Blockchain is a new technology in the town that has already started to influence the way the global economy works. It is the brain behind modern-day cryptocurrencies that we see today like Bitcoin, Ethereum, Lisk, Neo, Stratis, etc. which are exchanged even beyond international borders for the execution of seamless trade activities. Not just that, but the wonderful characteristics of this technology has enabled a wide range of businesses to have an extended reach, improved revenue streams, stronger trust, reliable transparency, enhanced speed, robust security, and much more. Blockchain technology has a lot to offer to every kind of business alive on this planet. For your better understanding, the comprehensive details have been listed out about this technology in this article.
So, without wasting any further minute, let’s dive in!
What is a blockchain?
A blockchain is an ongoing list of records, made from blocks that are interconnected to each other and protected through a cryptography mechanism. Every single block on the chain has a cryptographic hash of the former block, a timestamp, and a bunch of transaction data that has been batched into it.
Since there are a lot of blocks that are already present and being added to the blockchain, this interlinking of one block to another in a chain format is why a blockchain is known as a blockchain. To put it all together in simple words, blockchain is a chain of blocks that are linked together and protected through cryptography.
Moving on, as soon as a particular block gets filled up with x amount of data, it will be tough to tamper or alter the data within any other given block in any way whatsoever. The reason for this being that you would have to make the relevant corrections within all the subsequent blocks and that requires the support of at least 51% network majority.
Also, I don’t think anyone would like to get outplayed in terms of hacking the blockchain. Why? Because it’s time-consuming, too expensive, and near to impossible in my opinion.
Anyways, it should be remembered that the blockchain is safe and secure because of its design characteristics and the fact that this technology also displays a distributed computing process with immense Byzantine fault tolerance. As a result of this, the decentralized consensus is achieved within a blockchain. This safety feature of blockchain makes it well-suited for the purpose of recording the events, case histories, and various other records of management activities. Some real-life examples include- identification administration, financial transaction processing, the recording place of origin, food traceability as well as a ballot
Furthermore, coming to the topic of cryptocurrency, the first blockchain Bitcoin was supposedly developed by Satoshi Nakamoto in 2008. This innovation known as blockchain with respect to bitcoin makes it the very first form of electronic money that could possibly address the issue of double-spending of money ( that was happening with the services that were being offered by other financial institutions such as banks, etc. ). While executing transactions through bitcoins, the problem of double-spending of money is eliminated because there is no need for a third-party like a highly positioned trusted authority ( R.B.I. for India) or central server to act as an arbitrator for the transaction to manifest.
History of Blockchain
The ribbon-cutting of doing some work on a cryptographically secured chain of blocks was illustrated in 1991 by these gentlemen named Stuart Haber and W. Scott Stornetta. In 1992, Bayer, Haber, and Stornetta decided to involve Merkle trees into their design, for enhancing the functionality of the design by enabling several documents to get collected within a single block. Now that’s intriguing. Eh?
Moving on. The first-ever blockchain was established by a person (or a certain group of people, nobody knows whether it was a person or a group of people) known as Satoshi Nakamoto in 2008. In the following year, Nakamoto decided to follow through with Bitcoin with blockchain technology acting as a fundamental component.
This blockchain technology pertaining to the cryptocurrency named bitcoin functions as a general public ledger for all the transactions that take place on the network. Via the blockchain, bitcoin managed to become the first virtual currency to be able to resolve the double spending issue without needing a trusted authority for governance ( just in case things go south ) and has since been the source of motivation for several other applications.
In addition to this the bitcoin blockchains file size, which consists of all the records of every single transaction that had taken place within the network, reached 20 GB (gigabytes) in January 2014. In January 2015, this size had further expanded to almost 30 GB, and during the time period of January 2016 to January 2017, its size further increased from 50 GB to 100 GB in size.
Another interesting fact about blockchain is that the words block and chain were used individually in Satoshi Nakamoto’s original whitepaper, but were then ultimately disseminated i.e. considered or rather accepted as a single word, BLOCKCHAIN, by 2016.
Moving on, the expression blockchain 2.0 pertains to modern applications contained within the distributed blockchain database, that were initially surfacing the market in 2014.
The Economist also described one application of this second-generation programmable blockchain as one that involved “a programming language which empowers its end users with the ability to write sophisticated smart contracts, thus, generating invoices that get paid for by themselves upon the arrival of a shipment.”
In short, as soon as you make the purchase, your balance is held in the blockchain and with the help of a smart-contract the seller gets paid only when the buyer receives his/her product.
One more example concerning the implementation of blockchain technology is share certificates.
They ( i.e. share certificates ) automatically send their respected owners their share of dividends as per their investment upon reaching a certain level of profit.
Moreover, Blockchain 2.0 technologies even transcend transactions themselves and allow the exchange, transfer, etc of value to take place between 2 or more people without requiring a middleman serving as moderators of finance and data.
They are also expected to enable the excluded section of the society i.e. the common man i.e. lower and lower-middle-class people, in my opinion, to be able to step foot into the global economy, protecting the individual privacy of participants involved, otherwise screw you, allow people to monetize their own information, and offer individual creators with the capability to get compensated ( i.e. money-time ) for their intellectual property.
Another fascinating thing about this blockchain technology is that it makes it possible for people to store their individual’s “digital identification (your public and private keys in terms of bitcoin) and persona” along with providing an avenue as a solution to the problem of social inequality by “undoubtedly changing the way money changes hands in an economy.”
Moving on, a couple of things worth mentioning that happened in 2016 regarding the improvisation of blockchain technology are as follows:
- Blockchain 2.0 based implementations still did require an off-chain oracle to be able to access any outside data or events depending on the time and/or market conditions to be able to connect with the blockchain. In short, no off-chain oracle means no connectivity with the blockchain.
- An announcement pertaining to a pilot project by the Central Securities Depository of the Russian Federation (NSD) had been made, which was supposed to be built using the Nxt blockchain 2.0 system. Its role would be the would be the exploration of how blockchain technology could be utilized in for the development of automated voting systems.
- IBM began its blockchain innovation research center in the Singaporean nation in the month of July 2016.
- A working group for the World Economic Forum gathered together in November 2016 for the very purpose of discussing the development of governance models related to the blockchain.
- Accenture ( not “Laptops”), an application of the diffusion of innovations theory suggests that blockchains achieved a whopping 13.5% adoption rate within the financial services sector in 2016 (which is amazing for something that has just been around for some time), therefore, reaching the early adopters phase kind of quickly because people don’t accept and trust new things so easily.
- Industry trade groups joined forces to build the Global Blockchain Forum in 2016, as an initiative of the Chamber of Digital Commerce.
How it works:
So by now, I assume that we are familiar with what a blockchain is, let’s try to decode how a blockchain works. ( if I have done a bad job illustrating this point of what is a blockchain, then please do let me know in the comments section below).
I am going to be using Bitcoin an analogy to explain my point to you guys, as the network majority, I assume is familiar with it.
In Bitcoin’s blockchain, blocks are 1 MB in size, and they consist of data related to peer-to-peer transactions happening on the platform. Every 10 minutes new blocks are being made a part of the chain as soon as they get verified by the miners on site via an in-house consensus mechanism. Every single entry happening within these blocks is backed up by strong cryptographic math, thus, making it irreversible, i.e., difficult to mess around with because by the time you mess with one several other blocks have been added and then you need to mess with them, etc.
These blocks possess unique features as follows:
- They are time stamped: Each block has a specific date and time attached to it.
- They are distributed and decentralized: This means that each block contains multiple copies of itself in several locations across the globe.
- They are transparent: This means that anyone can view the data within the block.
- They are computationally irreversible: I did go over this a little while ago, however, whenever a transaction takes place on Bitcoins blockchain, it lands straight into a pool of unconfirmed transactions known as the “Mempool.”
Now, these transactions get batched into a block after entering the mempool. After this, a bunch of miners compete with each other to solve a certain arithmetically (got tired of computationally) challenging math problem to be able to add this block to Bitcoin’s blockchain. As a result, they get awarded some Bitcoin as an incentive for helping out to keep the blockchain safe and secure.
In this way, as more blocks keep on getting added to the blockchain, the dream of transaction manipulation of hackers goes further out of the window.
Another fact to be considered here is that Bitcoin’s blockchain has several millions of users on board its venture. Every single end-user is operating this distributed ledger on their individual devices. So it’s quite similar to having like a million copies of Bitcoin’s ledger on every electronic device onboard, beginning with the “the Genesis block” which was mined by Satoshi Nakamoto.
Reiterating my point that each of these copies holds inside them a complete record of all the block related data since the beginning of the Bitcoin era on the internet. Due to the reasons described above, it’s a big challenge for anyone to game the system.
Moreover, all the transaction happening on the network are safeguarded by tight cryptographic math. Therefore, anyone who intends to meddle with this distributed ledger needs to win the co-operation of the 51% network majority to be able to turn the tides in his favor. Now what this means is that a hacker needs to hack at least 51% of the total number of computer nodes that are operating this distributed ledger on their devices simultaneously all across the globe.
So if one has made up his mind and is hell bent on hacking the system, then it would most probably require an infeasible level of money, support, and energy. Like you need to be Osama Bil Laden or some other bigshot to be able to accomplish this feat. Hence, you get an Oscar for trying this stupidity, in my opinion.
It is for this very reason that I consider blockchain to be unhackable and tamper-proof.
Bitcoin is only drop in this ocean of blockchain applications. Blockchain solutions can also be implemented across several other industries for solving various issues.
While no system is “unhackable,” blockchain’s simple topology is the most secure till date.
According to Alex Tapscott, the CEO, and founder of Northwest Passage Ventures, a venture capital firm that invests in blockchain technology companies. He said, “To make any transaction over any kind of blockchain, the network [of nodes] must first agree that that transaction is valid, which means no single entity can go in and say one way or the other whether or not a transaction happened.”. “To hack it, you wouldn’t just have to hack one system like in a bank…, you’d have to hack every single computer on that network, which is fighting against you doing that.”
The computing resources of most blockchains are also tremendous in volume, Tapscott said, because it’s not just one computer but many. For example, the Bitcoin blockchain harnesses from anywhere between 10 to 100 times as much computing power in comparison to all of Google’s serving farms put together.
And with that, we come to an end of this section of “security matters” of blockchain technology.
A blockchain is a decentralized, distributed and a general public ledger which is used for recording transactions in several computers globally. So what this accomplishes is this crucial thing called winning the trust of the people. And this is important if mass adoption of blockchain technology had to happen.
Furthermore, this allows everyone associated with this venture to be able to verify and audit transactions inexpensively as compared to a private business.
The blockchain database is managed autonomously, i.e. self-governance, by leveraging a peer-to-peer network alongside a distributed timestamping server. They are authenticated by mass adoption globally which is powered by collective self-interests. The result is a sturdy workflow wherein all the participants’ doubts concerning the security of their individual data is minimalized.
Also, by using blockchain technology the feature of infinite reproducibility of almost any digital asset is made redundant.
It is this characteristic which aids in confirming that every single crypto coin has been transferred only once across the blockchain, thus, rescuing us from the age-old problem of double spending.
Blockchains can also be perceived as a value-exchange protocol.
Through blockchain technology, the transfer of money between 2 or more people in an economy can take place much faster, safer and more importantly in a more cheaper fashion than the traditional route which takes days and sometimes even weeks or months to complete.
A blockchain can also assign title rights because it provides us a record or rather a history of all the transactions that just makes you want to accept it. As in how can you say no to me. I’m faster, smarter, cheaper, more convenient. Lol.
Blocks consist of a bunch of “batches of valid transactions” that are hashed and encoded into a Merkle tree. Each block consists of the cryptographic hash of its prior block in the blockchain, thus, linking the two. The linked blocks thus form a chain, and hence it’s called as a Blockchain.
This iterative process validates the honesty of the previous block, i.e., whether or not it was tampered with, and this can be traced right back to where we started, i.e., the genesis block.
At times it can also happen that separate blocks get generated simultaneously, thus, creating a sort of a temporary fork within the system.
In addition to that, these blocks also consist of a highly secure hash-based history.
Any blockchain you see or know about possesses a specified algorithm in order to keep track of different versions of its history so that the block with a higher value (money) gets chosen over others with a lower value. After this elaborative process that we just explored together, the blocks that don’t get selected for inclusion in the chain get labeled as Orphan Blocks.
The peers sustaining this database have with them distinct versions of the blockchain history from time to time. They only prefer to run the highest-scoring i.e. the latest version of the database that they might be aware of at that point in time.
Therefore, it’s quite obvious that whenever a peer comes to know about a higher-scoring version ( mostly the older version that has just seen a single new block being added to its chain), they will definitely upgrade their own database first and then tell their peers about this upgrade. However, there is no outright guarantee that you will find a particular entry within the blockchain history the way it was when it first got included in the chain.
Given that blockchains have been built for the purpose of keeping score of new blocks over old blocks and due to the fact that there are certain incentives for working only on expanding the chain with new blocks instead of rewriting the old blocks, the possibility of an entry being replaced with another is brought down exponentially as more blocks are get pilled on top of it, ultimately becoming pretty low. For instance, in a blockchain utilizing the proof-of-work algorithm, the chain that does the most amount of work cumulatively as proof-of-work is usually considered to be the legit one by the entire network.
One can make use of several methods for demonstrating a decent level of computation. Proof of work is just one of them. Other examples are proof of stake, proof of brain, proof of concept, etc.
Now in conclusion to this segment, let’s just quickly go through this point that inside our beloved blockchain the computations in terms of the transactions taking place on the platform is carried out rather redundantly than in our traditional segregated and parallel manner.
And with that, we are headed towards exploring what is block time. So, I request you to fasten your seatbelts because it’s going to be a long drive. Grab some popcorn and get something to drink as well if you want. Alright, moving on.
It is the minimum amount of time that any blockchain requires to be able to add an additional block to its ongoing chain. Some blockchains are capable of forging a new block pretty rapidly like every five to ten seconds. For example Steller Lumens.
But this depends on several things and the algorithm employed is one of them.
As soon as a block get validated by the miners of the platform the data contained within it is deemed to be verified. In the cryptocurrency world, it is here when the transaction related to money happen. Therefore, a shorter block time is usually indicative of speedier transactions like Litecoin.
The block time for Ethereum is in the range of 14 to 15 seconds, whereas for bitcoin it is 10 minutes.
A soft fork simply means this that the blockchain that you are a member is backward compatible. This also means that you can either upgrade to the latest version or stick or turn back to the version of your choice on the network you’re involved with.
A hard fork is simply a change of rules within a particular blockchain ecosystem wherein the platform is literally broken into or rather forked into 2 or more pieces. You can consider Bitcoin and Bitcoin cash as an analogy here.
So when such a thing happens inside of any blockchain the software that is being used to verify the blocks being formed according to the old rules will soon start to treat all the blocks being generated according to the new or forked rules as null and void.
Therefore, in case of a hard fork, everyone wishing to work on the new platform in accordance with the new rules are required to upgrade their mining software to the latest version, obviously discarding the previous one. So if one set of nodes proceed with the old mining software and the remaining set of nodes carry on with the new software, a split within the blockchain is most likely to occur. For example, The DAO incident where Ethereum where 150 million$ worth of Ether had been hacked via a loophole in its code.
However, in this case, the fork had resulted in a split creating Ethereum and Ethereum Classic chains.
Alternatively, to avoid a permanent split from taking place, a majority of the nodes that are utilizing the new mining software can possibly return to the old software and rules.
An analogy to explain this point could be the bitcoin split that happened on the 12th of March, 2013.
By maintaining a decentralized database throughout its peer-to-peer network, the blockchain wipes out a number of risks that are typical with the storage of data on a centralized database. Facebook. cough, cough. The decentralized blockchain may use ad-hoc message passing and distributed networking.
Peer-to-peer blockchain networks are void of centralized points of vulnerability i.e. loopholes that hackers prey on; moreover, this technology is lacking in a central point of failure. Now what that means is that you can’t target only a focal point ( sorry for contracting myself because I mentioned the DAO incident that was cracked upon by exploiting a certain vulnerability like this ) for the most part of any blockchain and just swoop away millions and millions of dollars right into your bank account.
So if the above line made you ask the question i.e. “What about the safety mechanisms within a blockchain?”, then here is your answer. It (the safety mechanism) consists of the use of a public and private key based cryptography.
A public key (a long, random-looking string of numbers) is your address on a specific blockchain that you can flaunt to the entire world provided that you keep your private keys in your Ledger Nano S, Trezor wallets. Whatever tokens that you send and receive on any particular platform are registered as belonging to that particular address on that platform.
A private key is just like a password that provides its owner access to his/her digital assets on the blockchain. This is quite similar to Alibaba’s password to his magic den. Forget this and you get locked out of that specific account. Told you that you should have kept your password securely in your Ledger Nano S or Trezor wallet. Didn’t listen to me. Now suffer the consequences of your actions.
So after this tragedy, I think so moving on is a better choice than sitting and crying in a corner with cookies and a glass of warm milk. (F.Y.I. I don’t want that to happen to anyone hence the sentence.)
Another point, in this case, is that the data that is being stored on the blockchain is mostly considered to be incorruptible i.e tamper-proof. While centralized data is more readily managed, manipulation of data isn’t hard to achieve. Therefore, by decentralizing data on an accessible, distributed and public ledger, blockchain technology offers transparency of the block-level data to everyone involved and interested. And it is for this reason that every single node in this decentralized system possesses a copy/record of the blockchain on their laptop, desktop, etc.
Data quality is maintained by massive database replication and computational trust. A centralized or rather an “official” copy does not exist on the blockchain and no single user is trusted more than any other user at least in this world. Pun intended so much for being a CEO in the corporate world.
Anyways, moving on, transactions are publicized i.e. made visible on any blockchain network by employing certain software and messages get delivered on a best-effort basis.
As you all might already be aware of that mining nodes are responsible for verifying the integrity of all transactions that happen on the blockchain. After verification, these blocks get incorporated into the system and are broadcasted onto the platform and to other nodes on the platform.
The miners get paid their dues after this happens.
Furthermore, blockchains also leverage several time-stamping strategies such as proof-of-work, in order to serialize changes.
Alternate consensus methods include proof-of-stake, proof of brain, proof of concept, etc.
The growth of a decentralized blockchain is also ushered along with the risk of node centralization because the computing power that is required for processing a bigger volume or rather larger no. of transactions also ends up being more costly as both time and the blockchain proceed and increase in size.
Open blockchains are more user-friendly than some of the conventional ownership records like the balance sheets of companies or car dealerships, etc, even though made available to the public on the internet may still most probably need physical access to view in person.
Given that all the initial blockchains were built permissionless, i.e. anyone can view the transactions taking place on the blockchain, a sort of a controversy has emerged concerning its definition. Is it open like Bitcoin or closed like Z-cash, Monero, etc.
So it’s this issue that has been sparking an ongoing debate I.E. whether or not a private system with miners performing certain tasks and being authorized (permission) by a central authority be regarded as a blockchain. However, the proponents of the permission or private chains are of the opinion in this argument that the label known as “blockchain” should and could be applied to any sort of data structure which possesses the capability to integrate a bunch of data i.e transactions into time-stamped blocks.
Another attribute that I admire about blockchains is that it can also function as a distributed version of the multiversion concurrency control (MVCC) in databases.
MVCC is responsible for preventing two transactions from simultaneously modifying a single object in a given database, similarly, blockchains are also supposed to prevent two transactions of either similar or different nature from spending the same crypto coin twice on its platform. However, opponents of this notion are of the opinion that permission chains are identical in nature to the standard corporate databases, thus, not turning out to be of any assistance in decentralized data verification, and therefore such systems are not seasoned enough to be able to fight against user tampering and revision.
In my mind, the biggest possible benefit of blockchain technology is that it is an open, permissionless, and public blockchain network which is protecting itself against troublemakers like hackers and scammers to name a few.
And therefore there seems to be no requirement of a central authority for the purpose of governance for maintaining the required decorum within the forum and no access control is needed as well besides your public and private keys, I suppose.
So what this long drawn out explanation means is that n no. of applications can be added to this blockchain network without requiring the prior approval or trust of the majority (board of directors in a corporate world as an analogy), whilst making use of the blockchain as a medium of transport for these applications and other transactions.
Currently, Bitcoin and many other cryptocurrencies like Lisk are safeguarding their blockchain by having new entries to their respected platform do a little bit of work as in “proof of work basis” or staking some amount of tokens on “proof-of-stake basis” for developing dapps and forging blocks as is the case with Lisk.
Furthermore, for expanding its blockchain, bitcoin uses Hashcash puzzles that were developed by Adam Back in the 1990s. Another interesting point is that a lot of financial companies are yet to consider decentralized blockchains as a priority in their business.
In short, they’re still on the fence when it comes to incorporating blockchain as a part of their business. To prove this point here is an analogy. In 2016, venture capital investment for blockchain-related ventures was deterring in the USA but increasing in China.
Permissioned (private) Blockchain
Distributed ledgers i.e. permission-based or rather private blockchains employ an access control layer for the purpose of governing who should be given access to their network and who should be denied his/her access. In comparison to the public blockchain networks, validators i.e. miners on these types of private chain networks are scrutinized by the network owner himself (Steemit is one example that comes to mind). Neither are they dependant on any xyz person/node for verifying transactions nor do they stand to gain anything from the network effect.
Permissioned blockchains can also be referred to as ‘consortium’ or ‘hybrid’ blockchains.
The New York Times also illustrated in its editions of 2016 and 2017 that several corporations are starting to make use of these types of private blockchain networks that are free from the shackles of the public system.
Since everything has its own pros and cons blockchain technology has also enjoyed its fair share of disadvantages.
Here are a few of them:
- Lack of Trust:- Since a public or a permissionless blockchain is decentralized in nature you cannot hold a central authority responsible in case you get scammed. In this case, you need to deal with this situation yourself and if friends, family, google, youtube, yahoo, bing are of any assistance then awesome. Otherwise, do what you can or forget about your money due to your lack of vigilance and responsibility.
- Speculative markets:- Due to the fact that the crypto market is subject to extreme levels of volatility makes investing in cryptocurrencies pretty challenging for the risk-averse type of investors.
- Not Eco-friendly:- The mining of Bitcoin is pretty expensive as it costs not only a lot of money for buying hardware but also the amount of electricity consumed and the amount of fossil fuels burned to be able to generate that level of electricity for the mining equipment to do its job and earn you your money does not have a favourable impact on the environment.
The degree or rather the scale of damage varies from person to person, one laptop, desktop to another and one rig, farm to another.
In short, it’s way off the mark in terms of efficiency.
4).Time-consuming:- It takes about 10 minutes for a block to get added on to the bitcoin blockchain and you could be waiting for hours and sometimes even days to get your Bitcoin which is kind of frustrating, to say the least.
5). Immutable smart contracts:- This means that all the code that is written into a smart contract is fixed and cannot be changed. Now what this means is that if a random Joe gets hold of a loophole in any respected smart contracted then he could exploit it to his advantage. This is how the DAO ( Distributed Autonomous Organisation) incident happened.
Implications of Blockchain Technology
Blockchain technology can be integrated into multiple areas. The primary use of blockchains today is as a distributed ledger for cryptocurrencies, most notably bitcoin. While a few central banks, in countries such as India, China, United States, Sweden, Singapore, South Africa and the United Kingdom are studying issuance of a Central Bank Issued Cryptocurrency (CICC), none have done so thus far. Besides that, there are several implications of blockchain technology like smart contracts and dapps, etc.
And with that, it’s a wrap for this post I hope you enjoyed it. It took an exceptionally long time to put together. But if it isn’t accurate, interesting and informative then it isn’t a post deserving to be on Coingyan. Have a nice day guy and as always remember to follow us on Facebook, Twitter, Instagram, Youtube.
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