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What Is Blockchain and How to Profit from It
Understanding blockchain technology
Blockchain, a term that has become ubiquitous in discussions about the future of technology, has evolved from its humble beginnings to become a transformative force across industries. This decentralized and distributed ledger technology has the potential to revolutionize the way we conduct transactions, manage data, and establish trust in various sectors.
Let’s dive into the intricacies of blockchain, exploring its definition, applications, ownership structure, transactions, underlying technologies, notable examples, opportunities and ways to profit from it.
What is blockchain exactly?
At its core, blockchain is a decentralized and distributed ledger that records transactions across a network of computers. This ledger stores data in a secure and tamper-resistant manner using the math of cryptography and encryption. The primary concepts that define blockchain are decentralization and the distributed ledger, designed to remove reliance on and control by one or more central authorities.
Decentralization and distributed ledger
Decentralization means that there is no central authority governing the entire network. Instead, the control is distributed among multiple participants, known as nodes. These nodes work collaboratively to validate and record transactions. The secret sauce lies in creating a resilient and redundant network with 100% uptime, where none of the participants need to know one another and no single party can control the network, Â resulting in a trustworthy, fraud-proof network.
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Blockchain has a wide range of applications that extend beyond its original use in transferring cryptocurrency in a peer-to-peer fashion. Understanding these applications and real-world use cases provides insight into the technology's potential impact on various industries.Â
Here's an overview of blockchain applications:Â
Finance and bankingÂ
Blockchain's impact on finance is profound. It offers transparent, secure, and efficient transaction processing, reducing the need for intermediaries and minimizing the risk of fraud. Legacy international bank wires and money remittances are expensive and time-consuming and may involve five to 10 intermediaries, for example. Even financial institutions are realizing the benefit of fast, low-cost transactions with essentially instant settlement. Anybody in finance knows this is a dream come true.
Even financial institutions are realizing the benefit of fast, low-cost transactions with essentially instant settlement. Anybody in finance knows this is a dream come true.
Supply chain management
Blockchain ensures transparency and traceability in supply chains. It allows stakeholders to track the journey of products from manufacturing to delivery, reducing the risk of counterfeit goods and improving overall efficiency. Both manufacturers and consumers can benefit from better trusting the labor and parts used in the final product. Walmart, for example, was able to prove they could trace the source of a food-borne contamination in a minute compared to one or more weeks of investigation without blockchain.
Healthcare
In healthcare, blockchain enhances data security and interoperability. Patient records stored on a blockchain can be accessed securely by authorized parties, streamlining medical information sharing. Medical services may seem disjointed from a consumer perspective, especially in emergency travel situations, but people now can have ownership of and access to their entire medical records.Â
Smart contracts
These self-executing contracts run on blockchain technology and automatically enforce the terms and conditions written into their code. They eliminate the need for intermediaries and reduce the risk of fraud. Think about third-party escrow services that hold funds on behalf of one or more parties, or banks that hold funds on behalf of customers. Smart contracts are the gateway to programmable money, eliminating the need for those trusted third parties. The trust shifts from financial third parties to the quality of the code in the smart contract.
Who owns blockchain?
Bitcoin is the original blockchain from 2009 and set the standard for what decentralization means. The decentralized nature of blockchain ownership distinguishes it from traditional systems. Participation is distributed among nodes and/or miners who play crucial roles in maintaining the integrity of the network.
In Bitcoin for example, no one owns the network, there are no employees, no central office, no CEO and no employees. Different blockchain networks have varying governance structures, leading to distinctions between public and permissioned blockchains. Bitcoin and Ethereum are examples of public blockchains, which are like a public good.
Key Takeaway
NOT all blockchains are the same. There are numerous attributes distinguishing one blockchain from another, requiring continuous education whether you’re an investor, startup, professional, developer or any other role. To successfully invest in and understand the differences among tokens and coins is to understand the attributes of blockchains.
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Decentralized nature of ownership
Generally, no single entity or individual owns public blockchains. Instead, participation is distributed among the participants, known as nodes, who validate and record transactions while anyone who holds and owns the native token has an “ownership stake” in the network. Tokens are not equity or like stocks in traditional finance, which is why blockchains and their native tokens are a new paradigm. This decentralized structure enhances security and eliminates the risk of a single point of failure.
Role of nodes and miners
Nodes are participants in a blockchain network responsible for validating and storing transactions. Miners, often associated with proof-of-work consensus mechanisms like Bitcoin, compete to solve complex mathematical problems, adding new blocks to the chain and earning rewards for their efforts. Proof-of-stake networks don’t have miners, but rather have nodes called validations (or other terms depending on the network.) Some blockchains may have serval types of nodes that perform different roles such are ordering transactions vs. validating transactions or forming blocks of transactions into the respective blockchain.
Key Takeaway
Nodes are the computers that communicate with other nodes and keep a replicated, up-to-date version of the distributed ledger for a given blockchain.
Governance structures
Different blockchain networks employ various governance structures. Public blockchains, such as Bitcoin and Ethereum, typically rely on consensus mechanisms and community-driven decision-making. In contrast, permissioned blockchains involve a more centralized approach, where a predefined group of participants has control over the network.
 Decentralization is a process so every public blockchain starts off on the centralized side of the spectrum and shifts over time to the decentralized side of the spectrum.
It’s also important to understand decentralization is a process so every public blockchain starts off on the centralized side of the spectrum and shifts over time to the decentralized side of the spectrum. In addition, may public blockchains and other protocols start with a for-profit entity and a non-profit entity or foundation which is responsible for the development of the “public good.” The for-profit entity supports the development and focuses on creating the first use cases for the new blockchain, for example.
Public blockchains vs. permissioned blockchains
Public blockchains are open to anyone, allowing for transparency and inclusivity. Permissioned blockchains, on the other hand, restrict access to a predefined group, emphasizing privacy and control. For example, The RiskStream Collaborative is the risk management and insurance industry's largest enterprise-level blockchain consortium. It develops insurance-specific use cases on Canopy. Large insurance carriers are participating as invited members who pay subscription fees to use the network.Â
Key Takeaway
It’s critical to ask what degree of decentralization does a particular blockchain or protocol have? Decentralization is not a binary thing whereas a project is either centralized or decentralized. Every blockchain or project resides somewhere on the spectrum and understanding decentralization is to understand the risk involved.
Is blockchain cryptocurrency?
While blockchain and cryptocurrency are closely linked, they are not synonymous. Blockchain is the underlying technology that enables cryptocurrencies, providing a secure and transparent platform for transactions.Â
Blockchain supports cryptocurrencies by recording and validating transactions. However, not all blockchains have a native cryptocurrency. Permissioned blockchains may operate without a native token and instead charge subscriptions fees to its members. Permissioned blockchains by nature are less secure than public blockchains because they are more centralized and are subject to collusion risk by the central operators.
The native token like Bitcoin (BTC) on the Bitcoin blockchain, SOL on Solana and ATOM on Cosmos for example are inextricably linked to the security of their respective blockchains. This means you can’t have one without the other and if the token was removed from the equation the security model and the total value proposition is undermined.
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Key Takeaway
Native tokens on public blockchains are the incentive mechanism to entice participants to volunteer to become miners in Bitcoin or validators in Cosmos, for example. To volunteer is to deploy your own capital in the form of computers and infrastructure with the expectation of supporting the blockchain and earning block rewards (tokens) as revenue.
What is a blockchain transaction?
Understanding the transactional process within blockchain is fundamental to comprehending its functionality. Key components include blocks, nodes, and consensus mechanisms.
Transactional process
A blockchain transaction begins when a participant initiates a transfer of assets. This transaction is then broadcast to the network for validation. Someone uses an app (which is called a wallet) to send tokens to another party, just like using a banking app to send a Zelle transaction.Â
Key components:Â
Blocks
Transactions are grouped into blocks, each containing a unique identifier (hash) and a reference to the previous block. This chaining ensures the integrity of the entire transaction history. The hash is produced by encryption algorithms that prevent reverse engineering. Each block of transactions is mathematically fused together with hashes so the entire blockchain is like a gigantic mathematical proof at any given time.
Nodes
Nodes verify transactions through a consensus mechanism, ensuring agreement on the validity of the transaction before it is added to the blockchain. We previously covered nodes, but they are the computers that communicate with other nodes to share, validate and add transactions to blocks and blocks to their respective blockchain.
Consensus mechanisms
Various consensus mechanisms, such as proof-of-work and proof-of-stake, govern how nodes agree on the validity of transactions. These mechanisms play a crucial role in maintaining the security and integrity of blockchains.
Technology behind blockchain
Technology behind blockchain
To unravel the mysteries of blockchain, it's essential to explore the underlying technologies that make it function seamlessly. These include cryptography, consensus algorithms, and smart contracts.Â
Cryptography
Ensures the security and privacy of transactions through encryption techniques. Public and private keys authenticate participants and secure the transfer of assets. The person receiving tokens or an encrypted message can verify the sender without the sender having to reveal their secret key, which also secures their assets. This is asymmetric cryptography which allows networks to scale. Otherwise. with symmetric cryptography Bob the sender would have to share his secret decryption key with Alice so Alice can read his message.
Consensus algorithms
Determine how nodes agree on the validity of transactions. Proof-of-work, proof-of-stake, and delegated proof-of-stake are examples of consensus mechanisms that ensure network security. Think about a consensus mechanism as the rulebook for the game of blockchain. Each blockchain has a different process for upgrading their respective consensus mechanism.
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Key Takeaway
Cryptography is the science of creating messages with a secret code. Encryption is the process to encrypt and decrypt data to read a message.
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Exploring the scalability challenge
One of the challenges facing blockchain technology is scalability. As more transactions occur, the network must handle increased demands without compromising speed or efficiency. Various solutions, such as layer-two scaling and sharding, are being explored to address this challenge.
This is called the blockchain trilemma which is the consideration of decentralization, scaling and security. The trilemma means to maximize one or two of those three things is to compromise on the others so there is an inverse relationship among them. This explains why not all blockchains are the same and spotlights the importance of understanding risk and continuous education in the crypto and blockchain space. Â
Examples of blockchain technology
To gain a deeper understanding of blockchain's impact, it's crucial to examine real-world examples. Notable examples include Bitcoin, Ethereum, Hyperledger, and Cosmos.
Bitcoin as the pioneer
The first and most well-known application of blockchain technology, Bitcoin revolutionized the financial industry by introducing a decentralized digital currency. Bitcoin operates on a public blockchain, emphasizing transparency and inclusivity. It’s the backbone of the entire cryptocurrency ecosystem and the current king of the crypto market cap. Bitcoin is also the most secure of all blockchains because of the proof-of-work consensus which is very energy intensive.
Related: Is Bitcoin worth investing?
Ethereum and smart contracts
Ethereum expanded the capabilities of Bitcoin by introducing smart contracts. These programmable contracts enable decentralized applications (DApps) to run on the Ethereum blockchain, opening up new possibilities for decentralized finance (DeFi) and other use cases. DeFi will blow your mind when you start using it. The new age of modular programmable money is here. You’ve got to get in the game of crypto to start using DeFi.
Hyperledger for enterprise solutions
Hyperledger, hosted by the Linux Foundation, focuses on providing enterprise solutions through permissioned blockchains. It caters to industries such as supply chain, healthcare, and finance, emphasizing privacy and control. There are many other examples of permissioned blockchains as well.
Cosmos for the internet of blockchainsÂ
Cosmos is like the hub for a network of interconnected blockchains. Blockchains have typically suffered from the silo effect where each chain is in its own silo without being able to interoperate with other blockchains. In Cosmos hundreds of blockchains are effectively linked together because they all use the common IBC (inter blockchain communication protocol.) This means assets in the Cosmos ecosystem can be easily transferred from one blockchain to another without using bridges or token wrapping.
How to profit from blockchain technology
As blockchain continues to evolve, opportunities arise for individuals and businesses to profit from its advancements.
Investing in cryptocurrencies
Cryptocurrency, tokens and NFTs remain a popular way to capitalize on blockchain's growth. However, it's essential to conduct thorough research and consider the inherent volatility of the cryptocurrency market before making investment decisions as we’ve covered in detail in Airdrops are a Key Benefit of Investing in Cryptocurrency.
If you’re going to be successful in crypto you have to continuously educate yourself. There is NO other way around it and you can’t outsource crypto investing to an investment advisor. We’re not talking about Bitcoin ETFs here, but rather the myriad of opportunities in decentralized finance (DeFi), for example.
Exploring blockchain-related stocks
For those seeking exposure to blockchain technology without directly investing in cryptocurrencies, exploring stocks of companies actively involved in blockchain development is an option. Several established companies, particularly in the technology and financial sectors, are incorporating blockchain into their operations.
Michael Saylor’s MicroStrategy, for example, has invested about $6B in approximately 190,000 BTC through the end of 2023 worth about $9B. If Cathie Woods’ $1.5MM Bitcoin by 2030 prediction is close, then MicroStrategy would turn into a mega investment fund. In addition, publicly traded Bitcoin mining stocks are one of the best examples of accessible indirect investment.
Starting or joining a blockchain project
Entrepreneurs and developers have the opportunity to create or contribute to blockchain projects. The traction from decentralization and blockchains in general is rearchitecting the entire global financial system. This is once in a lifetime opportunity whether you’re an investor, professional or entrepreneur. There are numerous ways for someone with any background to get involved in this technological transformation. Bitcoin celebrated its 15th anniversary in 2024 and many people are saying we are still in the metaphorical “early days of the internet” at this point in time.
Bitcoin celebrated its 15th anniversary in 2024 and many people are saying we are still in the metaphorical “early days of the internet” at this point in time.
Opportunities in blockchain consulting
With the growing adoption of blockchain across industries, there is a rising demand for expertise in blockchain consulting from digital asset auditing and accounting, fraud investigation, smart contract auditing and business intelligence. Companies need massive guidance navigating regulatory challenges so there is a huge opportunity within the legal profession. The blockchain space is dynamic and ever-evolving. It's a space of constant innovation and unlimited opportunities for learning.
Key Takeaway
Find some way to get exposure to the blockchain and crypto space as an investor, in a professional capacity or otherwise. Don’t miss this huge opportunity regardless or your age. Stay informed, and be part of the ongoing revolution.
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As always your goal is to get a Crypto Bullseye™.
Content InsightÂ
This content has been created through a collaborative effort, combining the capabilities of artificial intelligence (AI) technology and the expertise of a seasoned professional with extensive experience in the crypto space. While AI played a role in generating portions of this material, it has been carefully reviewed, researched, and refined by a human expert to ensure accuracy, relevance, and a nuanced understanding of the subject matter. The information presented herein reflects a synthesis of AI-generated insights and the real-world knowledge contributed by the human expert, aiming to provide a comprehensive and well-informed perspective on the topic. Users are encouraged to verify details independently and seek advice from qualified professionals before making any financial or investment decisions.
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