What is Blockchain?
This is an accompanying blog post series to the Podcast that was recorded for TechAway Ep. 2 together with Steven Koh and Justus Soh.
We will cover the following in a few separate articles:
1. What is blockchain? Why blockchain? (You’re reading this)
2. What do we use blockchain for in GovTech today?
3. What are some future applications of blockchain?
4. How to be a blockchain developer?
There have been countless articles written on both the technical aspects of what a blockchain is, and the non-technical aspects. In the podcast we briefly cover the uses and properties of a technology that can be called ‘blockchain’. The etymology of the word ‘blockchain’ is rather interesting, in the 2008 Bitcoin paper it is written as ‘block chain’ with the words separated and is referred to as ‘chain of hash-based proof-of-work’.
Instead of being called the Blockchain team, we are called the Distributed Ledger Technology (DLT) team. The concept of the distributed ledger, also called ‘triple entry accounting’ has been heralded by many as the ‘next revolution in accounting’. This is with reference to the previous revolution, the double entry bookkeeping system.
The double entry bookkeeping system is named as such because a transaction is recorded in two books — both parties involved in the transaction. This is effective for cross checking transactions between the two parties and when your books are balanced it means the credits and debits are internally consistent with the tally. The loophole with this is that external auditors are only able to discover fraud if the two parties are not colluding.
Enter triple entry bookkeeping. The principle behind triple entry bookkeeping is for a third party not involved in the transaction to be able to verify the details of the transaction, without relying on self-reporting. Bitcoin, Ethereum and other distributed ledger technologies allow this to happen in a distributed and trustless manner without requiring a central bookkeeper. The network validity and consensus rules implicitly ensure that the books balance, and is transparent to all participants without requiring an additional auditing step.
In the podcast I mentioned that blockchain is like a giant stone tablet in the sky that everyone can see — in effect, triple entry bookkeeping on the blockchain would mean that every transaction is automatically inscribed on this rock as it happens. If it is not inscribed, it did not happen. If it did not happen, the transactors’ balances would remain unchanged as the tally on the third book would remain as it was.
With Bitcoin, this bookkeeping process creates digital currencies that can be passed between willing transactors, without requiring the state to be the intermediary as with traditional fiat currencies. Ethereum takes this further by enabling the programmatic control of this currency.
Smart contracts on Ethereum can be inspected by the public, and transactions can be submitted by anyone who has access to an Ethereum node. ‘Smart’ contracts are not smart because they are digital, but rather because they allow the execution of state changes as well as currency flows through predefined rules. Before triple entry accounting, the potential for disputes would mean involve a third party such as an escrow service — or the even the state via lawyers and courts. With triple entry accounting on distributed ledgers, two parties can now transact with the code as law. This means that one can go into a transaction knowing that there is no way to renege on what the smart contract stipulates.
That is the essence of what the concept of ‘blockchain’ entails.
It is not:
- A database to store things in
- A security appliance to ensure confidentiality and security
- A data transfer protocol
- An anonymous marketplace (it’s pseudonymous and transparently auditable)
- An encryption protocol (it uses hashes if anything)
- Hackproof (buggy smart contract code results in unexpected outcomes)
‘Blockchain’ has the following properties:
- Append-only —irrepudiable data records (the veracity of the data can be disputed, but the existence of the record cannot)
- Slow (for now, some smart people are working on this)
- Expensive (because it is transaction rate limited, people bid the prices up)
- Publicly verifiable
- Deterministic state transitions
- Censorship resistant
With the above laid out, that gives us the foundation to discuss the application of blockchain technology and how OpenCerts and TradeTrust came to be.
Stay tuned for the next part!
