Question 1:Security and Transparency In Blockchain And Potential Pitfalls Of Blockchain Technology
According to Junde et al. (2020), blockchain technology operates based on security and transparency, fundamentally changing many sectors such as finance, supply chain, and healthcare. Security in the blockchain is provided by the decentralized network and the cryptographic methods, while transparency is obtained through the immutable, public ledger. However, while blockchain technology undoubtedly has numerous advantages, various shortcomings must be considered.
Regarding security, blockchain operates a decentralized network of nodes, each holding a copy of the ledger. Such decentralization diminishes the possibility of a single point of failure while making the system less vulnerable to malicious attacks. According to Karan (2022), consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS) allow the majority of the transactions to be validated, thus avoiding erroneous activities such as double-spending. In addition, cryptographic technologies have been adopted to provide security to transactions. For every participant, there is a unique pair of keys, one of which is public and the other private. The former is used for encryption and verification, and the latter for signing transactions. Squartini (2020) asserts that this crypto layer guarantees no unwanted parties on the blockchain and that the authorized ones are the only ones to access and interact with it. It ensures the integrity and decentralization of data.
Transparency is the other major characteristic of blockchain technology. The blockchain system saves all transactions in a consecutive order and blocks the changes, making all records irrevocable (Khan et al., 2020). Following that, the recording of transactions takes place, which cannot be tampered with or deleted, and as a result, it provides a transparent history of all transactions. This transparent environment gives participants confidence in the network, as everyone can continually check the accuracy of the transactions without intermediaries. Furthermore, blockchain extends transparency beyond financial transactions to other sectors, including supply chain management. It enables traceability of goods from source to destination, contributing to increased sales and the avoidance of counterfeit products.
While blockchain technology benefits in many ways, its risks must also be considered carefully. According to Temperini and Corsi (2023), one main obstacle is the existing uncertainty concerning regulation. The regulatory environment regarding blockchain and cryptocurrencies is still developing, thus causing volatile and inconsistent legal frameworks in other jurisdictions. This makes regulatory compliance difficult, especially in finance, where heavy regulation is the norm. Cheun and Teo (2021) also add that privacy issues pose another blockchain technology problem. Although the blockchain provides transparency, it raises privacy issues, particularly concerning sensitive data transmitted through the ledger. There is a need to come up with a balance between transparency and privacy to ensure there is no data security breach.
Furthermore, scalability is another obstacle to blockchain technology development. The need for more transactions to be processed on the blockchain throughput raises an essential issue of scalability that might lead to an increase in the time spent and the fees demanded. Solutions 2 protocols were developed to solve the scalability issues, but the approach to solving the problem has yet to create an impact (Glasner, 2020).
However, the highly energy-demanding characteristics of blockchain, especially in the PoW generation method like Bitcoin, raise the environmental implications of heightened carbon footprints. Energy-efficient solutions and sustainable blockchain should be assessed to reduce the carbon footprint of blockchain technologies (Yu, 2023). In general, while blockchain technology provides unbeatable security and transparency in financial transactions, many challenges must be considered and resolved. Regulatory clarity, privacy-enhancing technologies, scalability solutions, enhanced security protocols, and sustainable energy usage are some of the essential measures to harness blockchain technology’s real potential and fix its potential challenges.
Question 2:Role of Proof of Work In The Management Of Blockchain
The basis of Proof of Work (PoW) lies in its function as a backbone mechanism in managing Blockchain networks, more so in the cryptocurrency industry. Cassertt al. its021) asserts that its value guarantees that transactions in the framework of decentralized networks are preserved and secure. Being in charge of PoW is quite a significant entity for the blockchain. Therefore, it should always be considered.
Primarily, PoW arises as a consensus technique for cryptocurrency blockchains. With central agencies responsible for ascertaining a consensus, such as banks or government, ts, there needs to be more authoritative tity, which means a proof of work to decentralize the validation of transactions. One way blockchain achieves consensus is through using Proof-of-work (PoW). According to this approach, miners must solve sophisticated math puzzles to approve transactions and retain them on the blockchain, thereby ensuring the validity of the whole network (Hairusin et al., 2022). The harmony mechanism is another function that contributes to fighting fraudulent transactions like double-spending since generating two confirmations by the same participants is difficult. This helps to keep the complete integrity of the blockchain.
Additionally, PoW renders blockchain security at the highest level. In PoW, competing among miners is the primary motivation for computational resources to resolve ethnographic puzzles and verify transactions quickly. This investment, the process of a malevolent actor being able to exploit the blockchain for personal purposes, would become impossible (Richards, 2021). The advantage of using PoW is that the decentralization aspect prevents a single entity from controlling the validation process, ultimately improving the blockchain’s security and resistance against attacks and databasing corruption attempts.
In addition, PoW is a method of token distribution in which new cryptocurrency tokens or rewards are received by miners who have successfully validated transactions and have appended them to the blockchain. In the same token, this award system entails miners participating in the network honestly to be paid for the efforts they put into the process. (Ali & Narula, 2020) Apart from this, the issuance of new tokens through PoW also works to bring forth coins getting distributed and circulated within the network, therefore contributing to its overall economic ecosystem.
Although PoW is indubitably relevant, it does not have escapist criticism and limits. One severe limitation is its massive electricity consumption and environmental footprint. Through the implementation of cryptographic puzzles, PoW-based blockchains consume an immense quantity of electricity, thus increasing the sustainability issues associated with these networks’ carbon footprint. Moreover, the monopoly power over mining that sops up with only a few big players fosters fears for the decentalisation and security of blockchain networks as the chance of collusion is high and manipulation is possible (Saharti, 2022). PoW is pivotal in managing blockchain networks by acting as a consensus algorithm, maintaining the networks’ security, and allocating cryptocurrency rewards. While PoW has provided an effective way of verifying the chain of blocks in transactions, its energy consumption and centralization challenges need to be continually monitored, and alternatives should be considered for future management of blockchain systems in a sustainable manner.
Question 3: Role of Cryptocurrencies in Providing a Stable Alternative to Fiat Money
Cryptocurrencies have become the new faces of the financial space, coming up with unique concepts that traditional money system lacks. One of the significant points of this technological innovation is creating a digitized form of money- stablecoins, which are less vulnerable to trade volatility, unlike all fiat currencies. According to Perkin (2020), stablecoins tackle the built-in volatility of cryptocurrencies such as Bitcoin and Ethereum, making them more generally suitable for day-to-day transactions and financial apps. Glasner (2022) also adds that stablecoins sustain their price by reserving assets they peg to, such as the US dollar or a basket of commodities. This pegging mechanism protects stablecoins from the price volatility of other cryptocurrencies that generally scare users away, making them unwilling to use virtual currencies as a payment method.
Moreover, stablecoins play a vital role as the link between fiat currencies and cryptocurrencies, providing a uniform, stable entrance to the world of digital assets for the users. Stablecoins achieve this by acting as a reliable medical exchange that stays close to the tradition of currencies, again one of the main reasons for their popularity for daily use, remittances, and as a store of value. In addition, stablecoins help carry out cross-border cross-border deals with small exchange rate volatility and lower transaction fees than traditional banking systems. According to Naguib (2023), they have a stable value with funds transferred across borders. This is great because it allows faster and cheaper transfers without delays and pricey fees associated with traditional remittance services. Clarko et al. (2023) also state that stablecoins are not only an essential feature of the decentralized finance ecosystem (DeFi), but they also provide a stable base for many different financial applications, such as lending, borrowing, and trading on decentralized exchanges (DEXs). With their stability being a fundamental feature, they could be used as collaterals for loans, hence a dependable medium of exchange that would solve liquidity problems within the DeFi system in the long run.
However, despite their advantages, stablecoins still need to work on some issues that must be dealt with to make them long-lived. Regulatory problems constitute one of the biggest challenges facing stablecoins, as their status is an issue for regulators all over the world to decide on. The issue of centralization in specific stablecoin models has highlighted questions regarding their sustainability and resistance. Cryptocurrencies, especially those pegged to fiat currencies (stablecoins), stand as a stable alternative to traditional fiat money (Karan, 2022). It gives its users the privilege of doing their transactions highly dependable and efficiently. Through mitigating the volatility of traditional crypto-assets and utilizing the blockchain, stablecoins gain the capability to alter our approach to and perception of fiat money.
Question 4: Ethics of New Technology
As per Khan et al. (2020) assertions, the fast pace of cryptocurrency market development and blockchain technology usage has ultimately revealed a number of ethical risks that society must address. These risks arise from blockchain technology partly due to its anonymity and the fact that the networks are usually difficult or impossible to control. Evaluation of the ethics of emerging technology in this setting involves examining several salient considerations. One of the fundamental ethical problems associated with cryptocurrency, according to Cheun and Teo (2021), is their ability to accept crimes like money laundering, terrorist financing, and cybercrime. The pseudo-anonymity of cryptocurrency transactions allows law enforcement agencies to perform tedious work – tracking the transactions and bringing the individuals involved in the illegal activities to justice. In this case, the ethical concern raises the level of liability that technology developers and platform operators must undertake to implement stringent anti-money laundering and identity confirmation measures aimed at blocking the misuse of cryptocurrencies for criminal acts.
Moreover, referring to a report made by Glasner (2020), the environmental impact of cryptocurrency mining constitutes another significant ethical problem. The expensive energy process of mining cryptocurrencies, especially those that employ proof-of-work consensus mechanisms, seizes massive amounts of power and releases carbon emissions into the atmosphere. This environmental harm, which in any case goes against sustainability, also leads to questions about the likewise immoral elements of such technologies that can do a disservice to the planet.
In addition, the survey by Yu (2023) reveals that the absence of consumer protection and regulatory control in the cryptocurrency market presents ethical concerns for investors and consumers. Contrary to the traditional turf, where the regulatory frameworks provide barriers against fraud and illegal market manipulation, the cryptocurrency market functions mainly without regulations. This unregulated atmosphere demonstrates how fraud, hacking, and price manipulation can become a problem for investors. It calls on more robust consumer protection and a more cautious approach to regulation to protect the markets from unfavorable effects and maintain investors’ confidence. Another study by Temoerunu and Corsi (2023) argues that cryptocurrency needs to be more balanced as early adopters and entities with more extensive crypto holdings raise inequality and fairness concerns. Crypto millionaires and a crypto millionaire ecosystem have started to manifest inequality in the crypto space, which increases inequality even further in the society facing ethical dilemmas regarding ethics. The resolution of these ethical problems, therefore, demands a holistic strategy that harmonizes innovation with responsibility, ensures transparency and accountability, and promotes the prosperity of people and the planet. By directing the ethical challenges and putting effort into reducing these risks, the technology’s potential can be utilized for excellent purposes and create a more ethical and sustainable world.
References
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