Blockchain Technology Explained — Part 1: Basic Definitions

AI Research at Holler Technologies

Who has not heard about blockchain these days? We hear about blockchain, coins, tokens, cryptocurrencies, NFTs, etc. almost everyday. We know FinTech and VCs pour a lot of money in this technology for the past few years. But what does that mean? What is it? Where do we start to understand this technology and also what can we do with it? Should a company integrate these into their portfolio of tech solutions? Is it another buzzword or a hype or something really crucial we need to have as a tech company? Where should we even start to navigate these waters, in a technological point of view?

This document is the first of a series on Blockchain Technology to make sense of this technology as a tech business. We will define the major concepts from a business point of view, and answer questions such as does my business need blockchain? How do we implement them? Are there development environments for blockchain? Should we have our own coin, or token, or network? What is a blockchain anyway? What’s a token? Is there any machine learning or AI in blockchain technology? Should there be? There are many questions regarding this developing technology, still in its infancy.

Let’s start from the basics, what is blockchain technology. We will build from there. First we need a good understanding of what that technology is and what it can do, before we can leverage it and use it accordingly. This brief is the journey in learning that technology.

It’s always good to have an example, right? So, we will take the example of Holler Studios, one of our divisions here at Holler Technologies. Holler Studios constantly create original content, in the form of original stickers, characters, GIFs, and such, that we distribute to our partner messaging platforms. These content are suggested by our AI algorithms to relevant conversations so participants tell their stories better using these original content. For example, when you use Venmo and see all these amazing relevant stickers, that’s us. A question we have asked ourselves a while back at Holler was how to protect these content assets as they are in the public domain, even though they are own by Holler? These characters are unique, and Holler should own them. Of course, every company will have different assets to protect, such as supply chains, patents, processes, products, etc. but also lines of codes, ideas, machine learning models, and such.

What is a Blockchain Network?

A blockchain network refers to a distributed, decentralized peer-to-peer network with no central control that represents a shared append-only ledger facilitating the process of recording immutable transactions of valuable assets in a business network. It also allows to track such assets. Anything of defined value or purpose can be an asset, and thus anything can be tracked and traded on a blockchain network. Lots of concepts to define here:

• Ledger
• Transaction
• Asset
• Decentralized
• Shared
• Immutable
• Record
• Network
• Blockchain

We define all these next to give a clear picture.

Distributed Append-Only Ledger

The ledger is a dynamic and distributed set of immutable records, or transactions regarding the assets being managed in the network. It is instantaneously updated across the blockchain network, and since a transaction is recorded exactly once, there is no risk of duplication or errors, or stealing the asset. The ledger is secure in the sense that it is viewed by all, and transaction cannot be modified once recorded.

All network members have a copy of the ledger and then have a full view of the transactions and the assets. They do not rely on a single vulnerable access point to know about an asset and its transactions.

The network is synced automatically through a protocol referred to as consensus. Every time a transaction is recorded, it is automatically propagated through the network for transparency.

Transactions are Immutable Records

Immutable means that the transactions in the shared distributed ledger cannot change over time, and the technology does not enable them to change, or be deleted. It is an important characteristic because it provides transparency and a single shared view of the ledger to the network members, enabling trust, confidence, and protection of the traded/tracked assets. Since a record in the ledger is immutable, no network member can change or tamper with it once it is recorded in the shared ledger.

Transactions can also be associated with a set of rules, called smart contracts. A smart contract is stored in the blockchain network and executed automatically. It precisely defines a change of asset ownership based on certain conditions, or an upgrade in the value of the asset based on particular conditions, or a time limit in the asset life and/or value, and such. For example, we could have smart rules depreciating the asset value automatically over time.

Assets are either Tangible or Intangible

Assets can be either tangible or intangible. Tangible means that the asset is a physical object that can be touched. Examples of tangible assets are: a jacket , a painting, a house, a phone, etc.

Intangible then means the asset has no physical presence and thus cannot be grasped or touched. These types of assets can be ideas, intellectual property, or any other digital or virtual content such as a sticker, a song, or a proprietary machine learning model or notebook or computer program.

How Blockchain Works — An Example

Let’s assume the example relevant to Holler, Holler Studio has created something unique and proprietary to Holler, say an intangible asset in the form of a digital sticker or a digital character, for which Holler fully owns the rights and content, at least at first. Now, we want to record in the some Blockchain Network relevant to stickers, the transaction that Holler has created and owns the particular sticker Asset X. That transaction is recorded as a block of data that enable the existence of the new Asset X in the Blockchain Network. The data block, that has been defined for such cases, records information about the who (unique identification for ownership), the what (unique asset identifier in the network), the when it was created for the first time and attribution to Holler’s full ownership, as well as other information such as the asset initial value, condition, and other attributes relevant to the type of asset that can protect ownership, uniqueness of the asset, and value of the asset to the creator, its first owner. At that time, we also define the smart rules associated to the particular asset.

Now, when the asset is sold, or transformed, or value is increased or decreased due to market or other conditions, or anything else, other blocks of data will be created. Say, for example that the asset is being sold to a particualr person, thus, a record of new ownership is created. These blocks are connected to the blocks already created for the asset, and thus altogether form a chain of data as the asset properties and existence evolve over time. Such asset block chain records and validates the exact time and sequence of transactions that pertain to the asset. The blocks are securely linked to each other, thus protecting the asset and its transactions, as blocks are immutable, thus cannot be altered, deleted, or even new blocks inserted between two existing blocks. This is called a blockchain, and every asset managed has a blockchain. The group of all assets and their associated blockchains are implemented as a blockchain network.

It is important to reiterate that the asset blockchain is irreversible. Each block validates the previous block and thus the entire blockchain is protected. As we have seen, it is impossible to change an existing record, but also to add or fake additional records in the existing chain.

Furthermore, the ledger is distributed among the network members for transparency and trust. These characteristics of a blockchain to be tamper-evident, more secure, and transparent protect against malicious intent, such as transferring illegal ownership of an asset, or who was the initial creator, thus enabling fair monetization to Holler content creations from start, protecting their assets from being stolen. Each asset is fully traceable from its creation, protecting Holler IPs. At Holler, assets to protect are not only Holler Studio content, but also Technology proprietary solutions, such as snippets of code, processes, and machine learning models.

Types of Blockchain Networks

There are 4 types of blockchain networks. Which one to implement depends on the business goals.

1. A Public Blockchain Network allows anyone to join and participate, for example Bitcoin. These networks are less secure and private, as every transaction is visible to the network members. Also, due to the large size, these networks require a lot of energy to operate, as every transaction is sent across the network for visibility. The strength of a blockchain network becomes its drawbacks for these types of networks. A public network is the most visible and therefore the most transparent to the population at large, gaining wider general trust in its transactions. However, it is costly to update all nodes to maintain such transparency, and it is more vulnerable security wise, as transaction creation is more difficult to verify.
2. At the other extreme, a (Fully) Private Blockchain Network is typically run by an organization that fully governs the network, such as who can be a member and participate in creating records, but also in its visibility and transparency as who can track and view an asset blockchain. Also it may seem restrictive, it also boots trust and confidence between the participants of the network. It also ensure greater security of the transaction chains. The business who owns the network has full control on the policies and rules of the network, can revert transactions, and such. The participants are known, limited, and as such, the network collisions and attacks, thus risk are limited. It is also cheaper to operate as the number of nodes can be order of magnitude less than a public network; transactions are cheaper and faster to propagate through the network. Finally, since read permissions are restricted, these networks provide a greater level of privacy.
3. Intuitively a private blockchain network is also a Permissioned (or Semi-Private) Blockchain Network, as specific restrictions are put in place to decide and control who can participate in the network. Public blockchain networks can also be restrictive and permissioned without being private. Participants will need to receive an invitation to participate in the network. Private and Semi-Private blockchain networks closely resemble how a company runs a website. Cost is being reduced compared to Public networks.
4. A Consortium Blockchain Network shares the responsibility and cost of blockchains across several defined organizations, allowing only their members to create and/or view blockchain transactions and assets journeys. The main advantage by limiting memberships is more security but also lower cost to operate, as there are less nodes in the network to update for each transaction being created, and shared cost among the consortium. They extend private networks to a larger, but still controlled audience, while limiting the cost to operate.

Conclusions

In this first article in the Blockchain Technology series, we have looked at basic definitions of a blockchain, the assets, transactions, and types of networks. We have looked at an example here at Holler with the Holler Studios content. Next, we will go deeper into tokens and coins. Stay tuned.