Obviously, the history of blockchain began at the moment when people began to ask the question: “How to promote any value on the Internet without any intermediaries or centralized organizations?” After all, it was the movement of values without a centralizers that became the basis of the blockchain. Decentralized applications have become the practical embodiment of blockchain technology. It is no coincidence that the movement towards the use of decentralized applications based on blockchain is developing along an increasing line. However, for many users it turned out to be a difficult task not only to immerse themselves in the world of decentralized applications, but also to understand their essence, as well as find ways to use them in practice. There are several reasons for this. Difficulties arise, first of all, due to insufficient knowledge both about the technology itself and its tools, lack of experience in developing and implementing decentralized applications. An important obstacle to the use of blockchain tools is often the lack of necessary resources. All this motivates many users, among whom there are not only small and medium-sized, but also large companies, to use blockchain development services.
Cryptography in Blockchain
It is logical to begin any conversation about blockchain technology with a mention of such a method of protecting information as cryptography. There is an interesting figurative definition of cryptography as a method of communication in the presence of adversaries. The history of cryptography dates back to ancient times. For example, to protect information, our ancestors used cylinders around which fabric or leather was wound with secret text applied in a special way. The diameters of the cylinders were different and were selected specifically for each text. Therefore, the information could only be read when the fabric or leather was wound only on a specific correct cylinder. Today, the basis of almost all cryptocurrencies and the Internet itself is asymmetric cryptography.
Does cryptography have anything to do with blockchain technology? To answer this question, let’s remember that a blockchain is a time stamped database. That is, when new pieces (blocks) of information are added to this database, the time of their addition will be recorded. There is a direct relationship between this database (blockchain) and cryptography, since it is cryptographic methods that protect all information on the blockchain. The very principle of the blockchain is the movement of reliable data within a decentralized network. And the leitmotif of the blockchain is, first of all, the process of confirming the reliability of the transferred data, and secondly, the working infrastructure of the network.
The role of blockchain in financial activities
At the beginning of the emergence of blockchain, everyone was absolutely sure that this technology could solve almost any problem in business. However, today it has become obvious that blockchain is not like a magic pill for all diseases. Since blockchain technology was initially associated primarily with the financial sector, we can analyze how effective the use of blockchain has been for this area of activity. To begin with, let us note the main problems to which the financial sector is subject: periodic crises, centralized intermediaries, instability of fiat currency, outdated methods of the payment system of most banks, and much more. Solving these problems provides a good opportunity for blockchain to show its effectiveness.
To be fair, it should be noted that the blockchain technology itself also has certain problems, among which some of the main ones can be noted. At the moment, the blockchain does not have good performance; the number of transactions per second in the blockchain is several times lower than the number of transactions per second in traditional payment systems. The next problem with blockchain is its incomplete resistance to censorship due to the openness of the network. A rather significant problem is created by the practical incompatibility of different blockchains with each other. It is also impossible not to mention such a problem as the difficulties associated with managing blockchain updates. Since transferring the function of managing updates to any single entity contradicts the principle of decentralization of the blockchain network.
Separately, it is necessary to note how the regulatory functions of state policy in relation to blockchain manifest themselves. First of all, state regulations are aimed at providing protection against illegal activities within the blockchain. Let us further mention that some states seek to ensure their financial stability by regulating external and internal flows of cryptocurrencies. And, of course, an important area of government regulatory activity is the creation of such conditions for the issuance of cryptocurrency, which are aimed at protecting various investments.
Concluding the topic of the relationship between the financial sector and blockchain, it should be noted that today people’s interest in blockchain technology and expectations of its indispensability largely exceed the real weight and influence of this technology on the global market. However, this does not mean that blockchain has no future. Even though blockchain still has a lot of work ahead, we can say with a large dose of confidence that this technology will grow into a worthy alternative to the existing financial system, at a minimum.