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What Is Blockchain Technology? | The Uses Of Bitcoin Blockchain

What is Blockchain technology

What is Blockchain Technology

In 2008 we had the financial crisis and a lot of people lost trust in the banks. So an experiment was launched – and resulted into a decentralized payments network; giving birth to bitcoin. And to understand this, you gotta understand how a ledger works.

To put simply, ledger is a record showing the amount going in and out of an account. It’s constantly being updated as money flow in and out.

In a centralized service like Paypal, all users of the payment processor trust Paypal’s ledger (since they’re the authority in this case) – Paypal is the one to tell you how much you’ve spent, and how much balance you have.

But in a decentralized payments network (like a crypto blockchain), there are 6,000 computers around the world all trying to update the ledger! In this case, who’s ledger do we trust?... That’s the innovation here!

The Blockchain is refreshed every 10 minutes with a new block of transactions.

 To figure out which computer updates the Blockchain, all these computers (called Miners), are all competing against each other to solve a very energy-intensive mathematical problem. And the more processing power each computer puts in, the greater chance they have at winning (similar to a lottery – the more tickets you buy, the more chances you have at winning).

Every 10 minutes on of the miners comes up and says, “Hey, I’ve solved the problem, and I’m gonna add in these block of transaction.” Then, all the other computers in the network will verify two things;

1... That the miner got the problem right.

2.., That all the transactions the successful miner included, are valid

If more than 50% of those 6,000 computers agree, that block of new transactions is included into the blockchain!

That’s how the Blockchain works.

The more processing power a miner has, the more chances to win


So, What Is Blockchain?

A Blockchain is a distributed (shared) ledger that multiple parties are using to collaborate without having to trust each other.

A Blockchain is really good at three things;

  1. Transparency
  2. Authentication
  3. Auditing

On its most basic level, the Blockchain is a new class of information technology that combines cryptography with distributed computing – both of which have existed for a number of decades. 

It was the genius of Satoshi Nakamoto who combined them in a unique way to create a module where a network of computers collaborate towards maintaining a shared and secure database. As such, we can say the Blockchain as a technology, is simply a distributed secure database.

This database consists of a string of blocks, each one a record of data that’s been encrypted and given a unique identifier called a hash.

Mining computers on the network validate transactions and add them to the block they’re building, and then broadcast the completed block to other nodes so they all have a copy of the database.

Because there’s no centralized component to verify the alterations to the database, the Blockchain depends upon a distributed consensus algorithm. In order to make an entry on to the Blockchain database, all the computers have to agree about its state so that no one computer can make an alteration without the consensus of others. A block is added to the blockchain as a permanent record after it is completed.

When a block is finished, a new one is generated. 

The Blockchain has an infinite number of such blocks, all of which are linked to one another like links in a chain (in proper linear chronological order).

Transactions on the Blockchain are immutable, which means they can't be changed or erased! 

Each block has a hash value that is reliant on the hash of the previous block; as a result, they're all linked together, so if one is modified, all subsequent blocks linked to it will be changed as well. 

This makes the data you enter tamper-proof!

The above Blockchain description is the workings of the 1st generation of Blockchains (1.0), which function largely simply as databases. But the technology is currently evolving to become much more than this as the 2nd generation already provides the capacity to execute any computer code on the Blockchain. The system is evolving to become a globally-distributed cloud computing infrastructure.

Distributed Ledgers:

Blockchain technology works to create a permanent and very secure database. This makes Blockchain suitable for the storage of a record or transaction that involves value, or in some way needs to be a secure and trusted source of information.

These secure distributed records are called distributed ledgers. A distributed ledger is a consensus of replicated, shared and synchronized digital data geographically dispersed across multiple sites, countries, or institutions without a centralized administration or a centralized data storage. It’s being maintained instead by a distributed network of computers.

Such Ledgers can be used for any form of asset registry – such as inventory, or monetary transactions; this might include the recording of hard assets such as physical property, cars, homes, etc., or intangible assets such as currencies, patents, votes, identity, healthcare data, or any other form of information.

This distributed ledger technology allows us to replace a multiplicity of private databases inside each organization with a single shared database that can be trusted and accessed by all parties concerned. And in this respect, the Blockchain enables trust between parties that may otherwise not trust each other. The result thereby strengthens our capacity for collaboration between organisations, or between individuals peer-to-peer, without dependency on third-party centralized institutions; which then gives rise to transparency and so many other efficiencies.

This is of major significance as we currently have many centralized organizations that may be internally optimized, but the inter-organizational space in-between them is really inefficient – with huge amounts of border friction, redundancy, arbitrage, and resources wasted on competition. 

By enabling trusted inter-organizational networks however, these ledgers enable the formation of organization and collaboration; where previously there was none – such as across all supply chains, or for different healthcare providers to collaborate around the patients’ needs, or for different transport providers to collaborate in delivering an integrated logistics network.

Likewise, 2nd generation Blockchains offer the possibility to automate the workings of these networks through what we call smart contracts.

Smart contracts are computer codes that are installed inside a Blockchain; which encode contractual agreements. These smart contracts are self-executing contracts – with the terms of agreement or operation directly written into lines of code; which is stored and executed on the blockchain!

Like normal computer programs, these containers hold algorithms that take an inputted data, and depending on the value of the input, trigger certain events. 

For example, smart contracts can be used to ensure that members of a musical band get their deserved revenue shares calculated correctly, and paid on time – thereby reducing the influence and control of greedy managers and record companies (fuck Sony – rest in peace Michael)!

The Blockchain is a complex technological, economical and social phenomenon. It casts doubt on what appeared to be well-established parameters of the modern world, such as currency, economics, trust, value, and exchange. To make sense of this, one needs to understand it in a holistic context.

The Blockchain is much more than a technology. It is also a culture and a community that is passionate about creating a more equitable world through decentralization. 

It is a movement that disrupts the disrupters – this technology redesigns the internet; and in so doing, shakes up existing centralized players. 

What Other World Problems Can We Solve Using Blockchain Technology?

The first thing we can think of is the traditional banking world. The banking world can really use some help from a Blockchain.

One of the big examples of Blockchain in the banking world, is correspondent banking. Correspondent banking is when you send an international payment and your money just kind of disappears! Then a week later you keep calling your bank, and they say they’ve sent the money – but the receiver still hasn’t got it. And you hope it arrives eventually.

So, what’s happening in the background is that your money is skipping from one bank to another corresponding bank, to another one... And the reason we have this system here, is because it’s not feasible for each individual bank to go out and do a partnership with 10,000 other banks around the world. 

And the big problem from this is, each bank has a copy of their own ledger, there’s reconciliation happening at the end of each day, manual entries – and it’s very common for (human) errors to occur...

So, the transaction ends up being costly, and very slow.

But, if all the banks in the world connected to one shared Ledger, the sending bank can connect directly to the receiving bank! The money will get there much faster. And if the sending bank requires liquidity to do the foreign exchange, they got thousands of to partner with!

Other key areas Where Blockchain Technology is Useful:

  • Syndicated loans
  • Peer-to-Peer loans
  • Bond issuance
  • Election (Voting)

Currently, the Australian Stock Exchange is looking at replacing their entire trading platform unto a Blockchain. These are all trials happening right now.

Another area the Blockchain technology can be applied is in the area of combating the fake drugs menace.

According to Interpol in 2013, a million people each year die from counterfeit drugs!

How do I know if I go to a drug store (chemist), that the drug I’m buying is legitimate and safe for my consumption? I don’t have transparency into the whole supply chain of that drug.

If we put the whole entire supply chain for this drug – the entire life-story of this drug, from manufacturer, to supplier, to distributor – and along the way, each party authenticates the transaction, as a customer, I can then have full transparency with authentication; and confidence that the life-story of this drug is legitimate.

Another area right now, is Distributed Asset Trading. So, if I want to invest in a company, there’s a lot of paper work involved – I get a copy that shows how much stock I bought, how much money was paid, the photocopy of the cheques – and that’s just one transaction!... 

As the company grows, you’re gonna have more and more investors coming in, the paper trail gets even longer. It means you do more transactions, you’ll have to get an auditor to come in and make sure each transaction was legitimate and so on...

What NASDAQ is trying to do right now, is to have a Private Equities Market, a Private Assets Market; where investors will do the transaction on a Blockchain, and it’s all recorded there. So as the company grows, you don’t need an auditor. The audit is already done on the Blockchain!

In November of 2016, a First Company actually sold equity in its company on a Blockchain!

Disadvantage of a Decentralized Blockchain – It Is Not Consumer Friendly:

With all these cool perks of a Blockchain, there are also disadvantages too...

For example, if you mistakenly send bitcoin to a wrong bitcoin address, that money is gone forever (there’s really no way to get a refund or charge-back)!

Think of the internet as a Blockchain (a decentralized information system, with a bunch of centralized services on top of it – like Google, Facebook, Yahoo, Twitter...), you’re not gonna go as a consumer and spawn up your own email server (instead, you’ll just go to Gmail and quickly create an email account).

So, this is a great opportunity as Blockchains grow and grow (there’s an opportunity to build a centralized service on top).

More Technical Details About Blockchain:

Blockchain is all about providing a layer of trust between people without needing a central authority (oh, I’ve said that before).

Bitcoin was the first implementation of a Blockchain. Other cryptocurrencies have their own Blockchains.

Bitcoin allows people transfer value without the need of a bank as a central authority to provide the trust between the people involved in the transaction.

The most essential part of a Blockchain is the shared ledger – and everybody has their own copy of the ledger; everybody has their own version of what is going on. So again, there’s no central authority – you don’t have to go to any particular person to find out who owns what. You don’t have to go a particular database to find out what’s going on (you have your own copy – everybody does)!

But then of course, the internet brings with it the problems of impersonation, hacking, message interception and so on...

Lucky for us, Blockchain solves that problem expertly by its element of cryptography!

In the 70’s and 80’s there were great advances in cryptography; especially public and private key cryptography.

What this allows us to do is, when we send a message, it’ll allow us to be sure that our message hasn’t been tampered with. So, if I want to send something of value to someone, I’m rest assured it’ll be delivered as is – it also means we can be sure who sent the message as well. So there’s no possibility of you impersonation someone else, or re-playing a message that someone else has sent.

Public and Private key Cryptography is the key security feature of most Blockchain, and helps greatly in instilling trust into the system.

The Components of A Blockchain:

Shared Ledger: So that everybody gets an idea of the state of affairs of the entire Blockchain system at anytime, thereby birthing transparency

Peer-to-Peer Network: Allows all the transactions to be transmitted to all the users of the system – giving it a lot of resilience; because a Blockchain is an Adhoc network meaning that, if you remove any particular node in the network, the network will still function! 

If the government doesn’t like what you’re doing and they want to shut it down, they’re going to have a hard time; because they’ll have to shut-down every single node that’s involved (so Blockchains are very resilient and censorship-proof)!

Cryptography: To make our messages and transactions tamper-proof, and to be sure of the person that sent what into and out of the system.

Simple Implementation of A Bitcoin Blockchain:

A basic bitcoin blockchain works by transferring value (bitcoin) through its peer-to-peer network. It has a shared ledger – every node on the bitcoin network has this shared ledger; which tells everybody how many bitcoins everybody has. There’s cryptography used, to ensure these messages haven’t been tampered with.

If we look at a Ledger in detail, the way that a Blockchain is built up... We start with a block.

The first block is called the Genesis block, and it contains some header information, and then there are a number of transactions...

The way the ledger works, is those transactions are propagated around this network – we built up these blocks (we put these transactions into blocks), they are sealed, and then we find a way to make these blocks tamper-proof. 

So the way we do that is with cryptography. And what we do, is we effectively link these block together – we chain them together (hence the name Blockchain).

We use cryptographic hash functions to provide a ‘finger-print’ for each block.

Starting from our first block, we take a finger-print of that, and we include that in our next block. And once that block is fertilized, we can take a finger-print of that and put it on our next block (and so on). 

What this means is that after we’ve done a number of blocks, if anybody comes along and tries to alter the transaction data, you can detect it by using the hash function of the block and comparing it with the value in the next block!

Every node on the network has this ledger – and they all have the blocks (so everyone can see exactly what is going on in the system).

For developers, Blockchain is a set of protocols and encryption technologies for securely storing data on a distributed network.

A distributed ledger is the technology that underpins the proliferation of new digital currencies in business and finance.For technologists, 

Blockchain is the driving force behind the next generation of the internet. For others, it is the tool for radically re-shaping society and the economy – taking us into a more decentralized world!

Whichever way you look at it, Blockchain has become the term that captures the imagination and fascinates many; as the implications of such technologies are truthfully profound. 

For the first time in human history, people anywhere can trust each other, and transact within large peer-to-peer networks; without centralized management.

Protocols, cryptography, and computer code, and not centralized institutions, establish trust. 

This greatly strengthens our capacity for collaboration and cooperation between organisations and individuals within peer networks – enabling us to potentially form global networks of collaboration without centralized formal institutions (unprecedented, but largely relevant in an era of globalization).

The Blockchain can help us solve many 21st century challenges that require mass collaboration!

Post Title: What Is Blockchain Technology? What Is Bitcoin Blockchain...


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