Bitcoin, Blockchain, Smart Contracts, DLTs, … the list of blockchain specific terms is long. In our Blockchain 101 we have set ourselves the goal of classifying the most important terms thematically and working through them step by step.
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Bitcoin — An electronic cash system without intermediaries
Nakamato (2008) presented in the white paper “Bitcoin: A-Peer-to-Peer Electronic Cash System” for the first time a solution to avoid the ‘double spending’ problem for digital payment means. It describes how cryptography can be used to ensure that each Bitcoin only exists once and therefore cannot be issued twice. To enable this, globally distributed network nodes validate the commissioned transactions together and are remunerated accordingly in Bitcoin. This is revolutionary, because with Bitcoin it is possible the first time to process cross-border payments independently of intermediaries such as banks or payment service providers. This not only reduces fees, but also creates an open and transparent network that is accessible to everyone.
Blockchain — The value proposition of the technology
The technology behind the crypto currency Bitcoin is called blockchain due to the sequential and cryptographic concatenation of data blocks. The decentralized data storage, the distributed validation and concatenation of the data records creates a transparent, open and tamper-proof system using cryptography without the need for a central third party. (Zheng et al. 2017)
Web 3.0 — The vision of the decentralized internet
With the advent of the Internet in Web 1.0 the information consumption has radically changed through websites like Yahoo.com. Building upon this, with Web 2.0 opportunities were created to interact and communicate with each other. Examples are Wikipedia, forums such as reddit and social media platforms. Both Web 1.0 and Web 2.0 applications are based on a client-server Internet, a data monarchy of individual companies and network effects from central platforms. With blockchain technology the third generation of the Internet has been created and enables the so-called Web 3.0 to democratise and liberalise data storage and to interact via decentralised platforms without intermediaries such as Google, Facebook or Amazon. (Voshmgir, 2016)
Cryptocurrencies — Digital means of payment and incentive at the same time
Native currency units of a blockchain are called crypto currencies or coins. Thus, a crypto currency serves as an incentive system for network nodes resp. participants and as a means of digital payment. This raises the question of whether Bitcoin can already be described as a currency. According to Petry (2017), no clear boundary can be drawn from the economic perspective, but Bitcoin is best defined as a universal crypto currency. Meanwhile there are countless other crypto currencies besides Bitcoin that try to counter its limitations and, for example, strive for higher privacy or faster transactions.
Ethereum — A platform for decentralized applications and smart contracts
With the Ethereum Whitepaper, Buterin (2013) has expanded the application potential of blockchain technology by another chapter. Ethereum, the first platform for decentralized applications (DApps), was launched in 2015. Ethereum combines decentralized data storage and transaction validation of a blockchain with the possibility of programmatically mapping complex business logic. In this way, the platform creates the possibility of handling business processes with digital assets automatically and rule-based, transparently and securely. In this context, Smart Contracts and decentralized autonomous organizations (DAOs), which are made possible by Smart Contracts, are also referred to.
Token economy — Digitization of assets
In digital assets, a basic distinction is made between coins (native crypto currencies of a block chain) and tokens. Tokens are typically digital units that are limited in quantity and represent assets or assets. Traditionally, tokens are generated via a smart contract. Such a rule-based contract remunerates the payment, which is usually made in Bitcoin or Ethereum. Such an issuance of tokens is also called Initial Coin Offering (ICO). Nowadays there are a large number of tokens with different application areas. This allows all types of assets or rights to be tokenised. For this reason the term ICO is generally replaced by Token Generating Events (TGEs). (Tasca et al., 2017; Zheng et al., 2017)
Distributed ledger technologies — Applications and further developments
The term Distributed Ledger Technologies (DLT) is used to describe a variety of decentralized database solutions that contain properties of blockchain technology with different characteristics. A distinction is made between public blockchains such as Bitcoin or Ethereum, in which everyone can participate without restriction, and private blockchains such as Hyperledger Fabric, in which network participation is controlled. Furthermore, there are increasing numbers of solutions that have similar structures and properties to a blockchain, but technically do not meet the definition of a blockchain any longer. One example are Directed Acyclic Graphs (DAGs). For this reason, the collective term DLT is commonly used to define trust-minimizing decentralized transaction systems. (Tasca et al., 2017)
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System [Whitepaper]. Retrieved 2. November, 2019 from https://bitcoin.org/bitcoin.pdf
Buterin, V. (2013). A Next-Generation Smart Contract and Decentralized Application Platform [Whitepaper]. Retrieved 3. November, 2019 from https://github.com/ethereum/wiki/wiki/White-Paper
Heiko, P. (2017). Währung oder nicht? Eine Einordnung und Definition von Bitcoin. Retrieved 6. November, 2019 from https://www.alexandria.unisg.ch/publications/254174
Tasca, P., Thayabaran, T., & Tessone, C. J. (2017). Taxonomy of Blockchain Technologies. Principles of Identification and Classification. CoRR, abs/1708.0. Retrieved from http://arxiv.org/abs/1708.04872
Voshmgir, S. (2016). Blockchains, Smart Contracts und das Dezentrale Web. In Technologiestiftung Berlin
Zheng, Z., Xie, S., Dai, H., Chen, X., & Wang, H. (2017). An Overview of Blockchain Technology: Architecture, Consensus, and Future Trends. Proceedings — 2017 IEEE 6th International Congress on Big Data, BigData Congress 2017. https://doi.org/10.1109/BigDataCongress.2017.85
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