By: Harry Pokrandt July 6, 2018 Forbes
Digital currencies were undoubtedly one of the best performing investments of 2017. Bitcoin, for example, grew by an astounding 1,300% last year. It was also a time for other smaller digital currencies to shine, and many of them reached all-time highs, buoyed by unprecedented demand. In hindsight, investing in Bitcoin or other digital currencies might seem like a no-brainer. However, there is always a caveat. In the case of digital currencies, it’s extreme volatility.
High volatility complicates investment decisions. If the price fluctuates wildly, it can become very difficult to find the right entry point. Bitcoin, for example, had multiple instances of 10% price fluctuation within hours in 2017. Institutional investors usually stay away from extremely volatile assets. However, many of these institutional players, such as venture capital funds and smart investors, still invested heavily in digital currencies. Many of them did so not to bet on the price of digital currencies, but to invest in the underlying technology powering it all — the blockchain.
Blockchain: More Than Just Currency
Bitcoin, a digital currency, has been around for over nine years. It has achieved a lot by creating a more secure and cheaper way to make and receive payments. However, the real achievement of Bitcoin was demonstrating the true power of the decentralized blockchain. Bitcoin is made possible through a series of independent and interlinked nodes that power its blockchain. This blockchain technology has since been adopted by hundreds of other digital currencies.
The application of the decentralized blockchain is not just restricted to digital currencies. It has enormous applications in almost every field. Thousands of new startups have sprouted up that use decentralized blockchain technology as the fundamental building block of their product or service. Blockchain is solving problems in a variety of industries like finance, health care, energy, entertainment and education. Basically, any industry can make use of a robust and secure decentralized network of independent nodes.
Why The Push Toward Decentralization?
The early days of the internet saw a fair bit of centralization. The idea was that a single server farm could provide massive cost benefits and economies of scale for all sorts of applications, like storage and computing power. However, over time, the inherent flaws of a centralized system have become apparent. This is the primary reason that decentralized solutions have recently gained traction. Here are a few examples of the advantages of decentralized systems:
No single point of failure: Crashes and failures are the single biggest problem with any centralized network. A single failure can cause service disruption and potentially cause millions in losses. It might seem like redundancy can solve such problems, but incidents like the 2016 failure at Amazon Web Services that led to many major sites being inaccessible, prove otherwise.
Scalability advantage: Decentralized networks are made up of independent nodes. When the load on a network increases, the supply can easily increase as well. These nodes can simply be home computers with an internet connection. The owners of the computers are adequately compensated, receiving digital currency for their contribution.
Democratic decision making: Most centralized systems have a single authority that controls all the power and makes all the decisions. There are dozens of examples of how bad decision making by a central authority can be bad for users and make the entire system crumble. For example, a social media company that has total control over its users’ data.
Decentralized systems powered by the blockchain are the next logical step in the evolution of the internet. They are more robust, cheaper, scalable and give the power to the user base rather than to the monopolizing service providers.
The Role Of Mining In Powering A Decentralized World
Mining is the process which powers the decentralized blockchain. Miners are essentially independent and interconnected nodes that use their computing power to verify transactions and add them to the public ledger (the blockchain). As a reward for contributing their computing power, the miners are awarded newly created digital currency in addition to transaction fees. This reward is based on the computational effort of the miner and is distributed evenly across the whole network.
Without miners, a decentralized blockchain network would not be possible. As digital currencies or other blockchain-based applications gain traction, an ever-increasing number of miners will have to come online to fulfill that demand. Blockchain technology is disrupting dozens of industries and has applications in almost every field: banking, cloud storage, network security, digital marketing, car sharing, insurance, voting, education, internet of things devices, energy trading and so on. The potential is only limited by the ingenuity of entrepreneurs and startups.
All of these new applications will have one thing in common — they will all be powered by the decentralized blockchain. This blockchain will be powered by miners around the world. The mining power available to each of these businesses will determine how fast the transactions will go through and directly impact transactions costs. Consequently, the mining infrastructure will require significant investments and development to power this new decentralized world.