Further applications in the Bitcoin Blockchain
The bitcoin blockchain provides an infrastructure that enables many non-monetary applications. We want to familiarize the reader with core concepts that highlight the advantages of public blockchains and show how they can be used in an industry-agnostic way.
- Decentralized verification and attestation
The bitcoin blockchain can be viewed as a public pinboard that is managed in a decentralized way. It can be used to safeguard any information. In contrast to a normal pinboard, the information cannot subsequently be removed or changed. The time at which the information was added to the blockchain is recorded alongside the information and pseudonym of the author.
- Existence
A so-called proof of existence certifies that a document existed at a specific point in time. The document does not have to be disclosed. For proof of existence, it is sufficient to calculate its hash value and include it in a transaction. Eventually, the transaction gets confirmed in a block and thereby linked to a specific point in time. The document does not have to be disclosed. For proof of existence, it is sufficient to calculate its hash value and include it in a transaction. Eventually, the transaction gets confirmed in a block and thereby linked to a specific point in time.
A cryptographic hash function makes it computationally infeasible to generate a document with a specific hash value. This implies that matching hash values are sufficient proof that a document existed at the time its hash value was recorded in the blockchain. Although proof of existence does not offer legal protection analogous to a patent, it has many exciting application areas.
- Integrity
Another possible application is protecting the integrity of some data. If, for instance, someone wishes to ensure that the content of a contract will not be altered, they can embed the hash value of the contract in the blockchain. Every change to the contract will inevitably trigger a change of its hash value so that it no longer corresponds to the hash value that is recorded in the blockchain. Any manipulations would thus be immediately apparent. This method for protecting data can be integrated into business processes.
- Authenticity
If it is possible to associate a public key with a company, an organization, or a person, then it will also be possible to verify the authenticity of documents. If an organization signs the hash of a document, it can be reasonably assumed that the document was also issued or signed by this organization.
- Scripting language
The bitcoin blockchain permits only transactions in the native bitcoin unit. However, since the scripting language of the bitcoin network allows additional information to be tied to a transaction, a promise of payment can be attached to a fragment of a bitcoin unit. The bitcoin fragment serves only as a wrapper that allows the promise of payment to be traded over the bitcoin network.
The economic value of such a bitcoin fragment derives from the attached promise of payment. Such promises, of course, are subject to issuer risks. If the party who issues the promise is unable or unwilling to fulfill it, the promise has no value. The bitcoin blockchain cannot enforce such external promises; it can only keep track of who owns the bitcoin fragment.
- Colored coin
A colored coin is a denomination of a cryptocurrency, often Bitcoin, that is repurposed by marking it with metadata. Colored coins are often called meta coins. Colored coins can be created to repurpose Bitcoin or altcoins (alternatives to Bitcoin) to create digital assets that represent other things of value.
- Smart Property
Smart property is an external, nonnative promise that is attached to a bitcoin fragment or issued as a token and can be traded over a blockchain. However, the term smart property is restricted to physical objects, that is, moveable property and real estate. Smart property binds the use of the physical object to cryptographic signatures. The physical object sends a cryptographic challenge to the person who wants to use it and only grants access if the person can solve this challenge.
A typical example of such an object is a smart car. The car’s doors will open, and its engine will start for a person who can prove ownership of the private key that belongs to the address that currently has control over the specific token representing this asset.
- Collateralized loans
A cryptocurrency back loan uses digital currency as collateral, similar to a securities-based loan. The basic principle works like a mortgage loan or auto loan. You pledge your crypto assets to obtain the loan and pay it off over time.
- Oracles
Blockchains can easily handle native data. However, things get more complex if a contract includes conditions that depend on external data. Examples of external data include sports results, stock market prices, or meteorological observations. These data points obviously cannot be observed on-chain and require so-called oracles that are trusted interfaces that provide the data.
While the provision of this type of data enables many exciting applications like betting or insurance contracts, the execution depends on the oracles. It, therefore, can hardly be called decentralized.
Contracts using oracles can be implemented in different ways. For example, both contracting parties can transfer the units of value stipulated in the contract to the address of an oracle and record the precise conditions that must be met for the transactions to be released. The organizational structure of this type of oracle is de facto a centralized authority that controls the assets and contract execution. In this case, the oracle has the authority to decide the outcome of the contract unilaterally but also has control over the assets.
Conclusion
The bitcoin blockchain provides an infrastructure that enables many non-monetary applications. we familiarized the reader with core concepts that highlight the advantages of public blockchains and show how they can be used in an industry-agnostic way.
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