In this blog post, we will look at the impact of cryptocurrencies and blockchain technology on the financial market, its potential uses, and its problems.
In the short period from late 2017 to early 2018, cryptocurrencies shook the global financial markets. They are as familiar as their name, but their principles are by no means simple. However, the blockchain technology that forms the basis of these cryptocurrencies is very useful and its potential is increasing, so it is important to learn about it.
Before learning about cryptocurrencies, we should look at the blockchain technology that made them possible. Blockchain is a type of transaction ledger that is a technology for storing data such as transaction history in a distributed manner. In the existing transaction method, an authoritative third party such as a bank stores all transaction history and verifies it, but in blockchain, transaction history is divided into blocks and distributed to multiple people for storage. When checking the transaction history later, this data is connected and checked. The “blocks” used here are the basic units that make up the blockchain. As information is accumulated in a block, the next block is added, and the process of accumulating another piece of information is repeated, so that the blocks are woven together into a long chain. This mechanism is what gave rise to the name “blockchain.” To create a block, you must technically perform continuous calculations using a computer, and you must go through the process of decrypting the code that was built on the server. This process is called “proof of work” or “mining.” As the name “mining” suggests, the first step is to decrypt the block to create an empty block, and then store the transaction data along with the data from the previous block to receive cryptocurrency as a reward. This mining process verifies that there are no data errors in the transaction history, and ensures the transparency of the transaction history.
As mentioned earlier, the driving force that enables the blockchain to be maintained and continuously developed is the reward and transaction ledger of cryptocurrency. There are various types of cryptocurrency, the most representative and famous of which is Bitcoin. Bitcoin is the first cryptocurrency to be implemented, and there are only users connected in a network without a central government or an intermediary financial institution. Since then, many cryptocurrencies have been developed, including Ethereum, Ethereum Classic, Ripple, Stellar, Litecoin, Zcash, and Quantum, and these cryptocurrencies other than Bitcoin are called “altcoins.” Each cryptocurrency has its own unique transaction method and security method.
This blockchain technology and the cryptocurrency that utilizes it have strengths that no other currency can match in terms of security and transparency. When a transaction is made using a blockchain, a ledger is created and stored in a single block, and this information is updated every 10 minutes and sent to users. Therefore, in order to manipulate the transaction history, all of the individual blocks must be hacked, which is almost impossible, resulting in tremendous security and transparency. There is also the advantage that the market is maintained in a way that ensures reliability for all users without the control of banks or specific financial institutions. Previously, virtually all assets required third-party assurance of their ownership for credibility, but this technology allows data to be distributed and stored among all participants, making it impossible to copy and forge information, and therefore ownership can be recognized without the need for a third party. This can greatly simplify the process of financial transactions.
However, this technology is still in development, so it also has many problems. First of all, since there is no separate management organization or entity, there is no one to hold accountable for mistakes or problems that occur during the transaction process. In addition, although forgery of cryptocurrency itself has been technically blocked, hacking cryptocurrency exchanges or devices where cryptocurrency is stored is another problem, so there are risks associated with this. In fact, in 2016, a venture capital DAO that adopted blockchain technology was robbed of $6,000 worth of cryptocurrency, and Hong Kong-based cryptocurrency exchange Bitfinex was also robbed of $68 million worth of cryptocurrency. In addition, the instability of the cryptocurrency market has recently emerged as an issue. Even if the problem is not due to the nature of cryptocurrency itself, a currency that experiences a $200 change in value in two days is at great risk of losing its function as a currency and falling into the category of mere investment or speculation.
“Bitcoin is an amazing cryptographic achievement. It is incredible that something that cannot be replicated can be created in the digital world. Many businesses will be derived.”
Google Chairman Eric Schmidt said, “Blockchain technology is a new technology that has the potential to change the world.” In fact, blockchain technology is currently attracting attention for its potential use in various fields, including not only currency but also financial services and communication services. In Korea, various companies, including Samsung, SK, and KT, are developing services using blockchain technology and developing related technologies. Although cryptocurrency has been swept up in a temporary craze, its usefulness and significance have been questioned, and it has fallen into the category of simple investment and speculation, it is clear that cryptocurrency and blockchain should continue to be developed and researched. Rather than rejecting this technology due to concerns about its problems, we should actively seek ways to utilize the new paradigm of operating independent transaction services through distributed storage through research and development.
