At this point, many of us use blockchain technology in some way. The most common way would be cryptocurrency, the famous digital assets taking over the world. But while we might send money through XRP to hold some Bitcoin, a lot of us still don't quite get how blockchain works. Specifically, many of us don't understand how their servers work.
In the simplest terms, we know that cryptocurrency isn't issued by a central bank and all transactions are facilitated by their servers. But what are these mysterious servers and how do they work? We break it down in this article.
What is a Blockchain Server?
To understand blockchain servers, we need to first take a look at how your traditional server works. Most organizations rely on a central server, usually in a massive physical location where its data is stored and transactions are processed. This is all well and good but is not without its issues. Most notably, having all or most of your data in a single location makes it vulnerable. As we've seen with server malfunctions in the past, entire industries can be affected at once if something goes wrong. However, blockchain is unique in that it relies on decentralized servers to operate.
How Does it Work?
Unlike traditional computer servers, blockchain servers are not centralized. Instead, their computing power is divided amongst thousands or millions of computers around the world. Take Bitcoin, for example. Anyone with the appropriate computer system can sign up to validate transactions across the network and receive tokens in exchange. This means that millions of Bitcoin miners around the world are collectively working to keep the network going.
The same is true for most blockchains, whether they use a proof-of-work or proof-of-stake consensus. This system has kept the blockchain and crypto sector going for years and shows no signs of stopping soon.
Why Are They Important?
So, we've established how these blockchain servers operate but why are they so important to the industry? Here are a few reasons:
Speed
Blockchain servers benefit from increased speed due to their decentralization. A lot of this is tied to the fact that there are material benefits for helping process transactions across the blockchain. Take Bitcoin, for instance. You have everyday people mining tokens in their homes and helping to keep the network going. Then there are the large mining pools, mining companies, and other establishments trying to get their hands on Bitcoin. All these contribute to a healthy transaction speed that makes these networks attractive to users.
And we haven't even touched on the ultra-fast blockchains like XRP and Litecoin that complete transactions within seconds, in some cases. The fact that network speed can be boosted through financial incentives is especially beneficial during periods of high network traffic. When the Ethereum-based Otherside metaverse went live, for example, fees went sky-high as thousands of requests were sent in to mint the associated NFTs. This further comes in handy when you consider crypto use cases like eCommerce, gaming, retail, or gambling. Many e-stores have started accepting classical and new crypto, plus now you can pay for your games, or even buy an apartment using Bitcoin & co. To top it off, in recent years consumers have increasingly turned to online establishments to have their betting needs met. One of the biggest incentives to use a crypto casino is the speed of payments compared to fiat currency. The buy-ins, withdrawals, or peer-to-peer transactions --- they all happen quickly thanks to crypto.
Behind all this, of course, is the power of blockchain servers.
Security
The bigger a computer system is, the more it will be targeted by nefarious actors. We've seen everything from private companies to even government organizations have their systems compromised and data stolen. One way these attacks are made worse is through centralization. Basically, all of an organization's computing power being put in one place means that it only takes one attack to impact it. However, blockchain servers do not have the issue per se.
If you want to attack or compromise the Bitcoin network, for example, you'd have to gain control over millions of individual computer systems all over the world. That, as you can imagine, is virtually impossible to achieve. The only situations where blockchain systems suffer such attacks are what is called a 51% attack. Most common with proof-of-stake systems, it would require the attacker to hold 51% or more of the computing power of a network at any given time. However, while it is possible, it is also quite rare, which makes blockchain servers very secure.
Accuracy
As much as blockchains delegate computing power and transaction verification to millions of people around the world, they also pursue accuracy. For example, a miner will need to complete a complex mathematical puzzle (under the proof-of-work system) before they can confirm a transaction. This is done to remove the possibility of false or inaccurate transactions being completed on the blockchain. On top of this, the inclusion of fraudulent transactions in a block of transactions renders it invalid and the miners will not be compensated for it.
Once again, we see the benefit of the financial incentive for miners. No one wants to waste their time and energy only to not get paid. As such, blockchain transactions have the benefit of being very accurate and so do crypto payments.
Decentralization
While it might seem like a no-brainer, a major benefit of blockchain servers is that they are decentralized. One of the foundational principles of crypto is that it is a currency that belongs to the people. Even the creators of the token do not wield absolute power over it, instead leaving it to the market to accept or reject. This philosophy can only really be enforced through blockchain servers. The fact that anyone can own a piece of the network by validating transactions means that access is democratized. This, in turn, gives cryptocurrency its appeal and means that it will continue to be used well into the future.
Energy-Efficiency
This is perhaps one of the less-frequently-discussed roles of blockchain servers but is nevertheless important. The industry has come under scrutiny for being harmful to the environment but networks based on a proof-of-stake consensus are more energy-efficient. With that in mind, blockchain servers are working to make the sector more sustainable and better for the planet.