What is Blockchain Technology?
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)
A distributed database
Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
Blockchain Durability and robustness
Blockchain technology is like the internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the blockchain cannot:
– Be controlled by any single entity.
– Has no single point of failure.
Bitcoin was invented in 2008. Since that time, the Bitcoin blockchain has operated without significant disruption. (To date, any of problems associated with Bitcoin have been due to hacking or mismanagement. In other words, these problems come from bad intention and human error, not flaws in the underlying concepts.)
The internet itself has proven to be durable for almost 30 years. It’s a track record that bodes well for blockchain technology as it continues to be developed.
Transparent and incorruptible
The blockchain network lives in a state of consensus, one that automatically checks in with itself every ten minutes. A kind of self-auditing ecosystem of a digital value, the network reconciles every transaction that happens in ten-minute intervals. Each group of these transactions is referred to as a “block”. Two important properties result from this:
– Transparency data is embedded within the network as a whole, by definition it is public.
– It cannot be corrupted altering any unit of information on the blockchain would mean using a huge amount of computing power to override the entire network.
A network of nodes
A network of so-called computing “nodes” make up the blockchain.
(Node – A computer connected to the blockchain network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the blockchain network.
Together they create a powerful second-level network, a wholly different vision for how the internet can function.
Every node is an “administrator” of the blockchain, and joins the network voluntarily (in this sense, the network is decentralized). However, each one has an incentive for participating in the network: the chance of winning Bitcoins.
Nodes are said to be “mining” Bitcoin, but the term is something of a misnomer. In fact, each one is competing to win Bitcoins by solving computational puzzles. Bitcoin was the raison d’etre of the blockchain as it was originally conceived. It’s now recognized to be only the first of many potential applications of the technology.
The idea of decentralization
By design, the blockchain is a decentralized technology.
Anything that happens on it is a function of the network as a whole. Some important implications stem from this. By creating a new way to verify transactions aspects of traditional commerce could become unnecessary. Stock market trades become almost simultaneous on the blockchain, for instance — or it could make types of record keeping, like a land registry, fully public. And decentralization is already a reality.
A global network of computers uses blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The forms of mass collaboration this makes possible are just beginning to be investigated.
What is the difference between a Private, Public & Consortium Blockchain?
A Blockchain was designed to securely cut out the middleman in any exchange of asset scenario. It does this by setting up a block of peer-to-peer transactions. Each transaction is verified and synced with every node affiliated with the blockchain before it is written to the system.
Until this has occurred, the next transaction cannot move forward. Anyone with a computer and internet connection can set up as a node that is then synced with the entire blockchain history.
While this redundancy makes public blockchain extremely secure, it also makes it slow and wasteful.
The electricity needed to run each transaction is astronomical and increases with every additional node. The benefit is every transaction is public and users can maintain anonymity.
A public blockchain is most appropriate when a network needs to be decentralized.
It is also great if full transparency of the ledger or individual anonymity are desired benefits. Costs are higher and speeds are slower than on a private chain, but still faster and less expensive than the accounting systems and methods used today.
This is a good trade-off for a cryptocurrency like Bitcoin.
Security is key to their users, a decentralized network is at the heart of the project and their competitors in the finance industry are still significantly more expensive and slower than a public blockchain network despite its slowness when compared to a private blockchain.
Private blockchain lets the middleman back in, to a certain extent.
I believe the saying goes: better the devil you know, than the devil you dont’t know.
The company writes and verifies each transaction. This allows for much greater efficiency and transactions on a private blockchain will be completed significantly faster. Though it does not offer the same decentralized security as its public counterpart, trusting a business to run a blockchain is no more dangerous than trusting it to run a company without blockchain.
The company can also choose who has read access to their blockchain’s transactions, allowing for greater privacy than a public blockchain.
A private blockchain is appropriate to more traditional business and governance models, but that isn’t a bad thing. Just because it is unlikely to revolutionize our world, doesn’t mean it can’t play a role in making the world better.
Competition is key to developing the most useful products. Traditional financial institutions have long held a monopoly — technically, an oligopoly — over the industry.
Their outdated products and services are a direct result of this power.
Using a privately run version of blockchain technology can bring these organization into the 21st century.
A number of our governance institutions are old and outdated as well.
Like finance, our government is not subject to competition. Adoption and integration will likely be slower in this sector, but if and when blockchain technologies are adopted they will cut billions of dollars of behind the scenes spending.
Imagine a truly secure online voting system. No more poll workers, voting booths, paper ballots, paid counters or organizers with cushy salaries. What’s more, the barriers to voting will be greatly reduced and we will likely see an increase in turnout.
This could be accomplished with a public design, but most governments are unlikely to decentralize control and security, so a vetted private system greatly increases the chance of adoption.
Consortium blockchain is partly private. THere has been some confusion about how this differs from a fully private system. Vitalik Buterin provides a pretty straightforward definition:
“So far there has been little emphasis on the distinction between consortium blockchains and fully private blockchains, although it is important: the former provides a hybrid between the ‘low-trust’ provided by public blockchains and the ‘single highly-trusted entity’ model of private blockchains, whereas the latter can be more accurately described as a traditional centralized system with a degree of cryptographic auditability attached.”
Instead of allowing any person with an internet connection to participate in the verification of transactions process or allowing only one company to have full control, a few selected nodes are predetermined.
A consortium platform provides many of the same benefits affiliated with private blockchain — efficiency and transaction privacy, for example — without consolidating power with only one company.
You can think of it as trusting a council of elders. The council members are generally known entities and they can decide who has read access to the blockchain ledger.
Consortium blockchain platforms have many of the same advantages of a private blockchain, but operate under the leadership of a group instead of a single entity.
This platform would be great for organizational collaboration.
Imagine central banks coordinating their activities based on international rules of finance. Or the United Nations outsourcing their transactional ledger and voting system to blockchain, allowing each country to represent a verifying node.
The possibilities are endless.
What are Decentralized Applications (DApps)?
Most people are familiar with ‘apps’ particularly with reference to software. Software applications are software that defines a particular goal. As opposed to the most widespread software models that are centralized (the server client model is centralized), DApps are apps whose server-client models are decentralized while others are distributed as illustrated in the figure below.
Decentralized Applications (DApps) are digital applications or programs that exist and run on a blockchain or P2P network of computers instead of a single computer, and are outside the purview and control of a single authority.
A standard web application, like Facebook or Uber, runs on a computer system which is owned and operated by an organization giving it full authority over the app and its workings. There may be multiple users on one side, but the backend is controlled by one single organization. In the context of cryptocurrencies, dApps exist and run on blockchain network in a public, open source, decentralized environment and are free from control and interference from any single authority.
A decentralized app must meet the following criteria:
– They should be open source and autonomous. This means that any changes can only be executed by consensus and there is no single body which holds majority tokens in the network.
– Protocols and Data are stored cryptographically in a blockchain.
– The cryptographic tokens are used for rewarding network users as well as for application access.
– Tokens are generated using an algorithm that encourages contribution by members of the network to the system.
These four criteria could be simplified into three areas according to Vitalik Buterin the Ethereum founder:
(1) Architectural that is how many computers does a system have and how many it can hold without the system collapsing
(2) Political; how many individuals are controlling the computers that comprise the systems
(3) Logical; does a look at the interface and data structure of the system reveal a centralized/single structure or does it reveal a distributed one that could be broken into independent units?
What are the benefits of DApps?
According to Akana survey of 250 IT security professionals- the relative lack of security around traditional applications has spawned a broad range of concerns. In addition to DDoS, SQL injection, and XML bombs, other concerns cited by respondents in the survey included XML firewall and message-level security (43%), cross-site scripting (38%), and XML attacks (37%). Brute force, phishing, and impersonation attacks were other significant concerns.
Decentralized Applications’ (DApps) key advantage is the distribution of essential components, a move that improves fault tolerance and makes it practically impossible and expensive to attack such a network. The backbone of Dapps-blockchain-ensures fast, reliable and secure applications to enhance the customer experience. With increased volume as well as velocity of data from new sources like IoT and social media, blockchain and Dapps provide a fast, efficient and affordable way of processing storing big data. Additionally, decentralization acts a barrier to collusion, a move that has often allowed corporations and governments to exploit others.
How do DApps operate?
There are basically two ways through which dapps are operated: proof of work and proof of stake. With the proof of work, consensus and decisions pertaining to any changes to be made on the Dapps are reached based on the amount of work that each individual stakeholder contributes to the operation of the Dapps. This option is commonly used by Bitcoin for running its day-to-day operations. Proof of Work is commonly known as mining.
With proof of stake, decision about changes on the Dapps depends on how much an individual stakeholder owns over the application.
What are Smart Contracts?
Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.
What is IoT?
The Internet of things (IoT) is the network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data. Each thing is uniquely identifiable through its embedded computing system but is able to inter-operate within the existing Internet infrastructure.
What is AI?
Artificial intelligence (AI, also machine intelligence, MI) is intelligence demonstrated by machines, in contrast to the natural intelligence (NI) displayed by humans and other animals. In computer science AI research is defined as the study of “intelligent agents”: any device that perceives its environment and takes actions that maximize its chance of successfully achieving its goals. Colloquially, the term “artificial intelligence” is applied when a machine mimics “cognitive” functions that humans associate with other human minds, such as “learning” and “problem solving”.
What are the Use Cases for DApps?
Tokenizing an asset allows you to take advantage of public and private key pair cryptography.
Sensitive trade information remain attached to a private key, while public metadata remains visible on the ledger. Tokens substitute sensitive data, eliminating the chance of fraud if the communication is intercepted. Blockchain immutability allows to guarantee each user’s ownership of certain assets.
Individuals and communities can interact in a peer-to-peer distributed network to trade goods and services, seek and offer employment opportunities and even issue finance.
Companies can take advantage of new market openings by providing solutions, value and services ‘on-demand’. Borrowers with a good track record of loan serviceability and with high collateral can attract lower interest rates from lenders.
Implementing blockchain solutions to Financial Markets and Exchanges helps alleviate costs and reduce counterparty risks.
All parties to a transaction can now have access to public transaction and asset transfer information.
Each participant can retain a copy of the verified data, while existing assets and records are not subject to alterations, record deletions or double spending.
Data loss and data leakage is increasing in frequency as hackers are becoming increasingly aware of the weaknesses of centralized medical information storage.
Beyond data loss and leakage, medical records are also difficult to transfer between institutions. Decentralized storage with access restriction allows for timely patient data delivery to a doctor in emergency situations.
Decentralized p2p networks offer the opportunity for institutions to record tests scores, diplomas and degree information on a distributed database, alleviating the numerous associated expenses.
Student data can be accumulated and stored on a single decentralized ledger even when it is gathered by different providers. The opportunities for companies and startups to developing blockchain based solutions for the educational sector is enormous. Early adopters and first movers stand to benefit.
The most immediate and obvious benefit for charities the adopt blockchain technology is the transparency offered by an open ledger.
Charities have been plagued with having too many middlemen and bureaucracy to deal with to get donations to the recipients. New types of charity arrangements are possible, while donors have more direct access to charity recipients. All it takes is for the recipient to have internet access and a cryptocurrency enabled wallet to receive a direct donation.
Supply chains are typically characterized as siloed systems, with each having their own method for tracking the movement, ownership and invoicing.
These systems could benefit from joining a distributed network for communicating the tracking any state changes. Connected systems could synchronize with an immutable ledger where network participants can all agree on a state of play and no longer need to rely on disparate information coming from varied sources.
The development of blockchain enabled solutions can assist companies in distributing customer transactional information on an immutable ledger.
With permissioned access to an immutable distributed ledger, customers can retain privacy in their dealings with these companies, meaning they would more readily sign up, while loyalty program providers can take advantage of efficiencies gained by blockchain distribution and truth states.
Currently, digital rights are managed in different ways depending on which jurisdiction an asset is recognised in.
As the internet means digital information can traverse the globe in seconds, legacy systems can no longer be relied on for enforcement of digital rights. Cataloguing and storing original works is a natural fit for blockchain thanks to the creation of timestamped records that are indisputable.
Applying blockchain solutions to this industry has the potential to remove reliance on intermediaries and provide new efficiencies for delivering timely and accurate data.
Blockchain transparency offers disintermediation opportunities and offers a direct link between fund managers and financial asset distributors, while drastically reducing the intermediary costs.
The glue that brings IoT and blockchain together is Smart Contracts.
Smart contracts can be deployed for whole transactional lifecycles, running directly on the blockchain and excluding the centralized server mechanisms. IoT software can communicate with blockchains with the reliability and trust needed for business processes.
The most attractive property of blockchains for compliance and audits is that once data proof has been entered into a block on the ledger, it can no longer be adjusted or deleted.
Compliance can now be built into smart contracts, which implies that a set action can initiate the execution of a series of subsequent actions, each fulfilling compliance requirements automatically.
Distributed ledger technologies are a potential solution to automate public administrative tasks.
Incorporation of data from insurance and pension providers, each sharing their information to a public ledger, will allow anyone with the right credentials to verify the information kept in the ledger. Each of the pension and insurance providers can house a network node, which ensures against the data being held at a single location.
By distributing the verification process across a network of connected nodes, anywhere a credential appeared on the network it could be verified.
Each credential would contain a unique private key, making counterfeiting and fraud impossible without the private key, owned in equal parts by each party connected to any particular license.
Historically, digital voting has been subject to data loss, manipulation, and hacking.
By using public key cryptography for signing a vote, a result can be recorded without the voter’s details being revealed. The votes enter an open, tamper-proof public ledger with easy verification of public keys.