Blockchain Usage Part 1

Disclaimer — Coins discussed in this post are for educational purpose. Please don’t take them as any form of endorsements.

In our previous post we discussed one of the important tools to evaluate ICOs. In this post, we will expand our understanding of the blockchain technology. This will help us to further evaluate ICOs by understanding their underlying technology proposal.

If you have read about blockchain on the internet, you know the major advantages of blockchain being — trustless and decentralized transactions, consistency and privacy.

All these features are already provided by bitcoin. So, the question is what do ICOs or other blockchain offer at all? It all came down to usage.

Blockchain Usage

Let’s go back to our earlier blockchain example:

From this we understand that a blockchain contains:

1. Balances
2. Identity information

But what if things can go beyond this?

Blockchain as Database

The very first block of bitcoin or genesis did not contain only balances and identity information. It also contained a message -

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

If you actually want to see the actual message. Find the genesis block:

Bitcoin Block #0

Click on the text just below “Transactions”, it will take you here:

Bitcoin Transaction 4a5e1e4baab89f3a32518a88c31bc87f618f76673e2cc77ab2127b7afdeda33b

Click on “show scripts and coinbase”.

As bitcoin caught on, people started storing all sort of data on the blockchain. With enough fees and ingenuity there was no end to what could be stored. Examples include:

1. Bitcoin logo
2. Catholic Prayers — Oh yes, it is embedded in the bitcoin blockchain forever
3. Nelson Mandela complete pic
4. Bitcoin pdf paper etc.

(credit to: http://www.righto.com/2014/02/ascii-bernanke-wikileaks-photographs.html. Check the page for detailed information. )

This essentially meant blockchain could be used as a store for any information ie as a database, provided the fees and ingenuity. Combined with inherent characteristics like privacy, decentralized etc., blockchain could be used for a lot of things.

Now, armed with this information people came up with two ways to utilize it:

1. Using the blockchain underlying principle to create a new blockchain (also known as altcoins) to solve a problem.
2. Using bitcoin as a metadata store (Metadata is data about data. Check the Nelson Mandela pic example in the righto.com link above. Nelson Mandela pic is the data. While the pic name — 3Nelson-Mandela.jpg? is the metadata).

Let’s look at one example of both the ways:

New Blockchain or Altcoins

Any new coin with its own blockchain falls into this category. These tend to solve a particular problem.

Namecoin is the first example of leveraging blockchain concept for a different purpose other monetary transaction.

Namecoin

This was the first fork of bitcoin.

A fork, in layman terms, means copying a program code and then reusing it. The re-use can be:

1. Simple renaming (ex. Use bitcoin code as it is to create Mycoin)
2. Improving the code
3. Re-purposing the code

Etc.

Namecoin used the bitcoin code to create a new coin which could be used, you guessed it, to store names. It has been utilized mostly for storing domain names.

Domain Name

Think of addresses — the major component of a normal address is the House Number and Zip code. Similarly, every computer in this world has an IP address. A website which is a computer also has an IP address.

For example, www.google.com IP address is: 172.217.26.196

So, when you type www.google.com in chrome or Firefox, it checks the site address in a domain name registry which is hosted on a Domain Name Server or DNS. Once the correct IP has been found, only then your computer can open a website.

The DNS database is a centralized server. So think of a controversial website like — wikileaks.org. It can be blocked by simply deleting the actual IP address associated with wikileaks.org from the DNS database.

Namecoin and DNS

Namecoin blockchain allows people to store site name and IP address in exchange for well what else but namecoins. The extension for a namecoin site is .bit (extension examples are .com, .net, .org etc). So, WikiLeaks can create a site — wikileaks.bit and store a corresponding IP address on the namecoin blockchain after paying some coins.

As blockchains are secured and cannot be changed (immutable in tech speak), website IP information cannot be tampered. So, any website information stored on namecoin blockchain will remain forever within the blockchain.

Normal web browsers cannot find the .bit websites. It requires specialized namecoin software,chrome and firefox extension, to get the DNS information of .bit websites.

Using Blockchain as Metadata Store

Metadata is data that provides information about other data. So, using blockchain as a metadata means using it to store information about “other” data ie non-bitcoin information.

An example of these are coins which are layered on top of bitcoin. They utilize bitcoin’s blockchain to store their metadata information ie non-bitcoin information. They utilize the computing power behind bitcoin to secure their network. Examples include — Omni (earlier known as Mastercoin) and Counterparty.

Let’s look at Omni (I will be using Mastercoin and OMNI interchangeably)

Omni (MasterCoin)

OMNI architecture:

(Their paper https://github.com/OmniLayer/spec )

Mastercoin was one of the first coin sales or ICO. People were asked to send coins to an exodus address (1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P). They were rewarded Mastercoin in lieu of BTC sent. The distribution was similar to ICO nowadays. Early adopters got discounted OMNI compared to late buyers.

How does it work?

Omni uses an elaborate scheme to manage transactions. Every OMNI transaction is made of three parts:

1. The sender and receiver — These are bitcoin addresses which own OMNI coins. Yes you read it right, because of layering all OMNI coin owners are also bitcoin owners.
2. Exodus address — Each OMNI transaction pays a small fee to the Exodus address. It makes filtering OMNI transactions from the complete bitcoin blockchain very easy. So all OMNI transactions can be found on the exodus account page: https://blockchain.info/address/1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P
3. Un-spendable Address — This is the place where our OMNI information or metadata i.e. non-bitcoin information is stored. It is still a bitcoin address. So, if I send you 1 OMNI from my bitcoin address to your address, a special un-spendable address will store that transaction.

Let’s take an example:

A transfer of 0.9 OMNI between two addresses as seen and stored by OMNI:

OmniExplorer.info - Transaction Lookup

You can see the sender and receiver of the coins.

As we know OMNI uses bitcoin blockchain so the information must exist there too:

Bitcoin Transaction fa3dae8c2bcb9fbc4fabf01bb40d047b262203f3768d5980c3ca29c0464d8722

If you match both the page, the information can be broken down to:

1. Sender — 1BF6A2MU7iS5qLRe8tLTHkLZBmEUsKHV5m
2. Receiver — 1KTpA9UJfCP5L3at3QwgHYYyRCUwNnRhWY (Both are actual bitcoin address)
3. Exodus Address — 1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P (this is used by omniexplorer above to filter the transactions)
4. Data Address — 1BF6A2MU7iS5qLRe8tLTHkLZBmEUsKHV5m → This stores the transaction and ownership information of OMNI coins. In this case it will store the transfer of 0.9 OMNI coins

We will look at additional blockchain usage in the next post.

Originally published at The Blockchain Blog.