockchain/solutions/food-trust
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