Digital Currency and Blockchain

 What is Digital Currency &  Blockchain ???

 In the Budget speech Finance Minister Nirmala Sitaraman has mentioned about introduction of Digital Currency using the Blockchain.

 Now every one wondering what is Digital Currency and Blockchain .

 What is Digital Currency

 Digital money  (or digital currency) refers to any means of payment that exists in a purely electronic form. ... Digital money is exchanged using technologies such as smartphones, credit cards, UPI and online cryptocurrency exchanges.

 What is Blockchain..

 The Blockchain is a software protocol (like SMTP is for email). On which Digital Currency (and other transactions ) will run . It is comprised of several pieces: a database, software application, Internet , some connected computers, etc.

 Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.

 The blockchain is used for the secure transfer of items like money, property, contracts, etc, without requiring a third-party intermediary like a bank or government. Once data is recorded inside a blockchain, it is very difficult to change it.

 

Sometimes the term is used for Bitcoin Blockchain or The Ethereum Blockchain, and sometimes, it’s other virtual currencies or digital tokens. However, it may be noted that

 

Bitcoin is digital currency and Bloackchain is a software on which Bitcoin is traded.

• Blockchain is not Bitcoin,( or Cryptocurrency  or digital currency), but it is the technology behind Bitcoin or Digital Currency.
• Bitcoin is the digital token, and the blockchain is the ledger to keep track of who owns the digital tokens
• You can’t have Bitcoin without blockchain, but you can have a blockchain without Bitcoin.

Applications of Blockchain Technology

Here are some common applications of Blockchain:

• It is used to create a secure and transparent digital ledger of all transactions.
• It allows you to create a tamper-proof record of academic achievement that is accessible to all students and teachers.
• It is used for creating a more efficient system for trading securities.
• Lenders use blockchain to execute collateralized loans through smart contracts
• Using blockchain technology to record real estate transactions can provide a more secure and accessible means of verifying and transferring ownership.
• Use for keeping data like Social Security number, date of birth, and other identifying information on a public ledger.
• Blockchain technology is also used in the logistics industry as it helps to track items as they move through a logistics or supply chain network.

Limitations of Blockchain technology

Higher costs: Nodes seek higher rewards for completing Transactions in a business that work on the principle of Supply and Demand

Slower transactions: Nodes prioritize transactions with higher rewards, backlogs of transactions build-up
Smaller ledger: It is not possible to a full copy of the Blockchain, potentially which can affect immutability, consensus, etc.

Transaction costs, network speed: The transactions cost of Bitcoin is quite high after being touted as ‘nearly free’ for the first few years.

Risk of error: There is always a risk of error, as long as the human factor is involved. In case a blockchain serves as a database, all the incoming data has to be of high quality. However, human involvement can quickly resolve the error.

Wasteful: Every node that runs the blockchain has to maintain consensus across the blockchain. This offers very low downtime and makes data stored on the blockchain forever unchangeable. However, all this is wasteful because each node repeats a task to reach a consensus.

@Ajit Kumar Singh : Writer is a pure Finance Professional but knowledge of Financial Technology and Financial Software.