Blockchain & Crypto 101
If you are reading this you may have heard the hype surrounding Blockchain, Bitcoin, and Cryptocurrencies. Well, what exactly is it?
Quick History
In 1991 Stuart Haber and W. Scott Stornetta described the first work on a cryptographically secured chain of blocks . In 1992, Bayer, Haber and Stornetta incorporated Merkle trees to the design, which improved its efficiency by allowing several documents to be collected into one block. In 2002, David Mazières and Dennis Shasha proposed a network file system with decentralized trust: writers to the file system trust one another but not the network in between; they achieve file system integrity by writing signed commits to a shared, append-only signature chain that captures the root of the file system (which in turn is a Merkle Tree). This system can be viewed as a proto-blockchain in which all authorized clients can always write, whereas, in modern blockchains, a client who solves a cryptographic puzzle can write one block. In 2005, Nick Szabo proposed a blockchain-like system for decentralized property titles and his bit gold payment system that utilized chained proof-of-work and timestamping. However, Szabo’s method of double-spending protection was vulnerable to Sybil attacks.
First Cryptocurrency
The first blockchain was conceptualized by a person (or group of people) known as Satoshi Nakamoto in 2008. It was implemented the following year by Nakamoto as a core component of the cryptocurrency Bitcoin, where it serves as the public ledger for all transactions on the network. Through the use of a blockchain, Bitcoin became the first digital currency to solve the double spending problem without requiring a trusted authority and has been the inspiration for many additional applications.
Now What?
Now we’re in the age of Blockchain 2.0 with Ethereum, Blockchain 3.0 with Iota($MIOTA) & Cardano ($ADA), and started to see Blockchain 4.0. These new generations of blockchain technology are solving problems with scalability and sustainable that original blockchain was not able to foresee.
What is Blockchain
It’s a shared ledger for recording the history of transactions — that cannot be altered. This is a very simple definition.
A more wordy definition:
The blockchain is a distributed database that provides an unalterable, (semi-)public record of digital transactions. Each block aggregates a timestamped batch of transactions to be included in the ledger — or rather, in the blockchain. Each block is identified by a cryptographic signature. These blocks are all back-linked; that is, they refer to the signature of the previous block in the chain, and that chain can be traced all the way back to the very first block created. As such, the blockchain contains an un-editable record of all the transactions made.
Why Do We Need It?
Transactions take place every second — orders, payments, account tracking. Often, each participant has his own ledger and, thus, his own version of the truth.
Having multiple ledgers is a recipe for error, fraud and inefficiencies. The goal is to see a transaction end-to-end and reduce those vulnerabilities.
Distributed
It works as a system of record that is shared among participants of the business network, eliminating the need to reconcile disparate ledgers.
Permissioned
Each member of the network has access rights so that confidential information is shared on a need-to-know basis.
Secured Consensus
is required from all network members and all validated transactions are permanently recorded. No one, not even a system administrator, can delete.
Create New Value
Exploit new business models and eliminate inefficiencies.
Optimize Ecosystems
Streamline business processes and the exchange of value along with your ecosystem.
Reduce Risk
Replace uncertainty with transparency and a trusted decentralized ledger
Here is a picture that shows how almost every major industry can benefit from utilizing blockchain technology.
How Can We Use Blockchain
The easier question to answer may, how can’t it be used? Just like with any new tech disruptor, you might have to get creative to get your head around how the technology will play out in your industry. But the following are a few examples of how Blockchain could change businesses across the board.
It can eliminate the middle man.
Because it validates transactions — and the value of the property being transacted — Blockchain can reduce the middleman, be it the art dealer, real estate agent, music agent, or estimator. The same is true for creative licensing. With Blockchain, artists can go straight to the people, rather than through music labels, to protect their own music and royalties. Move over, Spotify. Artists may once again be able to make money for their music.
It can manage “smart contracts.”
You think digital signatures are the wave of the future? Think again. With Blockchain, smart contracts will not just facilitate the gathering of signatures, but the enforcement of a contract’s performance.
It provides a non-bank for the un-banked.
For those who don’t have a bank — or don’t believe in them — Blockchain can help manage and certify their own financial value without the need for working with a banking institution. It can keep track of their “money” digitally, and allow them to process payment by phone or app.
It can validate — and secure — almost anything.
From voter authentication to government processes, health information, and proof of intellectual property, Blockchain can serve as a secure process to validate almost anything of value, and to keep it safe. Indeed, because of the Blockchain structure, it’s far safer than standard cloud environments.
It will serve as a springboard for the IoT.
Many have concerns that the cloud — and even fog — will not be secure, fast, or large enough to handle the influx of information created by the Internet of Things (IoT). Blockchain picks up where cloud technology leaves off by creating highly secure venues for information sharing — far better than cloud alone.
It’s transparent.
Perhaps one of the best arguments for incorporating Blockchain into government is that it is completely public. Even better, it prevents history from being re-written by allowing information to be extended, but never appended, which ensures complete integrity of all involved.
Legalities & Government Compliance
Government entities are still unsure how to regulate crypto-assets. Organizations such as Coin Center are educating legislators to create responsible regulations without killing innovation. Government bodies recognize the significance of blockchain technology, and few are already implementing the tech into their government. In our last update report I linked out to some news outlets that explained governments current stance on crypto-assets. Check it out here.
How Does It Work?
Instead of reinventing the wheel I’ll just add two videos to better explain the back-end mechanics, but don’t get caught up in the details. There is a high probability that you do not understand the exact mechanics of your credit-card process when you make a transaction, yet you still use it every day.
It’s great to be as educated as possible on blockchain, crypto-assets, and cryptocurrencies but you don’t need to be a PhD in computer science to use it. That being said here are the two videos. The first describes Bitcoin the second describes blockchain in general.
Blockchain Term Cheat Sheet
- What is Bitcoin? It’s a decentralized digital currency
- Why Use Bitcoin? It’s fast, cheap to use, and secure
- How Can I Buy Bitcoin? From an exchange or an individual
- How to Store Your Bitcoin? Use a digital or paper wallet (“cold storage”)
- What Can You Buy with Bitcoin? PlutusX or other companies that have crypto-payment gateways.
- How to Sell Bitcoin? A guide on how to sell your Bitcoins
- How to Accept Bitcoin Payments for Your Store? Learn about Bitcoin POS systems.
- How do Bitcoin Transactions Work? Bitcoin addresses and private keys
- Is Bitcoin Legal? The current regulation around Bitcoin is still being discussed. So far accepting & adoption.
- Who is Satoshi Nakamoto? The founder of Bitcoin but still unknown.
- How Bitcoin Mining Works? Nodes confirm transactions by solving puzzles.
- How to Set Up a Bitcoin Mine? Generate Bitcoins yourself.
- What are Bitcoin Mining Pools? What are pools how and how to join them?
- How Does Cloud Mining Bitcoin Work? Alternative Bitcoin mining solutions
- How to Make a Paper Bitcoin Wallet? Write your key on paper or external drive and keep safe.
- Can Bitcoin Scale? Yes, but it needs a different consensus protocol .
- What is the Lightning Network? Off-chain transaction channels.
- What is the Difference Between Litecoin and Bitcoin? It’s the silver to Bitcoin’s gold.
- How to Buy Litecoin? Buy Litecoin.
- Understanding Bitcoin Price Charts? A primer on Bitcoin price charts.
- What is Blockchain Technology? A system of distributed data and logic
- How Does Blockchain Technology Work? Cryptographic keys, distributed networks and network servicing protocols.
- What Can a Blockchain Do? Identity, recordkeeping, smart contracts and more. Better question: what can it NOT do?!
- What is a Distributed Ledger? A dynamic, independently maintained database
- What is the Difference Between Public and Permissioned Blockchains? Can anyone read or write to the ledger?
- What is the Difference Between a Blockchain and a Database? It begins with architectural and administrative decisions
- What Are the Applications and Use Cases of Blockchains? Tokenization, auditing, governance, settlement and more
- How Could Blockchain Technology Change Finance? Cross-border payments, new asset classes, regulatory compliance and more
- What are Blockchain’s Issues and Limitations? Complexity, size, costs, speed, security, politics and more
- Why Use a Blockchain? To manage and secure digital relationships as part of a system of record
- What is Ethereum? A blockchain application platform and ‘world computer’
- What is Ether? The ‘fuel’ of the ethereum network
- Who Created Ethereum? Vitalik Buterin
- How Ethereum Mining Works? ‘Proof of Work’ and ‘Proof of Stake’ — I’ll write about this soon.
- How Ethereum Works? ‘Turing-complete’ programming, ‘state’ and the ‘EVM’. I will write in greater detail.
- What is a Decentralized Application? A distributed ‘smart contract’ system
- What is a DAO? A ‘decentralized autonomous organization’
- How Do Ethereum Smart Contracts Work? Code, transaction fees and ‘gas’
- How Will Ethereum Scale? ‘Sharding’ and ‘off-chain’ transactions
- What are ICO’s? Initial coin offering. Think IPO but for tokens/coins.
Each topic can have 5–10 articles alone. This is a very superficial explanation and high-level view. I hope you have a better understanding of blockchain, crypto: currencies and assets.
If you have questions please ask me or Patrick in our Telegram channel here.
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Writer: Angel Mondragon. Edited: Patrick Benske.
