While nobody can deny the impact that the internet has had on the world today, it took a long time to catch on in mainstream culture. Way back in the early 1900’s, Nikola Tesla played with the idea of a world-wide wireless network of communication. In the 1930s and 1940s, visionaries like Paul Otlet and Vannevar Bush imagined a mechanized, searchable, storage system for books and media. [caption id="attachment_229" align="aligncenter" width="431"]
The blockchain is a distributed ledger system that uses cryptography to securely record transactions. As we pay taxes for hard money so Cryptocurrency also have some taxes so you need a Crypto tax service to calculate your Crypto Taxes and Accounting.Here’s how Blockchain works:
- Cryptographic Hash Functions: The most popular way to use cryptography to securely record transactions, is to use public and private key pairs. A cryptographic hash function is computationally infeasible to run in reverse without a private key. You use the private key to sign the transaction, and the public key to generate an address that others can interact with (e.g. send you cryptocurrency).
- Blocks: Transactions are recorded on a block, which is like a page of a physical ledger. For a transaction to be recorded on a block, a cryptographic hash function must be used to digitally sign the transaction.
- Blockchain: When a block is full it gets added to the larger blockchain, which is like a physical ledger book with all the previous transactions. Cryptography is used again to verify that the transactions within a block are valid before it can be added to the blockchain.
- Proof of Work: Anyone on the network can listen for transactions and add a block to the blockchain through the approved software provided for a given blockchain protocol. The computational work done to validate the addition of a block to the blockchain is called the proof-of-work.
- Distributed: If there were only one blockchain, it wouldn’t be entirely infeasible for a hacker to corrupt it. However blockchains are distributed, hosted by millions of computers that share a copy of the ledger. This decentralized system is inherently transparent and prevents fraud.
The longer the blockchain is, the more computational work that had to go into it. This prevents someone from maintaining their own version of the blockchain to commit fraud. If someone were to try to maintain their own version of a blockchain with a fraudulent transaction history where everyone on the chain gave them one Bitcoin, their chain would quickly fall behind the larger distributed network, where thousands of people are constantly providing proof-of-work computations to add new blocks of transactions to the chain. It shines a spotlight on the meaning of valueIt’s a question many newcomers to the world of cryptocurrencies often ask: How do Bitcoins have value? But answering that question really forces one to think: Why does any currency have value?Humans have been trying to quantify value since the dawn of civilization, when we realized that simply trading goods and services was transactionally inefficient. Want to trade grain for fish? You have to haul your grain to the nearest source of water where the fish is still fresh, and barter with a fisherman. How much grain is one fish worth? You get the picture. The blockchain is already forcing people to rethink the value of their currencies. World currencies aren’t backed by gold or anything in the physical world, but on the governments, banks, and institutions that support them. And while it’s easy to ignore the fact that your currency is backed on faith when you’re in a country like the United States, people in Venezuela and Zimbabwe have already started turning to cryptocurrency to deal with the aftermath of failing banks and hyperinflation. Hyperinflation is not just a third world problem either, even countries such as Germany and Greece have experienced hyperinflation within the last century. The blockchain’s uses extend beyond currency.The blockchain can be used for far more than Bitcoin. It turns out that a cryptographically secure distributed ledger is perfect for a number of applications, including smart contracts and supply chain management. Some common uses for the blockchain beyond cryptocurrency include:
- Securing medical records in an easily accessible decentralized database like Nebula Genomics’s database of genomes for personalized medicine.
- Digital IDs such as the ID2020 Alliance initiative to create a blockchain-based ID system with Microsoft.
- Smart supply chains, where the blockchain is used to provide traceability of goods as they travel across a supply chain (e.g. Hyperledger Sawtooth’s seafood supply chain)
- Smart contracts, where the blockchain is used to provide transparency and security to the signing of contracts with cryptography (e.g. OpenLaw) in industries from real-estate to insurance.
If an industry can be boiled down to a series of transactions, chances are the blockchain can help. The blockchain is rapidly evolving, and its disruption is already being felt. The future is distributed and decentralized. Use Zenledger to calculate your Cryptocurrency taxes.