Blockchain, tokens, cryptocurrency – how does it work?

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It is impossible not to notice how our world is transforming: absolutely everything is becoming digital: money, businesses, documents, studies and much more. We are entering a new era of universal digitization and all this thanks to the blockchain. In this article, you will learn how cryptocurrency, blockchain, token and token exchanges.

Why was it necessary to create a blockchain at all

In the modern world, almost everyone has a smartphone and everyone can download different videos, pictures and publish photos on social networks. But such information is very easy to steal or hack, so it is not a safe place to store, for example, securities.

How Blockchain, tokens, cryptocurrency work
Photo source: https://www.pexels.com/ru-ru/photo/8370752/

But the data still needs to be stored somewhere. And for this, a blockchain was created (a repository of securely stored and not presenting information to anyone). In simple words, these are blocks in which important information is stored. When one block is filled, a new one is created and thus a whole chain is obtained – blockchain. The information in these blocks cannot be faked, as it will be invalid.

How cryptocurrency works

Cryptocurrency is an alternative to fiat money, its value does not depend on the state. The mission of cryptocurrency in most cases is carried out through mining. There are a lot of cryptocurrencies and each of them has its own advantages and disadvantages. It is important to understand that each cryptocurrency must have its own blockchain. It is not possible to issue a cryptocurrency on someone else’s blockchain or two cryptocurrencies on the same blockchain.

What is a token

You can also store tokens in blockchains. A token is a unit of account. It is needed in order to display your digital balance about some asset. That is, a token is a record that your something belongs and in what quantity. Tokens can be called an alternative to securities, in digital form.

Smart contract

In real life, you need to go through a lot of steps (conclude an agreement, check it with a lawyer, etc.). If the contract is not fulfilled, there will be a court. In the blockchain, the responsible protocol is the computer code. The program checks whether all the conditions of the contract are met, and if so, a deal is concluded. If someone did not fulfill the conditions, he returns everything back.

So, with the help of tokens and smart contracts, you can digitize any value and trade it in cryptocurrency:

  • art (NFT);
  • securities;
  • company shares;
  • real estate;
  • Training courses;
  • consultations.

In the modern world, tokenization is about convenience and innovation, which is why almost all entrepreneurs and investors tone up their projects and products.

Blockchain opportunities

Blockchain technologies are much broader than you might imagine:

  1. With the help of the blockchain, it is possible to create official and completely legal elections.
  2. Several instant messengers have already been created for secure correspondence.
  3. Security of transactions without an intermediary using smart contracts.
  4. It is possible to create an analogue of video hosting, where the money will go directly to the creators.

Blockchain technology consists of two terms: economics of verification and economics of the network. In many cases, blockchain adds cost to the verification process, but at the same time reduces other costs. This is because we do not need to pay the costs of a third party that will verify our transactions.

Blockchain advantages: transparency (the user can track the chain of transactions from the very beginning); independence (no third parties); low commissions; security (the network is almost impossible to hack); speed.

Disadvantages of the blockchain: size (in order to store the blockchain, the amount of memory must be quite large); lack of privacy (everyone who has your wallet address can see all transactions); unconfirmed transactions (transactions are queued, and the commission determines the sequence).

Blockchain technology has been around for decades and is still a novelty in some countries. This is a challenge for practitioners, businessmen and legislators. You need to be ready for blockchain technology at the global level, because this area is developing very quickly. You need to start digitizing your products right now, because very soon it will be very difficult for small brands to move from scratch in the blockchain.

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