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Blockchain Scalability

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What Makes Blockchain Secure

Blockchain scalability is the rate at which a cryptocurrency network can process transactions. Technically, a blockchain is a time-linked distributed ledger. This means that each node in the network retains a copy of the ledger.

On the surface, this is a good idea because it reduces the risk of corruption by any individual or group within the network. However, requiring each node to retain a copy of the ledger dramatically reduces the throughput of the system. Essentially, the system can only work as fast as any single computer within the network. Each block within the blockchain is nothing more than a series of transactions. The transaction processing capacity is limited in terms of size and frequency.

Bitcoin Scalability

On the Bitcoin network, the average block creation time is 10 minutes, and the block size is limited to 1 megabyte. Therefore, the average time to process a transaction on the network is three to seven seconds. These size and frequency limitations were never a problem until Bitcoin exploded in popularity beginning in 2017. Bitcoin entered a raging bull market during Q3 2017. Suddenly, it became abundantly clear that the blockchain network had a major scalability problem.

The transaction speed was simply too slow to service the number of users. The Bitcoin blockchain network managed to stumble its way through 2017 until the bull market dissipated in early-2018. Unfortunately, many first-time customers encountered a rather poor experience with Bitcoin and the entire blockchain network. The slow transaction speed forced many users to pay extremely high processing fees and it often took several hours for a transaction to be added to the blockchain network.

Lightning Network

In July 2017, the Bitcoin community held a number of formal meetings and discussions on how to solve the scalability problem. These meetings consisted of developers, miners, and full node users. Two different perspectives emerged on how to solve the scalability problem. The first solution was to increase the block size limit. The second solution was to focus on exponential scaling off-chain by building additional protocols.

Ultimately, the Bitcoin community decided to solve its scalability problem by launching the Lightning Network. The Lightning Network is a payment protocol that operates on top of the Bitcoin blockchain known as a “layer 2” protocol. By adding another layer to the blockchain, it enables users to create payment channels between any two parties. These payment channels have no expiration date, thus allowing both parties to conduct multiple transactions without a time constraint.

The key ingredient of the Lightning Network is the fact that all transactions occur off-chain. In other words, the transactions occur outside of the main Bitcoin blockchain network. Of course, the transactions are eventually added to the main network.

Upon completion of all activity between the two parties on the Lightning Network, the information is transferred to the main network. However, in order to increase efficiency, all transactions between the two parties are recorded as a single transaction on the Bitcoin blockchain. The transaction speed on the Lightning Network is much faster in comparison to transactions that occur on the main network because Lightning users are not competing for space on the crowded Bitcoin blockchain. Additionally, fees are less expensive on the Lightning Network.

Despite the fact that the Lightning Network has reduced the blockchain scalability problem, several members of the Bitcoin community were never in favor of conducting transactions outside of the main network. Consequently, these members decided to create their own solution to Bitcoin’s scalability dilemma.

Bitcoin Cash

As we mentioned, the Bitcoin community held several meetings in July 2017 in an effort to solve the scalability problem. During these meetings, there was never a unanimous decision to adopt the Lightning Network. Instead, several developers and miners were in favor of increasing the block size limit as a way to increase the number of transactions on the Bitcoin blockchain. In order to reach a peaceful agreement between both parties, a hard fork was created, which provided two different solutions to the scalability dilemma.

In August 2017, Roger Ver launched Bitcoin Cash (BCH). Bitcoin Cash is the most famous hard fork occurrence within the Bitcoin blockchain ecosystem. During the past few years, Bitcoin Cash has been a solid performer within the crypto universe. Bitcoin Cash is always ranked among the top 10 in terms of daily volume and market capitalization.

Although BCH is a solid performer in the area of volume and market capitalization, the coin has never approached the trading volume level of Bitcoin. This is a clear indication that the crypto community has chosen to adopt the Lightning Network and other scalability solutions as the solution to Bitcoin’s scalability problem.

The Liquid Network

The Liquid Network is a Bitcoin sidechain designed to offer fast and confidential transactions between trading platforms. The project originated in 2015. The testnet version was released in May 2017, with version 1.0 launching in October 2018.

A sidechain is a secondary blockchain on which fictitious tokens are used to make currency transfers. Operations performed on the secondary blockchain are not recorded on the main blockchain. Consequently, the fees are substantially reduced, and the throughput is much higher because the nodes of the sidechain are private, capable of handling a large number of transactions.

The main advantages of the Liquid Network Sidechain are more transactions per second and shorter confirmation times. The end result is fast transfers at much lower prices. Additionally, the sidechain is able to maintain a level of decentralization because there is more than one entity managing the sidechain.

Nakamoto put little thought into the issue of scalability. Thankfully, the cryptocurrency universe has some of the most talented people working to improve Nakamoto’s original design of the blockchain network. This includes scalability. Even though the Lightning Network or the Liquid Network are not perfect, they are a step in the direction of increasing scalability.

Brief Summary of Blockchain Scalability

  • Blockchain scalability is the rate at which the Bitcoin network can process transactions.
  • The transaction processing capacity is limited in terms of size and frequency.
  • The average block creation time within the Bitcoin network is 10 minutes with a block size of 1 megabyte.
  • Two solutions emerged regarding the blockchain scalability problem.
  • The first solution was to increase the block size limit.
  • The second solution involved the creation of a new payment protocol.
  • The new protocol would operate on top of the Bitcoin blockchain.
  • It became known as the Lightning Network.
  • All transactions within the Lightning Network occur off-chain.
  • The Bitcoin community could not reach a consensus agreement concerning scalability.
  • Roger Ver was in favor of increasing the block size limit and launched Bitcoin Cash (BCH).
  • The Liquid Network is another scalability solution being worked on
  • Going forward, users can choose BCH or BTC depending on their scalability views.
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Blockchain and Artificial Intelligence

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Artificial intelligence (AI) was introduced in 1955 by John McCarthy

Artificial intelligence (AI) is the ability of a computer program to think, learn and mimic human thought. Introduced in 1955 by John McCarthy, artificial intelligence has several different fields of study. These fields include computer science, mathematics, psychology, and philosophy, among many others. AI is linked to several different use cases. The most prominent use cases include machine learning, supply chain optimization, speech recognition, self-driving cars, and manufacturing optimization.

Now we know a bit about AI, let’s review a few examples of how AI is improving decentralized networks like blockchain.

Cryptocurrency Trading

During the past few years, artificial intelligence has substantially increased its presence in the area of crypto trading. This is particularly true with high-frequency trading (HFT). Essentially, HFT is a type of algorithmic financial trading characterized by high speeds and high turnover rates. High-frequency trading is a perfect vehicle for cryptocurrency trading because the crypto universe has several different exchanges.

HFT uses artificial intelligence to analyze multiple technical indicators across various exchanges in an effort to take advantage of market opportunities. AI is still in its infancy stage in regard to crypto trading. Going forward, artificial intelligence will play a pivotal role within the crypto trading community. These are commonly known as trading bots.

Suggested Read: What Are Public, Private, and Consortium Blockchains? – Cryptobite

Blockchain Security

Unfortunately, industries that find themselves in a hyper-growth phase are more susceptible to cyberattacks and malware. Without question, blockchain technology, along with digital assets, is currently experiencing an explosive rate of growth. Consequently, the blockchain industry has endured an exponential increase in malware, phishing, fraud, and digital theft. Based on data provided by industry experts, $9 million is lost to cryptocurrency scams on a daily basis.

The key to successfully thwarting a blockchain hack is to identify the threat and understand the nature of the attack as quickly as possible. Hackers are acutely aware that they must strike quickly in order to launch a profitable attack. Unfortunately, crypto exchanges have a poor track record in preventing cyber-attacks. AI-based cybersecurity systems are designed to detect a hack in real-time and dramatically increase the likelihood of stopping the attack. AI systems are far superior to traditional cybersecurity systems because AI has the ability to detect patterns from previous attacks. This information can be used to prevent future cyber threats.

Bitcoin Mining

As you know, all crypto transactions are verified and added to the blockchain by Bitcoin miners to maintain the integrity of the network. In exchange for their work, miners are rewarded with Bitcoin. Crypto mining requires energy consumption and computing power. Over the past few years, Bitcoin miners have explored the idea of using artificial intelligence to reduce energy waste and computing power to reduce costs.

A few of the largest mining companies have created AI-based systems, allowing companies to share power and increase profitability. AI algorithms have made crypto mining faster, more profitable, and more efficient. Without question, artificial intelligence will continue to play an essential role throughout the crypto industry.

Brief Summary of Blockchain and Artificial Intelligence

Artificial intelligence (AI) was introduced in 1955 by John McCarthy

  • AI is the ability of a computer program to think, learn and mimic human thought.
  • AI encompasses several different fields of study.
  • AI has increased its presence in cryptocurrency trading.
  • High-frequency trading uses AI to analyze technical indicators across many exchanges.
  • AI-based cybersecurity systems are designed to detect a hack in real-time.
  • Bitcoin miners use AI to reduce energy consumption and computing power.
  • A few of the largest mining companies have created AI-based ecosystems.
  • AI algorithms have made crypto mining faster, more profitable, and more efficient.
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Blockchain

How Does Blockchain Compare to Other Innovations?

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How Does Blockchain Compare to Other Innovations

Probably, the most innovative discoveries of the past 100 years are the world wide web (i.e., internet) and the mobile phone. By now, both these things have become a must-have of modern human beings. Let’s look at the stats. In 1995, only 17% of USA residents were using mobile phones. By 2018, only 5% of US residents still did not have this device in use. While in 1995, only 16 million people (0,4% of the world’s population) were internet users, by 2018, this number increased to 4.2 billion, which is more than half of all people. Interestingly, during the first 5 years of the internet’s existence, only 5% of all people have found it worthy enough to use.

These numbers indicate how we interact with new technologies. As a general rule, most people are skeptical of discoveries and innovations at the early stages of their existence. Still, when the benefits of using a certain technology become obvious, it spreads all over the world with the speed of light.

Typically, it takes about 10 years before the average consumer makes an effort to research a new product or service. By this time, approximately 10% to 20% of the overall population had adopted the innovation. The remaining 80% to 90% of the population is still on the sidelines, unwilling to implement this new technology into their daily lives. Within 20 years of the new product’s existence, the majority of the population finally adopted it. Without question, consumers are very slow to implement new technologies.

Suggested Read: Blockchain and the Banking Industry – Cryptobite

Adoption of Blockchain Technology

But should we wait another 20 years to see the adoption of blockchain technology? Most likely, it will occur much faster than the internet, mobile phones, automobiles, or air travel. Why? Because once the blockchain infrastructure is in place, the old ledger system becomes useless. Therefore, soon, consumers will not have to choose between the new digital ledger and the old manual ledger. Companies that won’t migrate to the blockchain will be left behind and eventually forced out of business.

Within the next decade, blockchain technology will permeate our daily lives. For example, everyday things like voting, purchasing a vehicle or a home, visiting a medical care provider, investing in the stock market, obtaining a bank loan, going to college, or shopping at a retail establishment, will encounter blockchain technology.

Most probably, within the next five to 10 years, we will encounter blockchain technology daily. This explains why it will be exponentially larger than the internet.

Brief Summary of Blockchain In Comparison to Other Innovations

  • As a general rule, people are skeptical of discoveries and innovations.
  • It takes approximately 10 years for the average consumer to become a regular user of innovations.
  • Full adoption of a new product or service takes 20 to 30 years.
  • The adoption rate of blockchain will occur much faster.
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What Is Blockchain Consensus Algorithm?  

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What Is Blockchain Consensus Algorithm

Blockchain technology has many different moving parts. Hence, to operate smoothly, the architecture must be properly designed. An important piece of Nakamoto’s architectural design is the use of a consensus algorithm. 

Blockchain Consensus Algorithm in a Nutshell

In its simplest format, a blockchain consensus algorithm is a decision-making process. It is designed to assist in reaching a common decision by a group of people. Of course, in this particular scenario, the consensus algorithm involves blockchain-related solutions.

How Does it Work?

Let’s assume that 20 co-workers are asked to collaborate and offer a recommendation on a specific project. Each participant in the group will reach a decision that will provide the greatest individual benefit. The group must listen to each recommendation and decide which of them will provide the greatest overall benefit. The final recommendation must be accepted by all group members regardless of whether it offers the best solution for each individual.

Let’s assume that 20 co-workers are asked to collaborate and offer a recommendation on a specific project. Each participant in the group will reach a decision that will provide the greatest individual benefit. The group must listen to each recommendation and decide which of them will provide the greatest overall benefit. The final recommendation must be accepted by all group members regardless of whether it offers the best solution for each individual.

Suggested Read: Luxury Fashion Brands Are Entering The Crypto Space (cryptobite.io)

Brief Summary of Blockchain Consensus Algorithm

  • An important piece of blockchain architecture is the use of a consensus algorithm.
  • It is a decision-making process that helps a group of people to make a common decision.
  • The consensus algorithm always produces the optimum solution for the overall group.
  • A consensus algorithm helps to create fairness and equality in a decentralized ecosystem.
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