Why now is a good time to learn more about blockchain and crypto
Over the past few years, there has been an exponential increase in the number of users of blockchain technology. Since 2016, the number of people holding crypto assets on exchanges and wallets has grown from five million to over 200 million.
There is, however, a huge disparity between those who have embraced blockchain technology and those who understand it. If you’re reading this, you’re still ahead and have plenty of time to deepen your crypto knowledge. There is even evidence to prove it.
Studies suggest that up to 98% of crypto users do not understand basic crypto concepts. When surveyed, a majority of users claimed that “blockchain” and “Bitcoin” are synonymous terms or admitted they didn’t know. And yes, they are absolutely two different things.
This becomes especially evident during times of market downturn, such as what we are currently witnessing. For those constantly chasing the hype around the latest memecoins, the bear market may have little to offer. On the other hand, some may realize that time out of the market can be the perfect time to educate and finally really understand what they are investing in.
Learning about blockchain can indeed seem daunting for a beginner. There’s a lot of technical jargon floating around and it’s hard to separate the important details from the fluff.
That’s why we’ve put together this explainer with Luno’s crypto education hub – Luno Discover, which breaks down everything you need to know about blockchain and its relationship to the crypto ecosystem, in simple terms, to help you to understand.
The birth of blockchain
Before entering What blockchain is, it is important to set a context around Why it happened.
Between 2008 and 2010, the great financial crisis led to the failure of more than 300 banks. This has caused consumers to lose faith in the banking industry’s ability to manage their money.
It became apparent that banks had significant power to mismanage funds and could do so without the knowledge of their investors.
Meanwhile, blockchain technology – although theorized in the 1990s – saw its first practical use as a system to facilitate transactions without the need for an intermediary (i.e. a bank). This way, people could stay in control of their funds at all times and continue to transact with ease.
Bitcoin was the first form of electronic money, also known as digital currency, to use blockchain technology. With Bitcoin, people could directly exchange value with each other over the internet, without the need for a “middleman”.
How does blockchain technology work?
A blockchain keeps a record of transactions, much like a bank would, but it eliminates any risk of deviation or human error. This is because each transaction is verified by multiple nodes (read: computers) as opposed to an intermediary.
For example, in the case of Bitcoin, it is estimated that there are over 40,000 Bitcoin nodes today.
Transactions are only recorded on the blockchain if a majority of these nodes agree that they are legitimate. This ensures that the record cannot be tampered with.
Once a transaction has been recorded on a blockchain, it cannot be edited or deleted. It is also impossible to perform a cryptographic transaction without it being recorded on a blockchain.
So, for every bitcoin in existence, there is a record of all the transactions in which it was used. This recording is accessible to the public and cannot be manipulated by anyone.
This blockchain technology is also used as the basis for creating other cryptocurrencies which you may know as Ethereum.
Why is this a big problem?
By ensuring that transactions are irreversible once recorded, blockchain technology removes the need for mediation in the event of a dispute and guarantees the transparency of monetary operations.
Banks have to deal with problems such as chargeback requests and accounting errors, sometimes due to human error, which lead to increased operational costs. Ultimately, these costs also come back to consumers in the form of fees, which can become extremely high, especially when sending money overseas.
Thanks to blockchain technology, users benefit from consistently low transaction fees and much faster processing times. While international bank transfers can take up to five days, crypto transactions can usually be processed within minutes.
Crypto apps today enable the seamless transfer of funds, and some have even introduced debit cards that can be used to make real world purchases.
For businesses, accepting crypto payments means providing a cheaper payment alternative to avoid credit card processing fees, which can be as high as 5% per transaction. In Singapore, restaurants and bars such as Maison Ikkoku and Joo Bar now allow customers to pay in crypto.
Blockchain beyond finance
Although primarily known for its financial utility, blockchain technology offers much more than that.
Any form of transaction can be recorded on a blockchain, not just monetary. This opens up a whole range of possibilities in areas such as collectibles, supply chain management, and voting systems.
With non-fungible tokens (NFTs), blockchain technology is used to verify the authenticity of digital files and its historical transactions – who created them, who were the previous owners, who currently owns them. These can range from illustrations and videos to graduation certificates and medical prescriptions.
As NFT art has become popular, scammers have attempted to sell fake copies of popular works. It is up to buyers to do their own research and ensure that their purchases are legitimate. They can do this by tracing historical transactions back to the NFT creator’s wallet.
Blockchain technology can also prove useful in managing complex supply chains.
For example, Walmart sends thousands of shipments per day while working with a number of different carriers.
Typically, the company had to manually track shipments and process payments. This process was not only costly and time-consuming, but also caused delays. Using blockchain technology, Walmart is able to synchronize all of its logistics and implement an automated checkout system instead.
Finally, using blockchain to vote is another use case that is growing in popularity.
From reality TV shows to global elections, rigged election scandals happen all the time. Blockchain can help avoid this by ensuring transparency. Each vote is recorded as a transaction and can be viewed and verified by anyone.
The rise of Web3
All these use cases, put end to end, contribute to the emergence of Web3. As crypto changes the world of finance, Web3 uses blockchain technology to do the same with the internet.
Currently, in the world of Web2, websites are hosted on a single server. The owners of these servers have access to user data and control which users are allowed to use their services.
In contrast, Web3 involves storing data on a network of computers (think nodes in the case of Bitcoin). No one has the power to restrict access to these apps.
Take social media, for example. While Instagram and Twitter are able to moderate content posted on their platforms, there would be no such centralized authority-controlled censorship in the Web3 world.
It remains to be seen whether Web3 is here to replace Web2, or whether the two will coexist in harmony. However, one thing is certain: the Internet will never be the same again.
This is just the start of a six-part series that will help you navigate the world of crypto, NFTs, and blockchain with ease. Until the next edition, head over to Luno Discover for jargon-free learning and if you like bite-sized educational pieces, subscribing to Luno’s Telegram channel might suit your needs better.
This article is written in collaboration with Luno.
This partnership between Vulcan Post and Luno is for educational purposes only. Luno Singapore has received approval in principle from MAS under the Payment Services Act 2019. Cryptocurrency is a high risk investment. The value of cryptocurrency can fluctuate significantly and you risk losing the capital you invest. Before investing, we invite you to educate yourself about cryptocurrencies and familiarize yourself with the risks involved, which are detailed in Luno Risk Warning.
Featured image credit: Deloitte via Quartz