BLOCKCHAIN
As
blockchain technology seeps further into almost every industry in the world —
from government to supply chain to energy and entertainment — there’s more to
the decentralization phenomenon than algorithms, regulation, and code.
Concurrent to all of that is the emergence of blockchain culture, the
communities that create it, and a number of remarkable blogs and media outlets
keeping up on all the happenings around the world.
Back in the
days of Satoshi Nakamoto, blockchain was imbued with the culture of
techno-libertarianism, a community of people who wanted to live their lives
outside of the control of governments and institutions, and looked towards
technology to do so. As blockchain and digital currencies have become household
names, the culture of blockchain has diffused into as many subcultures as their
are cryptocurrencies!
So if you’re
tired of the constant price speculation in sources like Reddit and the more
mainstream crypto blogs, here are some of our favorite sources for coverage of
blockchain culture, written by those with their fingers on the pulse of the
decentralization movement….
·
KEY TAKEAWAYS
Blockchain
is a specific type of database.
It differs
from a typical database in the way it stores information; blockchains store
data in blocks that are then chained together.
As new data
comes in it is entered into a fresh block. Once the block is filled with data
it is chained onto the previous block, which makes the data chained together in
chronological order.
Different
types of information can be stored on a blockchain but the most common use so
far has been as a ledger for transactions.
In Bitcoin’s
case, blockchain is used in a decentralized way so that no single person or
group has control—rather, all users collectively retain control.
Decentralized
blockchains are immutable, which means that the data entered is irreversible.
For Bitcoin, this means that transactions are permanently recorded and viewable
to anyone.
What is Blockchain?
Blockchain seems
complicated, and it definitely can be, but its core concept is really quite
simple. A blockchain is a type of database. To be able to understand
blockchain, it helps to first understand what a database actually is.
A database is a
collection of information that is stored electronically on a computer system.
Information, or data, in databases is typically structured in table format to
allow for easier searching and filtering for specific information. What is the
difference between someone using a spreadsheet to store information rather than
a database?
Spreadsheets are
designed for one person, or a small group of people, to store and access
limited amounts of information. In contrast, a database is designed to house
significantly larger amounts of information that can be accessed, filtered, and
manipulated quickly and easily by any number of users at once.
Large databases
achieve this by housing data on servers that are made of powerful computers.
These servers can sometimes be built using hundreds or thousands of computers
in order to have the computational power and storage capacity necessary for
many users to access the database simultaneously. While a spreadsheet or
database may be accessible to any number of people, it is often owned by a
business and managed by an appointed individual that has complete control over
how it works and the data within it.
So how does a
blockchain differ from a database?
Storage
Structure
One key
difference between a typical database and a blockchain is the way the data is
structured. A blockchain collects information together in groups, also known as
blocks, that hold sets of information. Blocks have certain storage capacities
and, when filled, are chained onto the previously filled block, forming a chain
of data known as the “blockchain.” All new information that follows that freshly
added block is compiled into a newly formed block that will then also be added
to the chain once filled.
A database
structures its data into tables whereas a blockchain, like its name implies,
structures its data into chunks (blocks) that are chained together. This makes
it so that all blockchains are databases but not all databases are blockchains.
This system also inherently makes an irreversible timeline of data when implemented
in a decentralized nature. When a block is filled it is set in stone and
becomes a part of this timeline. Each block in the chain is given an exact
timestamp when it is added to the chain.
Decentralization
For the
purpose of understanding blockchain, it is instructive to view it in the
context of how it has been implemented by Bitcoin. Like a database, Bitcoin
needs a collection of computers to store its blockchain. For Bitcoin, this
blockchain is just a specific type of database that stores every Bitcoin
transaction ever made. In Bitcoin’s case, and unlike most databases, these
computers are not all under one roof, and each computer or group of computers
is operated by a unique individual or group of individuals.
Imagine that
a company owns a server comprised of 10,000 computers with a database holding
all of its client's account information. This company has a warehouse
containing all of these computers under one roof and has full control of each
of these computers and all the information contained within them. Similarly,
Bitcoin consists of thousands of computers, but each computer or group of
computers that hold its blockchain is in a different geographic location and
they are all operated by separate individuals or groups of people. These computers
that makeup Bitcoin’s network are called nodes.
In this
model, Bitcoin’s blockchain is used in a decentralized way. However, private,
centralized blockchains, where the computers that make up its network are owned
and operated by a single entity, do exist.
In a
blockchain, each node has a full record of the data that has been stored on the
blockchain since its inception. For Bitcoin, the data is the entire history of
all Bitcoin transactions. If one node has an error in its data it can use the thousands
of other nodes as a reference point to correct itself. This way, no one node
within the network can alter information held within it. Because of this, the
history of transactions in each block that make up Bitcoin’s blockchain is
irreversible.
If one user
tampers with Bitcoin’s record of transactions, all other nodes would
cross-reference each other and easily pinpoint the node with the incorrect
information. This system helps to establish an exact and transparent order of
events. For Bitcoin, this information is a list of transactions, but it also is
possible for a blockchain to hold a variety of information like legal
contracts, state identifications, or a company’s product inventory.
In order to
change how that system works, or the information stored within it, a majority
of the decentralized network’s computing power would need to agree on said
changes. This ensures that whatever changes do occur are in the best interests
of the majority.
Transparency
Because of
the decentralized nature of Bitcoin’s blockchain, all transactions can be
transparently viewed by either having a personal node or by using blockchain
explorers that allow anyone to see transactions occurring live. Each node has
its own copy of the chain that gets updated as fresh blocks are confirmed and
added. This means that if you wanted to, you could track Bitcoin wherever it
goes.
For example,
exchanges have been hacked in the past where those who held Bitcoin on the
exchange lost everything. While the hacker may be entirely anonymous, the
Bitcoins that they extracted are easily traceable. If the Bitcoins that were
stolen in some of these hacks were to be moved or spent somewhere, it would be
known.
Is
Blockchain Secure?
Blockchain
technology accounts for the issues of security and trust in several ways.
First, new blocks are always stored linearly and chronologically. That is, they
are always added to the “end” of the blockchain. If you take a look at
Bitcoin’s blockchain, you’ll see that each block has a position on the chain,
called a “height.” As of November 2020, the block’s height had reached 656,197
blocks so far.
After a
block has been added to the end of the blockchain, it is very difficult to go
back and alter the contents of the block unless the majority reached a consensus
to do so. That’s because each block contains its own hash, along with the hash
of the block before it, as well as the previously mentioned time stamp. Hash
codes are created by a math function that turns digital information into a
string of numbers and letters. If that information is edited in any way, the
hash code changes as well.
Here’s why
that’s important to security. Let’s say a hacker wants to alter the blockchain
and steal Bitcoin from everyone else. If they were to alter their own single copy,
it would no longer align with everyone else's copy. When everyone else
cross-references their copies against each other, they would see this one copy
stand out and that hacker's version of the chain would be cast away as
illegitimate.
Succeeding
with such a hack would require that the hacker simultaneously control and alter
51% of the copies of the blockchain so that their new copy becomes the majority
copy and thus, the agreed-upon chain. Such an attack would also require an
immense amount of money and resources as they would need to redo all of the
blocks because they would now have different timestamps and hash codes.
Due to the
size of Bitcoin’s network and how fast it is growing, the cost to pull off such
a feat would probably be insurmountable. Not only would this be extremely
expensive, but it would also likely be fruitless. Doing such a thing would not
go unnoticed, as network members would see such drastic alterations to the
blockchain. The network members would then fork off to a new version of the
chain that has not been affected.
This would
cause the attacked version of Bitcoin to plummet in value, making the attack
ultimately pointless as the bad actor has control of a worthless asset. The
same would occur if the bad actor were to attack the new fork of Bitcoin. It is
built this way so that taking part in the network is far more economically
incentivized than attacking it.
Bitcoin vs.
Blockchain
The goal of
blockchain is to allow digital information to be recorded and distributed, but
not edited. Blockchain technology was first outlined in 1991 by Stuart Haber
and W. Scott Stornetta, two researchers who wanted to implement a system where
document timestamps could not be tampered with. But it wasn’t until almost two
decades later, with the launch of Bitcoin in January 2009, that blockchain had
its first real-world application.
The Bitcoin
protocol is built on a blockchain. In a research paper introducing the digital
currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as
“a new electronic cash system that’s fully peer-to-peer, with no trusted third
party.”
The key
thing to understand here is that Bitcoin merely uses blockchain as a means to
transparently record a ledger of payments, but blockchain can, in theory, be
used to immutably record any number of data points. As discussed above, this
could be in the form of transactions, votes in an election, product
inventories, state identifications, deeds to homes, and much more.
Currently,
there is a vast variety of blockchain-based projects looking to implement
blockchain in ways to help society other than just recording transactions. One
good example is that of blockchain being used as a way to vote in democratic
elections. The nature of blockchain’s immutability means that fraudulent voting
would become far more difficult to occur.
For example,
a voting system could work such that each citizen of a country would be issued
a single cryptocurrency or token. Each candidate would then be given a specific
wallet address, and the voters would send their token or crypto to whichever
candidate's address they wish to vote for. The transparent and traceable nature
of blockchain would eliminate the need for human vote counting as well as the
ability of bad actors to tamper with physical ballots.
Blockchain
vs. Banks
Banks and
decentralized blockchains are vastly different. To see how a bank differs from
blockchain, let’s compare the banking system to Bitcoin’s implementation of
blockchain.
Blockchain
vs. Banks
Feature Banks Bitcoin
Hours open Typical brick-and-mortar banks are open from
9:00 am to 5:00 pm on weekdays. Some banks are open on weekends but with
limited hours. All banks are closed on banking holidays. No set hours; open 24/7, 365 days a year.
Transaction
Fees •Card payments: This fee varies
based on the card and is not paid by the user directly. Fees are paid to the
payment processors by stores and are usually charged per transaction. The
effect of this fee can sometimes make the cost of goods and services rise.
•Checks: can cost between $1 and $30 depending on your bank. •ACH: ACH
transfers can cost up to $3 when sending to external accounts. •Wire: Outgoing
domestic wire transfers can cost as much as $25. Outgoing international wire
transfers can cost as much as $45. Bitcoin
has variable transaction fees determined by miners and users. This fee can
range between $0 and $50 but users have the ability to determine how much of a
fee they are willing to pay. This creates an open marketplace where if the user
sets their fee too low their transaction may not be processed.
Transaction
Speed •Card payments: 24-48 hours •Checks:
24-72 hours to clear •ACH: 24-48 hours •Wire: Within 24 hours unless
international *Bank transfers are typically not processed on weekends or bank
holidays Bitcoin transactions can
take as little as 15 minutes and as much as over an hour depending on network
congestion.
Know Your
Customer Rules Bank accounts and
other banking products require "Know Your Customer" (KYC) procedures.
This means it is legally required for banks to record a customer's
identification prior to opening an account. Anyone
or anything can participate in Bitcoin’s network with no identification. In
theory, even an entity equipped with artificial intelligence could participate.
Ease of
Transfers Government-issued
identification, a bank account, and a mobile phone are the minimum requirements
for digital transfers. An
internet connection and a mobile phone are the minimum requirements.
Privacy Bank account information is stored on
the bank’s private servers and held by the client. Bank account privacy is
limited to how secure the bank's servers are and how well the individual user
secures their own information. If the bank’s servers were to be compromised
then the individual's account would be as well. Bitcoin
can be as private as the user wishes. All Bitcoin is traceable but it is
impossible to establish who has ownership of Bitcoin if it was purchased
anonymously. If Bitcoin is purchased on a KYC exchange then the Bitcoin is
directly tied to the holder of the KYC exchange account.
Security Assuming the client practices solid internet
security measures like using secure passwords and two-factor authentication, a
bank account's information is only as secure as the bank's server that contains
client account information. The
larger the Bitcoin network grows the more secure it gets. The level of security
a Bitcoin holder has with their own Bitcoin is entirely up to them. For this
reason it is recommended that people use cold storage for larger quantities of
Bitcoin or any amount that is intended to be held for a long period of time.
Approved
Transactions Banks reserve the right to
deny transactions for a variety of reasons. Banks also reserve the right to
freeze accounts. If your bank notices purchases in unusual locations or for
unusual items they can be denied. The
Bitcoin network itself does not dictate how Bitcoin is used in any shape or
form. Users can transact Bitcoin how they see fit but should also adhere to the
guidelines of their country or region.
Account
Seizures Due to KYC laws, governments
can easily track people's banks accounts and seize the assets within them for a
variety of reasons. If Bitcoin is used
anonymously governments would have a hard time tracking it down to seize it.
How is
Blockchain Used?
As we now
know, blocks on Bitcoin’s blockchain store data about monetary transactions.
But it turns out that blockchain is actually a reliable way of storing data
about other types of transactions, as well.
Some
companies that have already incorporated blockchain include Walmart, Pfizer,
AIG, Siemens, Unilever, and a host of others. For example, IBM has created its
Food Trust blockchain1 to trace the journey that food products take to get to
its locations.
Why do this?
The food industry has seen countless outbreaks of e Coli, salmonella, listeria,
as well as hazardous materials being accidentally introduced to foods. In the
past, it has taken weeks to find the source of these outbreaks or the cause of
sickness from what people are eating.
Using
blockchain gives brands the ability to track a food product’s route from its
origin, through each stop it makes, and finally its delivery. If a food is
found to be contaminated then it can be traced all the way back through each
stop to its origin. Not only that, but these companies can also now see
everything else it may have come in contact with, allowing the identification
of the problem to occur far sooner, potentially saving lives. This is one
example of blockchains in practice, but there are many other forms of blockchain
implementation.
Banking and
Finance
Perhaps no
industry stands to benefit from integrating blockchain into its business
operations more than banking. Financial institutions only operate during
business hours, five days a week. That means if you try to deposit a check on
Friday at 6 p.m., you will likely have to wait until Monday morning to see that
money hit your account. Even if you do make your deposit during business hours,
the transaction can still take one to three days to verify due to the sheer
volume of transactions that banks need to settle. Blockchain, on the other
hand, never sleeps.
By
integrating blockchain into banks, consumers can see their transactions
processed in as little as 10 minutes,2
basically
the time it takes to add a block to the blockchain, regardless of holidays or
the time of day or week. With blockchain, banks also have the opportunity to
exchange funds between institutions more quickly and securely. In the stock
trading business, for example, the settlement and clearing process can take up
to three days (or longer, if trading internationally), meaning that the money
and shares are frozen for that period of time.
Given the
size of the sums involved, even the few days that the money is in transit can
carry significant costs and risks for banks. European bank Santander and its
research partners put the potential savings at $15 billion to $20 billion a
year.3 Capgemini, a French consultancy, estimates that consumers could save up
to $16 billion in banking and insurance fees each year4 through
blockchain-based applications.
Currency
Blockchain
forms the bedrock for cryptocurrencies like Bitcoin. The U.S. dollar is
controlled by the Federal Reserve. Under this central authority system, a
user’s data and currency are technically at the whim of their bank or
government. If a user’s bank is hacked, the client’s private information is at
risk. If the client’s bank collapses or they live in a country with an unstable
government, the value of their currency may be at risk. In 2008, some of the
banks that ran out of money were bailed out partially using taxpayer money.
These are the worries out of which Bitcoin was first conceived and developed.
By spreading
its operations across a network of computers, blockchain allows Bitcoin and
other cryptocurrencies to operate without the need for a central authority.
This not only reduces risk but also eliminates many of the processing and
transaction fees. It can also give those in countries with unstable currencies
or financial infrastructures a more stable currency with more applications and
a wider network of individuals and institutions they can do business with, both
domestically and internationally.
Using
cryptocurrency wallets for savings accounts or as a means of payment is
especially profound for those who have no state identification. Some countries
may be war-torn or have governments that lack any real infrastructure to
provide identification. Citizens of such countries may not have access to
savings or brokerage accounts and therefore, no way to safely store wealth.
Healthcare
Health care
providers can leverage blockchain to securely store their patients’ medical
records. When a medical record is generated and signed, it can be written into
the blockchain, which provides patients with the proof and confidence that the
record cannot be changed. These personal health records could be encoded and
stored on the blockchain with a private key, so that they are only accessible
by certain individuals, thereby ensuring privacy.
Records of Property
If you have
ever spent time in your local Recorder’s Office, you will know that the process
of recording property rights is both burdensome and inefficient. Today, a
physical deed must be delivered to a government employee at the local recording
office, where it is manually entered into the county’s central database and
public index. In the case of a property dispute, claims to the property must be
reconciled with the public index.
This process
is not just costly and time-consuming—it is also riddled with human error,
where each inaccuracy makes tracking property ownership less efficient.
Blockchain has the potential to eliminate the need for scanning documents and
tracking down physical files in a local recording office. If property ownership
is stored and verified on the blockchain, owners can trust that their deed is
accurate and permanently recorded.
In war-torn
countries or areas that have little to no government or financial
infrastructure, and certainly no “Recorder’s Office,” it can be nearly
impossible to prove ownership of a property. If a group of people living in
such an area is able to leverage blockchain, transparent and clear timelines of
property ownership could be established.
Smart
Contracts
A smart
contract is a computer code that can be built into the blockchain to
facilitate, verify, or negotiate a contract agreement. Smart contracts operate
under a set of conditions that users agree to. When those conditions are met,
the terms of the agreement are automatically carried out.
Say, for
example, a potential tenant would like to lease an apartment using a smart
contract. The landlord agrees to give the tenant the door code to the apartment
as soon as the tenant pays the security deposit. Both the tenant and the
landlord would send their respective portions of the deal to the smart
contract, which would hold onto and automatically exchange the door code for
the security deposit on the date the lease begins. If the landlord doesn’t
supply the door code by the lease date, the smart contract refunds the security
deposit. This would eliminate the fees and processes typically associated with
the use of a notary, third-party mediator, or attornies.
Supply
Chains
As in the
IBM Food Trust example, suppliers can use blockchain to record the origins of
materials that they have purchased. This would allow companies to verify the
authenticity of their products, along with such common labels as “Organic,”
“Local,” and “Fair Trade.”
As reported
by Forbes, the food industry is increasingly adopting the use of blockchain to
track the path and safety of food throughout the farm-to-user journey.
Voting
As mentioned,
blockchain could be used to facilitate a modern voting system. Voting with
blockchain carries the potential to eliminate election fraud and boost voter
turnout, as was tested in the November 2018 midterm elections in West
Virginia.Using blockchain in this way would make votes nearly impossible to
tamper with. The blockchain protocol would also maintain transparency in the
electoral process, reducing the personnel needed to conduct an election and
providing officials with nearly instant results. This would eliminate the need
for recounts or any real concern that fraud might threaten the election.
Advantages
and Disadvantages of Blockchain
For all of
its complexity, blockchain’s potential as a decentralized form of
record-keeping is almost without limit. From greater user privacy and
heightened security to lower processing fees and fewer errors, blockchain
technology may very well see applications beyond those outlined above. But
there are also some disadvantages.
Pros
Improved
accuracy by removing human involvement in verification
Cost
reductions by eliminating third-party verification
Decentralization
makes it harder to tamper with
Transactions
are secure, private, and efficient
Transparent
technology
Provides a
banking alternative and way to secure personal information for citizens of
countries with unstable or underdeveloped governments
Cons
Significant
technology cost associated with mining bitcoin
Low
transactions per second
History of
use in illicit activities
Regulation
Here are the
selling points of blockchain for businesses on the market today in more detail.
Advantages
of Blockchain
Accuracy of
the Chain
Transactions
on the blockchain network are approved by a network of thousands of computers.
This removes almost all human involvement in the verification process,
resulting in less human error and an accurate record of information. Even if a
computer on the network were to make a computational mistake, the error would
only be made to one copy of the blockchain. In order for that error to spread
to the rest of the blockchain, it would need to be made by at least 51% of the
network’s computers—a near impossibility for a large and growing network the
size of Bitcoin’s.
Cost
Reductions
Typically,
consumers pay a bank to verify a transaction, a notary to sign a document, or a
minister to perform a marriage. Blockchain eliminates the need for third-party
verification and, with it, their associated costs. Business owners incur a
small fee whenever they accept payments using credit cards, for example,
because banks and payment processing companies have to process those
transactions. Bitcoin, on the other hand, does not have a central authority and
has limited transaction fees.
Decentralization
Blockchain
does not store any of its information in a central location. Instead, the
blockchain is copied and spread across a network of computers. Whenever a new
block is added to the blockchain, every computer on the network updates its
blockchain to reflect the change. By spreading that information across a
network, rather than storing it in one central database, blockchain becomes
more difficult to tamper with. If a copy of the blockchain fell into the hands
of a hacker, only a single copy of the information, rather than the entire
network, would be compromised.
Efficient
Transactions
Transactions
placed through a central authority can take up to a few days to settle. If you
attempt to deposit a check on Friday evening, for example, you may not actually
see funds in your account until Monday morning. Whereas financial institutions
operate during business hours, five days a week, blockchain is working 24 hours
a day, seven days a week, and 365 days a year. Transactions can be completed in
as little as ten minutes and can be considered secure after just a few hours.
This is particularly useful for cross-border trades, which usually take much
longer because of time-zone issues and the fact that all parties must confirm
payment processing.
Private
Transactions
Many
blockchain networks operate as public databases, meaning that anyone with an
internet connection can view a list of the network’s transaction history.
Although users can access details about transactions, they cannot access
identifying information about the users making those transactions. It is a
common misperception that blockchain networks like bitcoin are anonymous, when
in fact they are only confidential.
That is,
when a user makes public transactions, their unique code called a public key,
is recorded on the blockchain, rather than their personal information. If a
person has made a Bitcoin purchase on an exchange that requires identification
then the person’s identity is still linked to their blockchain address, but a
transaction, even when tied to a person’s name, does not reveal any personal
information.
Secure
Transactions
Once a
transaction is recorded, its authenticity must be verified by the blockchain
network. Thousands of computers on the blockchain rush to confirm that the
details of the purchase are correct. After a computer has validated the
transaction, it is added to the blockchain block. Each block on the blockchain
contains its own unique hash, along with the unique hash of the block before
it. When the information on a block is edited in any way, that block’s hashcode
changes—however, the hash code on the block after it would not. This
discrepancy makes it extremely difficult for information on the blockchain to
be changed without notice.
Transparency
Most
blockchains are entirely open-source software. This means that anyone and
everyone can view its code. This gives auditors the ability to review
cryptocurrencies like Bitcoin for security. This also means that there is no
real authority on who controls Bitcoin’s code or how it is edited. Because of
this, anyone can suggest changes or upgrades to the system. If a majority of
the network users agree that the new version of the code with the upgrade is
sound and worthwhile then Bitcoin can be updated.
Banking the
Unbanked
Perhaps the
most profound facet of blockchain and Bitcoin is the ability for anyone,
regardless of ethnicity, gender, or cultural background, to use it. According
to the world bank there are nearly 2 billion adults that do not have bank
accounts or any means of storing their money or wealth.5 Nearly all of these
individuals live in developing countries where the economy is in its infancy
and entirely dependent on cash.
These people
often earn little money that is paid in physical cash. They then need to store
this physical cash in hidden locations in their homes or places of living
leaving them subject to robbery or unnecessary violence. Keys to a bitcoin
wallet can be stored on a piece of paper, a cheap cell phone, or even memorized
if necessary. For most people, it is likely that these options are more easily
hidden than a small pile of cash under a mattress.
Blockchains
of the future are also looking for solutions to not only be a unit of account
for wealth storage, but also to store medical records, property rights, and a
variety of other legal contracts.
Disadvantages
of Blockchain
While there
are significant upsides to the blockchain, there are also significant
challenges to its adoption. The roadblocks to the application of blockchain
technology today are not just technical. The real challenges are political and
regulatory, for the most part, to say nothing of the thousands of hours (read:
money) of custom software design and back-end programming required to integrate
blockchain to current business networks. Here are some of the challenges
standing in the way of widespread blockchain adoption.
Technology
Cost
Although
blockchain can save users money on transaction fees, the technology is far from
free. The “proof of work” system that bitcoin uses to validate transactions,
for example, consumes vast amounts of computational power. In the real world,
the power from the millions of computers on the bitcoin network is close to
what Denmark consumes annually. Assuming electricity costs of $0.03~$0.05 per
kilowatt-hour, mining costs exclusive of hardware expenses are about
$5,000~$7,000 per coin.10
Despite the
costs of mining bitcoin, users continue to drive up their electricity bills in
order to validate transactions on the blockchain. That’s because when miners
add a block to the bitcoin blockchain, they are rewarded with enough bitcoin to
make their time and energy worthwhile. When it comes to blockchains that do not
use cryptocurrency, however, miners will need to be paid or otherwise
incentivized to validate transactions.
Some
solutions to these issues are beginning to arise. For example, bitcoin mining
farms have been set up to use solar power, excess natural gas from fracking
sites, or power from wind farms.
Speed
Inefficiency
Bitcoin is a
perfect case study for the possible inefficiencies of blockchain. Bitcoin’s
“proof of work” system takes about ten minutes to add a new block to the
blockchain. At that rate, it’s estimated that the blockchain network can only
manage about seven transactions per second (TPS). Although other cryptocurrencies
such as Ethereum perform better than bitcoin, they are still limited by
blockchain. Legacy brand Visa, for context, can process 24,000 TPS.
Solutions to
this issue have been in development for years. There are currently blockchains
that are boasting over 30,000 transactions per second.
Illegal
Activity
While
confidentiality on the blockchain network protects users from hacks and
preserves privacy, it also allows for illegal trading and activity on the
blockchain network. The most cited example of blockchain being used for illicit
transactions is probably the Silk Road, an online “dark web” drug marketplace
operating from February 2011 until October 2013 when it was shut down by the
FBI.6
The website
allowed users to browse the website without being tracked using the Tor browser
and make illegal purchases in Bitcoin or other cryptocurrencies. Current U.S.
regulations require financial service providers to obtain information about
their customers when they open an account, verify the identity of each
customer, and confirm that customers do not appear on any list of known or
suspected terrorist organizations. This system can be seen as both a pro and a
con. It gives anyone access to financial accounts but also allows criminals to
more easily transact. Many have argued that the good uses of crypto, like
banking the unbanked world, outweigh the bad uses of cryptocurrency, especially
when most illegal activity is still accomplished through untraceable cash.
Regulation
Many in the
crypto space have expressed concerns about government regulation over
cryptocurrencies. While it is getting increasingly difficult and near
impossible to end something like Bitcoin as its decentralized network grows,
governments could theoretically make it illegal to own cryptocurrencies or
participate in their networks.
Over time
this concern has grown smaller as large companies like PayPal begin to allow
the ownership and use of cryptocurrencies on its platform.
What's Next
for Blockchain?
First
proposed as a research project in 1991,7 blockchain is comfortably settling
into its late twenties. Like most millennials its age, blockchain has seen its
fair share of public scrutiny over the last two decades, with businesses around
the world speculating about what the technology is capable of and where it’s
headed in the years to come.
With many
practical applications for the technology already being implemented and
explored, blockchain is finally making a name for itself at age twenty-seven,
in no small part because of bitcoin and cryptocurrency. As a buzzword on the
tongue of every investor in the nation, blockchain stands to make business and
government operations more accurate, efficient, secure, and cheap with fewer
middlemen.
How Blockchain is Revolutionizing Content Distribution
The
revolutionary technology blockchain began with cryptocurrencies like bitcoin
but has since expanded beyond the worlds of finance and banking. With a slew of
new businesses and applications built on the technology, these industries now
represent a mass decentralization that will soon impact the whole world.
Blockchain helps distribute the cost of running a platform to its various
participants, but rewards them for it in equal measure.
This
decentralized model is already relevant for blockchain-based solutions such as
cloud storage, payment processing, and cybersecurity. Increasingly, however,
the technology also plays a key role in the content distribution arena.
To many,
this is a better deal than the old ways, which saw control and profits stay in
the hands of content hosting companies rather than the content creators
themselves. Blockchain can significantly disrupt this imbalanced status quo,
and seeks to put the power back in the hands those who create and consume
content
How Does Blockchain Work?
The
whole point of using a blockchain is to let people — in particular, people who
don't trust one another — share valuable data in a secure, tamperproof way.
— MIT Technology Review
Blockchain consists of
three important concepts: blocks, nodes and miners.
Blocks
Every chain consists
of multiple blocks and each block has three basic elements:
·
The data in
the block.
·
A 32-bit whole number
called a nonce. The nonce is randomly generated when a block
is created, which then generates a block header hash.
·
The hash is
a 256-bit number wedded to the nonce. It must start with a huge number of
zeroes (i.e., be extremely small).
When the first block
of a chain is created, a nonce generates the cryptographic hash. The data in
the block is considered signed and forever tied to the nonce and hash
unless it is mined.
Miners
Miners create new
blocks on the chain through a process called mining.
In a blockchain every
block has its own unique nonce and hash, but also references the hash of
the previous block in the chain, so mining a block isn't easy, especially on
large chains.
Miners use special
software to solve the incredibly complex math problem of finding a nonce
that generates an accepted hash. Because the nonce is only 32 bits and the hash
is 256, there are roughly four billion possible nonce-hash combinations that
must be mined before the right one is found. When that happens miners are said
to have found the "golden nonce" and their block is added to the
chain.
Making a change
to any block earlier in the chain requires re-mining not just the block with
the change, but all of the blocks that come after. This is why it's extremely
difficult to manipulate blockchain technology. Think of it is as "safety
in math" since finding golden nonces requires an enormous amount of
time and computing power.
When a block is
successfully mined, the change is accepted by all of the nodes on the network
and the miner is rewarded financially.
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