Crypto trading has definitely become a hot topic in the last few years. Not just because of its use as a speculative asset that can see its investors a large return, but also because the investment potential no longer resides solely with the super-rich. Cryptocurrencies have become the “everyday” investment that even the most modest retail investor can get behind.
Not just because the platforms don’t require the financial history and hurdles of traditional markets, but also because these assets are much cheaper to trade. Looking at crypto trading platforms like Bitvavo give investors a glimpse at the fees they can reasonably expect to pay anytime they transact crytpo— whether this is for remittance purposes, or speculative. The truth is, these fees are much, much lower— which means you don’t need a pile of startup capital to start trading. But why? “That’s all due to blockchain.” Say the creators of Bitvavo. “This is the technology that will shape our future and our finances.”
What is Blockchain?
Blockchain is the functional technology behind the ledger system used by most cryptocurrencies. While its main objective is to provide an immutable, public data filing system, it also serves to validate transactions and prevent double spending. Amping up security and keeping the platforms decentralized, as administrative power is spread throughout an entire network.
Making blockchain more than just a ledger, but the proverbial backbone of almost every single cryptocurrency on the market. Blockchain works through mining and proof-of-work (PoW) systems. Whenever a transaction is attempted across a crypto network— like Bitcoin, for example— this transaction is coded in a specific way using cryptography. This mathematical code must be solved in order for the transaction to be considered both unique and valid. Which is where miners come in.
Miners are the people who own the computers that are used to solve these complex equations. Once an equation has been solved, the miner who solved it is rewarded in bitcoin, as well as a small transaction fee. The data is then added to the ledger in a way that can never be changed. Creating an unchangeable record that the transaction has occurred and that it’s genuine. Because of the way blockchain works, there will only ever need to be one validation. Only one transaction fee, and never additional fees. The reason behind why trading cryptocurrencies is often so much less expensive than dealing in other types of assets.
How is It Evolving?
Despite blockchain being an incredibly useful novel technology, there have been some concerns over its scalability and continued relevancy regarding its use as a ledger system for crypto. But, like most intriguing technological advances, blockchain has begun to evolve different protocols that allow it to keep up with current demands and needs. Besides proof-of-work systems, there are a number of different validation protocols that have come to light, with perhaps the most common being the proof-of-stake system that the Ethereum network has begun to adopt.
More than just the validation system, the blockchain structure has also evolved. Blockchain is a linear filing process— so one block can only be added at a time to one chain. Which can result in slower transaction speeds and the need to create a massive amount of storage space in order to house all of the information on one long chain. Consider boxcars, where when linked one by one in a horizontal line could be incredibly long. Stack them on top of one another, in columns and rows, and you would be able to fit more of them into a given space.
This is where things like Iota’s tangle and Ethereum’s shard chain come into play. Using the basics of blockchain technology, but creating multiple chains that can be added to simultaneously. This not only has been shown to reduce energy consumption, but has also increased network speeds during periods of high traffic. However, despite all of these innovations, it’s important to remember that without the fundamentals of blockchain technologies, none of these protocols would exist.
Pay Less, Trade More
It’s almost entirely because of blockchain, and the decentralized, secure, and verifiable system that it represents that we can enjoy low fees when it comes to transactions. When looked at comparatively to traditional banking structures, or even traditional trading platforms, cryptocurrencies are incredibly cheap to interact with. This is largely because it requires so much fewer personnel. With crypto, there are no CEOs, board members, legal departments, fraud sectors, tellers, IT departments, or many of the other branches that a standard firm would require.
Instead, all the network needs are people who are interested in cryptocurrencies. Whether this is from a developmental level, day trading, or just as enthusiasts. These networks run because of those who are most invested in them. They are not necessarily built for the top tier of governance to make money. In fact, there is no system of centralized governance when it comes to crypto. Yet it is still secure. Which means that all the money to be made by the system is made by the holders themselves. Which is something that could stand to benefit not only holders, but the entire financial system as we know it.