Crash Course Blockchain Technology – What is Blockchain


Since the time money has been
used for transactions, we have relied on organizations like
banks and financial institutions as well as the government
in order to authenticate, verify and validate
our transactions. These are intermediaries who build
trust in a transaction and who ensure that a record is maintained of the
transactions conducted on a daily basis. While physical money and documents
were still easy to record and maintain, digital transaction
where digital money, and digital files are
concerned makes it even more difficult for us to
authenticate and validate. The need for intermediaries who can authenticate
and validate digital transactions was extremely important because digital assets
stand a higher chance of being replicated. It leads to the problem
of double spending where the same unit of money
is used more than once. But more so, what if we
were able to transact and create contracts without
the intervention of intermediaries at all
and still maintain the authenticity of the
transaction or the contract? Interesting as it sounds, the technology
for this didn’t exist a decade ago. But Blockchain is finally here and
it can make such things possible. The technology is yet to
completely mature and it is still in the process of
trials by many companies. If we are able to find a way
in which the limitations of Blockchain can be reduced and
it can be made mainstream, transaction costs may go
down invariably and the global economy may see
a huge transformation. The world was first introduced to Blockchain
through Bitcoin in a 2008 white paper that was authored by a person or a group which
goes by the pseudonym Satoshi Nakamoto. Nakamoto talked of a technology
that used a peer to peer electronic cash system which
was termed as Bitcoin. It removed the need of
intermediaries completely from the system and allowed for
payments to be made directly. Lots of people had their reservations
about it when Bitcoin was introduced. But it also caught the attention of
technology enthusiasts who found the decentralized system of payments
to be exciting and innovative. While the Bitcoin was an amazing
development, it was the mechanics behind it that garnered a lot of
popularity and was truly radical. People began to realize, that
it wasn’t Bitcoin that was the most attractive part of
the white paper release. Blockchain was far more
revolutionary and had more uses than the digital currency
with which it was discovered. Bitcoin is most commonly
associated with Blockchain perhaps because it was first application
to have used the technology. Today, the technology is used by
many other altcoins and has many companies from different industries
using the technology too. Its popularity grows with the
growing reach of the internet and has more relevance today than
in 2008 when it was first used. How it works? The name blockchain comes
from the very basic fact that the technology
creates a chain of blocks where each block has
information related to transactions occurred at a
specific period of time. It is decentralized in nature. The blockchain is a distributed
ledger which continually records transactions to update
all parties of who owns what. It does the job of centralized
administrations like governments, banks and
financial institutions. The blockchain has a network of
replicated databases which is updated via the internet and can be seen by
anyone who has access to the network. Some blockchains may be restricted
while others are open to public view. It depends on the nature of the
blockchain and the requirements of the company or organization
using the Blockchain. Every block constitutes of a
number of transactions that may have occurred since the
creation of the last block. It contains a hash of the
previous block which supports the creation of
a chain where each block can trace only one path
back to the original block which is usually known
as the genesis block. The blocks follow chronological
order because it would otherwise not be able to find out the
hash for the previous block. The block is created to
be computationally so difficult that it is almost
impossible to modify once it becomes a part of a
chain for a while because changing one block requires a
change in the entire chain. This feature makes Bitcoins
irreversible and is also the main reason why people like
the idea behind the bitcoin. Sometimes, two blocks may
be created at almost the same time with very
little time difference. This leads to a one-block fork. In situations like
these, the next block is built upon whichever block
was received first. So the hash used for the
next block decides which block is included and is
part of the original chain. The other block which forms a shorter chain
is not used for anything in the future. All valid transactions which were included
in the block in the shorter chain will be queued once again and added
to a new block in the main chain. These blocks on the shorter chain are
known as orphan blocks because they are not used any longer and they
have no parent in the longest chain. The blockchain technology uses
hard fork as a method of bringing a major change to the protocol
which makes it necessary for all nodes and users to upgrade to the
latest version of the protocol software. This ensues as permanent
divergence from the block chain that was previously
used which renders nodes running on the old
version incapable of working till they are updated
to the newest version. The fork has two paths where
one carries forward the new version while the other
continues the older version. Users who are on the older version end up
realizing that they are using a version of blockchain that is no
longer relevant and they automatically upgrade
to the latest version. Hard forks may be used for
a variety of reasons. Ethereum used hard fork to aptly
handle the security breach they faced on the DAO (Decentralized
Autonomous Organization). By creating a hard fork it was able to
invalidate the transactions confirmed by the nodes which were not using the
upgraded version of the software. It helped in ending the breach
and also ensured that DAO token holders were able to
get back their ether funds. When a blockchain is required to add
new features and functionalities that can be backwards compatible,
then a soft fork is used. It is known as a soft fork because users
can choose to go back to the old rules. Nodes following the new rules would
ignore blocks created on old rules if the majority of the blocks being
created are using the new rules. The five main principles underlying
Blockchain technology are 1. Distributed Database The data held by a blockchain is accessible
by every party on the blockchain. This includes the entire
data including the history. The blockchain does not hold the data
back for a single person or a group. This means that every party can
verify the transactions of its transaction partners without
the help of any intermediary. 2. Peer to Peer Transmissions Blockchain technology allows
communication directly between the peers taking away the need for a
central node for communication. This means that every
node stores and forwards the information
to all other nodes. So unlike the traditional methods of
record keeping where transactions are stored by a central authority
like the government or the bank, blockchain technology makes
information easily available and accessible to users
who are on the network. 3. Transparency with Anonymity The transactions stored on the block chain
can be viewed by everyone on the network. Every user or node on the
blockchain is assigned a unique alphanumeric address
of 30 characters or more. This alphanumeric address identifies
the user from the rest in the network. A user has the option of sharing their
identity or keeping it anonymous. Anonymity does not hinder the experience
or the quality of transactions conducted on the network because transactions use
addresses and not personal identities. This makes the system
secure and allows users to avoid the breach of
confidentiality of records especially when it comes to personally
identifiable data and other confidential records which can be used to harm or
damage a person and their reputation. 4. Permanency of Records Transactions recorded on the blockchain
are permanent in nature because deleting one record automatically affects
everything else on the blockchain. For a person to hack into a
specific block on the chain, he will have to hack all the
blocks that were created before that block in the
chain and ensure that it is done on all the ledgers
distributed around the network. To accomplish a task of
such magnitude is close to impossible since it requires
a huge amount of resources. This means that the records are very
secure and they cannot be tampered with. This is the reason why it is
known as a chain since the blocks are tied to each other
in chronological order. 5. Computational Logic Keeping in mind that blockchain
is digital in nature makes it possible for the ledger
to use computational logic where different sets of programs and
algorithms can be used to trigger transactions between the nodes and to
uphold the security of the blockchain. Understanding the five main principles
of blockchain technology helps in comprehending how the technology
works and how effective it could be. When a digital transaction
is performed, it is put together with other
transactions that may have occurred during the
same period of time in a block that is
cryptographically secured. The bitcoin blockchain
puts together transactions that may have occurred
in approximately 10 minutes from the creation
of the last block and then this information is
sent out on the network. Miners who are members
in the network with very high computing power
compete with each other to be the first to validate
the transactions in the block by solving
complex coded problems. The first person to be able to solve
the problem is able to claim a reward. For bitcoin miners, the current
reward is $12.5 bitcoins and the transaction fees for
transactions stored in the block. The miner who claims the reward gets
to place the block in the chain. The block is timestamped and it is added to
the chain in linear, chronological order. This chain of blocks has a
record of every transaction that would have been
conducted within the network and all members in the network
will have access to all these transactions knowing
fully well who owns what. Being decentralized in
nature, the Blockchain makes intermediaries
seem obsolete. While financial institutions
around the world are beginning to recognize the power of blockchains
and use it to their benefit, proponents of digital
currencies support the idea of decentralization
which takes away power from banks and governments and supports the
availability of information for everyone. The conceptual framework of blockchain
makes it ideal for financial processes because it eliminates
the need for intermediaries like banks which tend to be bureaucratic,
time-consuming and expensive. It is being considered as a
digital alternative to banks and while it is still in the
early stages of growth, recent developments prove that
more companies are beginning to explore the benefits
of blockchain technology. Blockchain is also a promising tool for
applications other than cryptocurrencies. It has the ability to greatly transform our
current perspective of the Internet of Things (IoT) and it can also bring a radical
change in banking and banking processes. It is very similar to a shared spreadsheet. In this case, the data on a
blockchain is shared globally and is accessible to anyone who
is a member on the network. Only verified transactions
can make it to the blockchain and once
recorded, this data becomes irreversible making it
difficult for people to use the same currency
for two transactions. How can Blockchain transform
the global economy? Blockchain technology is powerful
the idea behind it is unique. It combines three different
ideologies which have existed separately for a
considerable period of time and have now been
brought together in the blockchain which was introduced
by Satoshi Nakamoto. These three technologies are
the internet, private key cryptography and a protocol
which targets incentivizing. Having been used by bitcoin for a
long time, Blockchain has gained the attention of people around the world
because of its powerful concept. It aims at reducing costs
tremendously and changing the manner in which transactions are
conducted in today’s world. We are looking at a huge reduction of
intermediaries with the job of lawyers, bankers and government officials being
handled very effectively by the blockchain. With a distributed ledger available for
everyone to access and check data for others on the network, transparency
will be high and ease of access very
gratifying for the users. The technology attacks directly at the
weaknesses of the current system of business and governance and turns the tables to create
new foundations for the global economy. Here’s how economies
around the world can leverage the unique
ideologies of blockchain: Blockchain technology holds a lot of power
in it, but the use of the technology aims at decentralizing power and helping
everyone have easy access to information. Here are some of the
ways in which Blockchain technology can be
used by the world: 1. Blockchain Finance While bitcoin is the first and most
popular user of the technology, many other cryptocurrencies are
based on the same ideology. We aim at ensuring that all
financial transactions are conducted with
high security in mind. Exchange of money at this time mainly
requires mediators like banks. However blockchain technology puts transactions
on a digital record and copies of this record is shared and continually updated
with everyone who is a part of the network. This is the most prominent use
of blockchain technology. The system of using miners
to validate the transactions and build blocks on a chain
recording all transactions right from the beginning makes
the entire system free of risks like hacking or trying to spend
the same currency more than once. 2. Asset Management Traditional trading systems
can be very tedious. The process of managing assets is
considered risky and expensive. It entails transaction fees which
are paid to intermediaries who can help in the effective
management of assets. All parties maintain their own records
of the assets and a lot of this involves the chances of error with multiple
records being held by different people. Blockchain ledgers
simplify things where the same record is available
for one and all. The records are encrypted which means that
once validated, they cannot be modified. They are easier to access if you are on the
network and readily available as well. With fewer intermediaries
profits realized through an asset can be
considerably higher too. 3. Insurance Claims Processing Processing insurance claims
involves a lot of room for error. There is the possibility of
processing fraudulent claims, the need to go through every
claim filed carefully so that details can be
extracted and ensured that the insurance claim being processed
is for an honest claim. It becomes a hassle for insurance
companies as well as honest claimers since every claim filed
has to be thoroughly checked. With the advent of technology that
removes the chances of fraudulence by providing risk-free management of the
claims with complete transparency, there is a higher chance of
insurance claims becoming more simplified than
what they currently are. The assets owned by a person can be
captured by the insurers and encrypted on the blockchain providing correct information
for anyone accessing the files. 4. International Payments Global payments continue to be a problem
even in this technologically advanced era. Financial institutions throughout
the world are trying to look for solutions in the blockchain when
it comes to payment remittance. Santander is one of the banks
that merged blockchain to its payments app
in 2004 and it allows its customers to make
international payments 24 hours a day clearing the
payments the next day. There are other companies that
are exploring possibilities of benefitting from the
blockchain technology. 5. Money Lending It may seem implausible but money lending
is totally possible through the blockchain. The system can make it possible for people
with low or poor credit scores to get a loan from lenders on the blockchain network who
can take your property as a collateral. The entire transaction is conducted
on the blockchain for transparency. You can use smart technology in
your property and registrations of tangible and intangible
properties like your home, car, company shares and property titles
can be added to the blockchain where it can established who has the right
to own the property and who does not. This can be kept as a collateral
with a lender who can lend the money and everyone on the blockchain
will have this information. Where banks may have charged
higher interest rates, a lender on the blockchain may be able to
do it at a lower interest rate. 6. Smart Property Made Better We are already using smart keys in
the form of car keys and phone PINs. Tapping the car key helps you open the car
without inserting the key in the lock. At the same time, phones are unlocked by
entering a PIN or a pattern on the device. But these can be less
secure keeping in mind that they are stored
physically and locally. The information stored on your phone’s
SIM can be lost and not redeemed but information stored on the
blockchain is not locally stored. And miners are able to
replicate lost protocols. 7. Internet of Things Made More Secure When any device is able to connect
to the internet and talk to other devices, it is known as
the Internet of Things (IoT). This is another fast growing technology
which has a lot of applications and uses. Governments and companies will
be able to improve the quality of living and services by many
times through the use of IoT. If you forge to close the garage
door, a smart sensor will automatically identify this
and close the door for you. If your house door
is open and the air conditioning is on then
the air conditioning will automatically adjust to the
change in the temperature through sensors that
sense the open door. You will also be informed about the open
door and you can choose to close it. You phone alarm can talk to the
smart coffee machine and update the brewing time according to
the alarm set on the phone. Interesting as it sounds, knowing that so
many devices can talk to each other involves the problem of sharing too much information
which can be exploited if not protected. This is where blockchain
technology can be used to protect the information being shared by
devices through encryptions. This ensures ownership of the
devices is protected and everyone on the network is
aware of who owns what. 8. Smart Contracts Smart contracts have the ability
of executing automatically based on the If This
Then That (IFTTT) code. It can be extremely useful
in a number of ways. For example, the music company right now
faces a lot of problems related to piracy. Many artists are unable
to stop the transfer of music from one
device to another. This means that many people
take advantage of listening to these artists without paying
for the music they created. An artist can use smart contracts
using the blockchain technology to ensure that the people who
access their music pay for it. They can set different charges depending
on the purpose that it is being used for. If the music is used in
a movie then it entails the payment of a certain
amount, and if it will be used as a ringtone
then the user may pay a specific amount for
using it as a ringtone. In the same way smart contracts can be
created for marriages, divorce, house sales and anything that involves a
transaction between two people or groups. 9. Healthcare Personal health records are considered
confidential and is sensitive data which should be available only to specific people who
are authorized to access such information. Healthcare companies are beginning
to explore the scope of blockchain technology with regards to storing
medical information securely. The records can be encrypted
and stored with a private key that allows access only
to those who hold the key. Medical companies can use
this ledger for research, supervision of drugs and to
manage healthcare supplies. Even information related
to surgeries or medical procedures can be
shared with insurance companies using the
blockchain so that insurance claims can be processed
quickly and easily. 10. Governments Governments can change the way
they operate and bring in a large amount of transparency by using
the blockchain technology. The 2016 elections in the USA
brought a lot of criticism and many people considered the need
for a recount in certain states. Votes can be manipulated if hackers
enter the voting system and rig it. When a government makes
use of blockchain technology for voting,
this can be prevented. Every vote will be encrypted and added
to the chain making it difficult for a hacker to hack into any
one block and change the votes. It can also allow individuals to
view and confirm their votes. This is one of the ways in which
governments can use blockchain technology. Dubai is already set to become the
first blockchain government where it can provide access to government-sourced
data like to the public. Companies can use this
information for improving the quality of
services they provide, families can look into
data regarding medical research being conducted
or overseen by governments and farmers will be able
to utilize information available to improve the
quality of farming. While data is released by governments at
this time as well, a lot of it is very less effective and is unable to reach
the audience from whom it is targeted. Taxes are another government aspect
which is heavily criticized. The blockchain can help
in reducing the process of filing for returns
or for paying taxes making it easier for
the public to access information regarding their
payments and returns. It also offers higher security
than the average method of tax filing used at this time
which is prone to hacking. 11. Personal Identity Everyone around the world today worries
about securing their identity. Identity theft can be
extremely dangerous and it can cause a lot of
harm to the victim. Blockchain technology
helps in the encryption of personal data and
creation of a protected data point that allows a person to share
data only with those who they want to. With the highly secure technology
used in a blockchain, no one will be able to hack into the data and access
information without authorization. An example of blockchain being
used for personal identity was the introduction of a digital passport
which was launched on Github in 2014. The passport was stored on
the ledger and it is stored on the ledger with a bitcoin
address and a public IP. This means that it has been
validated by the blockchain users. 12. Inter-organizational data management The increased use of internet has led to
the creation of huge amounts of data. While data is good and can be used in
many ways, the problem that arises among organizations is how to ensure that
this data is managed effectively too. The problem no longer lies in the
collection of data, but in the secured storage of such data that
is gathered over the internet. A lot of this data involves
personally identifiable information which is very
sensitive and can lead to damage. Blockchain helps in
encrypting such data and allowing access to
only specific persons. When data like this is shared
between organizations, knowing that it is secure makes it easier for
people to trust the companies. 13. Distributed Cloud Storage At this time, cloud storage
makes things extremely easy and allows us to
access the same data from multiple devices, but it
requires a person to place trust on the company
providing such services. Instances of cloud storage companies
being hacked has also been in the news. The companies have complete
control over your assets and they can easily access the data you
have stored on their servers. Blockchain decentralizes this and puts
the people in control of their data. Not only does it increase the level of security
it provides to people with the freedom of storing their files without having to
depend on a cloud storage service provider. There are start up companies which
are already exploring this idea. By hashing your data and having
it stored in a location secure enough like the blockchain is
the key in ensuring security. These are the many ways in which
blockchain promises more security and smoothens the current processes
related to transactions. By applying this technology
companies and industries will be able to connect and transact
with customers at a new level. This can help the economies of the
world become more transparent and also encourage better
communications between countries. Limitations of Blockchain Adopting new technology doesn’t
always happen very smoothly. The TCP/IP protocol for example,
was introduced in 1972. It formed the foundations for
developing the internet. In its early stages, TCP/IP
wasn’t easily understood. It was considered complex and was
limited to the knowledge of few people. It was criticized by a few and some
felt that it may take away privacy. Over time, the proponents of the
technology were able to prove its abilities and today it has
altered the global economy with the biggest companies
in the world using the internet for
numerous transactions. A lot of transactions, communication
and interaction takes place on the internet with the
economy having been reshaped. The same way, blockchain technology
is in its nascent stages. Early adopters believe in the
power of the technology, yet it has not matured enough for the
world to make it mainstream. Blockchain technology is
still being understood and its applications being
explored by most industries. While some governments like
the government of Dubai is beginning to aim towards using
blockchain in the near future, many countries want to avoid it
because of its complexity and for the fear of using a technology that is
somewhat unknown to most people. Here are a few ways in which
blockchain is still limited: 1. It is Complex The complexity of blockchain
technology makes it difficult for people to adopt
it quickly and easily. The idea behind it is simple but the
application of blockchain in a business requires a number of changes to the manner
in which the business is conducted. Cryptography is not simple. This is why the use of the
blockchain may find some hindrances. 2. It is in its Infancy It is still too early for
businesses and governments to recognize the potential
of this technology. Blockchain was earlier closely
linked to the dark net and use of the bitcoin which uses blockchain
in the infamous Silk Road. This gave the blockchain
a bad name right when it the technology was
in its early years. Even right now, blockchain has not matured
completely for companies to adopt it. Start ups and creative entrepreneurs
are beginning to explore its potential but it is still a long
way from becoming mainstream. 3. It Requires New Expertise The need for expertise
regarding the blockchain is very important for
businesses to adopt it. If lawyers had to begin
using it, they would first have to acquire knowledge
about how it is used. They will also be required to understand
the process of creating smart contracts and working on the blockchain before
it can actually be used by them. The technology is not simple. And the fact that added
expertise is required may also limit the use of
blockchain at this time. 4. The 51% Attack A notable flaw in the blockchain which
can register errors or create a problem in the future is when more than half of
the computers on the network tell a lie. Then the lie will be accepted as the truth
and everyone will deem it to be right. Satoshi Nakamoto talks about
this as the 51% attack in the white paper which he released
in 2008 launching bitcoin. This has not happened yet and bitcoin
mining pools are closely monitored so that no one gains that amount of
power or influence on the network. It also means that if something
illegal is uploaded on to the blockchain then the entire chain
will be considered to be illegal because the blocks are interconnected
and a single block cannot be modified. James Smith who is the
head of labs program at the Open Data Institute
(ODI) tested this by adding an illegal encryption key for HD
DVD on the PlayStation to the blockchain. Through the blockchain, it is
now on machines on the network proving that illegal data can
make the entire chain illegal. 5. Blockchain Politics The blockchain has seen a fair
amount of politics as well. Since everyone does not hold to the same
viewpoint, sometimes, miners who are currently incentivized to do their work,
end up disagreeing with each other. These disagreements may
not be as impactful today with lesser people
using the blockchain, but it can create big problems if the
number of people on the network goes up. Usually, disagreements
at this time happen around the question of
forking a blockchain. While some want to update
the chain others may want to continue using
the old blockchain. 6. High Energy Use Early adopters of the blockchain
technology often talk about the manner in which blockchain can help save resources
and reduce energy consumption. While their perspective is right
and it is true that blockchain can help in saving many resources
currently used on creating records, completing transactions and storing
such data, the truth is that blockchain technology does not work
towards a green environment either. It leaves a big carbon footprint
since it requires a lot of computing power which is even more than the
world’s fastest 500 computers. Understanding the impact of this
technology on the environment may also help us realize if it is
suitable for the economy or not. 7. Finding Information Blockchain technology isn’t just about
storing information in a secure way. It also involves the
process of finding information correctly
and in a timely manner. To make sure that users can leverage
this technology reliably, the records stored on the blockchain will have
to be quickly and easily accessible to the users and it should
be indexed accurately so that users can find
information quickly. These are some of the ways in which
the blockchain limits users. While there is a lot of potential
behind the technology, users have to understand that blockchain is
still in its early stage of adoption and the ease of using it will
increase eventually with more companies finding solutions
to the limitations above. The Blockchain technology was the
brainchild of Satoshi Nakamoto. It was introduced in 2008 and
since has grown considerably. People have become more
aware of the uses of the blockchain and more people
have started using it too. When bitcoin first came into
use, its acceptance was high in the dark net and low
among the common people. Even till this day, there aren’t
enough companies around the world that support bitcoin which makes the
technology behind it less popular. Since it was earlier
related with the dark net, blockchain technology,
started off with a bad name. Fewer people wanted to dabble in it and
even fewer realized its actual potential. Eventually, bitcoin
gained more relevance and more cryptocurrencies saw
the light of the day. Companies are now beginning to realize
how disruptive this technology can be and how important it is for them to
utilize this technology effectively. Blockchain is starting
to see more uses and its advantages are being
realized by governments too. Investing in cryptocurrencies is
becoming more common than before and many countries are gauging
their response to such changes. The blockchain has its advantages
and its limitations too. Likely most technology, it can
be used for good and for bad. Finding the best way to
put this technology to use, and ensuring that it
can help companies earn better profits and conduct
businesses more effectively is currently being
explored by governments. Blockchain technology will soon be
transforming the economy and encouraging the creation of new business models
which leverage this technology. This is already in action
with companies exploring ways in which the
technology can be used. Startups are also looking for ways in
which blockchain technology can be used. With higher security and
lower transaction costs, blockchain technology can be
the future of businesses.

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