Usefulness of blockchain technology
Why am I doing this?
With popularity of Bitcoin and other cryptocurrencies, the usage of term “blockchain” have risen exponentially. And in my opinion in hands of not so as you can say “In the touch” blockchain become kind of buzz word behind the “magic” of Bitcoin.
With all that general public does not really understands what blockchain is, what it does and in the end how can it be possibly used.
Aim of this work is to first explain what blockchain is, as it is important to know that before we venture into its possible applications. After that we get to practical examples.
After that we will look at If I may say many examples of use of blockchain, with biggest focus on crypto. While we do that I will also explain where value of blockchain is and thus Bitcoin and other cryptocurrencies generated. This part will be divided into five categories of usefulness.
That is:
- Static registry
- Identity
- Smart Contracts
- Dynamic registry
- Cryptocurrencies
Each category will have some basics about it and at least one practical example in it. More popular categories line “Cryptocurrencies” will have more in depth look.
With that out of a way let’s get to some basics.
What is blockchain?
Blockchain in its most basic form is distributed ledger1, or database, shared across a public or private computing network. Each computer node in the network holds a copy of the ledger, so there is no single point of failure. Every piece of information is mathematically encrypted and added as a new “block” to the chain of historical records. Various consensus protocols are used to validate a new block with other participants before it can be added to the chain. This prevents fraud or double spending without requiring a central authority. (McKinsey)
A blockchain is a decentralized, distributed, and oftentimes public, digital ledger consisting of records called blocks that is used to record transactions across many computers so that any involved block cannot be altered retroactively, without the alteration of all subsequent blocks. This allows the participants to verify and audit transactions independently and relatively inexpensively. A blockchain database is managed autonomously using a peer-to-peer network and a distributed timestamping server. They are authenticated by mass collaboration powered by collective self-interests. Such a design facilitates robust workflow where participants’ uncertainty regarding data security is marginal. The use of a blockchain removes the characteristic of infinite reproducibility from a digital asset. It confirms that each unit of value was transferred only once, solving the long-standing problem of double spending. A blockchain has been described as a value-exchange protocol. A blockchain can maintain title rights because, when properly set up to detail the exchange agreement, it provides a record that compels offer and acceptance. (Wikipedia)
What is important is that the blockchain is:
- Ordered in chain of blocks
- Each node holds a copy of the ledger
- Is shared across computer network
- Every new block is encrypted
In a layman’s terms Blockchain is peer to peer internet database that allows independent factchecking and it is ordered in chain of blocks (Merkle tree2) that are encrypted.
Of course, there is more to this technology and this is only mild introduction, but this work is mainly focused on examples of practical use of Blockchain.
Examples of blockchain use
- Static registry
One of the most basic uses of this technology is as a Static registry or sometimes called database, though it is not very popular. Blockchain can be used as a distributed database that is used for storing reference data etc. If this data needs to be immutable and verifiable then blockchain can be one of the solutions. As this kind of data is normally rarely updated it requires very little computational power to operate.
Enterprise blockchains
Most blockchains here are made for very specific purposes and are for specific rules. These usecases are mean for private od government organizations.
Practical examples are:
- Asset ownership (vehicles, land etc)
- Registration information
- Patents
- Food safety and origins
Most of these databases are rarely written about on the internet. However, there is one tool that is used to make these databases. That is Hyperledger fabric
Hyperledger fabric is an open-source platform for creating specifics blockchains. It is a modular, general-purpose framework that offers unique identity management and access control features, which make it suitable for a variety of industry applications such as track-and-trace of supply chains, trade finance, loyalty and rewards, as well as clearing and settlement of financial assets.
Keep in mind that this tool is not only for static databases, but also other types of blockchain for example dynamic databases.
Public blockchains
Public static databases are even rarer than enterprise ones.
Unstoppable domains is a world wide web domain registration technology. It can be used to obtain “.cripto” domain. This San Francisco-based company allows us to buy a domain, they have absolute control over that domain. User can transfer, update and link domain to other services completely without Unstoppable Domains’ involvement. Not even the company can take down these domains.
2. Identity
Use of blockchain is much more popular here. This category of use is connected to identity and its validation across internet.
According to identity theft expert LifeLock, more than 16 million Americans complained of identity fraud and theft in 2017 alone, with that in mind we can start see usefulness of blockchain in this way. Fraud can range from forged documents to hacking into personal files.
By having these documents and files on decentralised blockchain ledger, we could see less identity theft on the internet overall.
Since blockchain contains a decentralized ledger holding digital assets that are secured via strong cryptographic keys, it becomes very hard and complicated for hackers to manipulate the stored data.
The data is stored on multiple computers across a decentralized blockchain network. Attacker would have to get hold of vital data assets have to intrude into every system to reign the network, which is nearly impossible. (Otcpm24)
Illinois Blockchain initiative
Illinois is at the forefront of experimental blockchain in government with the Illinois Blockchain Initiative. The state-funded initiative has already put in place measures to use a distributed blockchain ledger to enhance the security of birth certificates, death certificates, voter registration cards, social security numbers and much more.
Civic
Civic is a blockchain-based ecosystem that gives individuals insights into who has their information. The company’s users enter smart contracts, where they decide who can share their personal information and how much. If the contract is broken or an unauthorized source tries to access private data, the individual is immediately alerted.
Evernym
Evernym’s Sovrin identity ecosystem lets individuals manage their identities all over the web using distributed ledger technology. Sovrin stores private information, acts as a communication medium between the individual and entities wanting private information and verifies information as true in real-time.
3. Smart Contracts
Blockchain-based smart contracts are proposed contracts that can be partially or fully executed or enforced without human interaction. One of the main objectives of a smart contract is automated escrow. A key feature of smart contracts is that they do not need a trusted third party (such as a trustee) to act as an intermediary between contracting entities -the blockchain network executes the contract on its own. This may reduce friction between entities when transferring value and could subsequently open the door to a higher level of transaction automation. (Wikipedia)
Smart contract is essentially a distributed database that contains recorded conditions that are required to be triggered when an action is met, such as a payment or the transfer of an asset.
Transportation operations are prone to smart contracts such as fare collection and insurance. For instance, if a container enters a terminal or if a parcel is delivered, then a payment can be automatically made, and the transaction considered completed.
Originally this was proposed by Nick Szabo in 1990s, who came up with the term. He used this to refer to “set of promises, specified in digital form, including protocols within which the parties perform on these promises”
One problem with all this is that Smart contracts are not necessary legally binding by law. They are more like means of performing obligations deriving from other agreements such as technological means for the automation of payment obligations or obligations consisting in the transfer of tokens or cryptocurrencies (more about cryptocurrencies in “Payments infrastructure” category).
BurstIQ
BurstIQ’s big data blockchain contracts help patients and doctors securely transfer sensitive medical information. The smart contracts establish the parameters of what data can be shared and even displays details of personalized health plans for each patient.
Mediachain
Mediachain uses smart contracts to get musicians the money they deserve. By entering a decentralized, transparent contract, artists can agree to higher royalties and get paid in full and on time. Streaming giant Spotify acquired Mediachain in April 2017.
Propy
Propy is a global real estate marketplace with a decentralized title registry system. The online marketplace uses blockchain to make title issuance instantaneous and even offers properties that can be purchased using cryptocurrency.
4. Dynamic registry
As you may imagine this use of blockchain very similar to static registry, however dynamic registry needs to be updated regularly depending on what are we using blockchain for. It is distributed database that automatically updates as assets are exchanged by members.
Again, we will have to split use of registries to enterprise and public blockchains
Enterprise blockchains
The greatest use of this is in my opinion in supply chain industry. Dynamic registry is required because of the intensiveness of related transaction.
Here are some industries that are most accustomed to using blockchain:
Mining — Blockchain technology helping wholesalers, retailers, and customers to track the origins of gems stones and other precious commodities.
Food supply — Blockchain technology is allows retailers and consumers to track the provenance of meat and other food products from their origins to stores and restaurants
DHL
Shipping giant DHL is at the forefront of blockchain-backed logistics, using it to keep a digital ledger of shipments and maintain integrity of transactions. DHL has a major presence in the US and is one of the largest shipping companies to embrace blockchain.
Maersk
Based in Denmark, but with offices all over the US, shipping giant Maersk has teamed up with tech giant IBM to infuse blockchain into global trade. The two companies will use blockchain to better understand supply chain and track goods digitally across international borders in real-time.
ShipChain
ShipChain is a fully integrated blockchain system serving the end-to-end shipping process. From the moment the shipment leaves the facility to the time it arrives at its destination, the logistics ecosystem safely tracks and documents every move to create a transparent ledger. Based in Los Angeles, ShipChain is aiming to modernize the $8.1 trillion supply chain market using blockchain.
Public blockchain
Public dynamic blockchain does not have as much use as enterprise one. Here are only the most niches of application. Into this application falls things crypto computer games. However, they get bad reputation for creating congestions.
5. Cryptocurrencies
Cryptocurrencies are the most widespread and also most popular use of blockchain. Keep in mind that not all cryptocurrencies use blockchain, but vast majority does. In this category was developed most truly working technologies.
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology — a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. (Investopedia)
A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. It typically does not exist in physical form and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems. When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is generally considered centralized. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database. (Wikipedia)
In short crypto is an internet based digital asset, used as a medium of exchange. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
Where does cryptocurrency gets its value?
As we know If we want to use something as currency it must have some kind of value. Money is backed by the world governments and their power, so this value comes from trust in government and the money. Compared to gold that is valuable by its scarcity. So where does crypto gets its value?
Most common answer to that is that we trust Bitcoin protocol similar way we trust government backed currency. We trust that it is immutable. Of course, crypto has its advantages and disadvantages. Crypto is used right now more like speculative asset then a medium of exchange.
Bitcoin
Bitcoin (BTC) is original cryptocurrency based on whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System”. The currency began use in 2009 when its implementation was released as open-source software.
Ethereum
blockchain featuring smart contract functionality. Ether (ETH) is the native cryptocurrency of the platform. It is the second-largest cryptocurrency by market capitalization, after Bitcoin.
Afterword
Blockchain is relatively new technology that is changing the world. Many businesses across the world are adopting one use or the other. However, cryptocurrencies are making the biggest ripples and probably will continue making them.
Sources
https://blog.westerndigital.com/value-of-blockchain/
https://naga.com/blog/where-do-cryptocurrencies-get-their-value-10996744
https://en.wikipedia.org/wiki/Blockchain
https://en.wikipedia.org/wiki/Merkle_tree
https://medium.com/technology-nineleaps/blockchain-simplified-part-2-a42161e08762
https://builtin.com/blockchain/blockchain-applications
https://www.investopedia.com/terms/c/cryptocurrency.asp
https://en.wikipedia.org/wiki/Cryptocurrency
https://docs.unstoppabledomains.com/
https://aws.amazon.com/blockchain/what-is-hyperledger-fabric/
