“Introducing the Blockchain”
Part 1 — Blockchain 101
What is Blockchain?
Never like in the few years we have come across this term, and it suscitates both curiosities (covered in a layer of mystery) and, to certain extents, concern for a technology that yet, many struggles to comprehend.
Although become mainstream in recent years, it is worth mentioning that the concept of Blockchain bases itself on the concept of a “LEDGER,” aka a book or collection of accounts in which account transactions are recorded.
Therefore is correct to state that blockchain is tied with the story of accounting.
With the progression of time and the further advancement of the technology during history, blockchain met with the already established and widely used “CRYPTOGRAPHY,” aka the practice and study of techniques for securing communication in the presence of adversarial behavior.
This method of securing messages was developed during ancient times and most notably was used during conflicts to create secure channels in which messages could travel across safely and with minimal risks even if they were to fall into the hands of the rival party/ies. (In modern times — militaries with their encrypted communication channels and encrypted messages).
CRYPTOGRAPHY is an evolution of an old tried-and-true technology
— a particular mention goes to Rose Greenhow, a spy for the Confederate Army during the American Civil war: she developed her own method to encrypt data and send those data to the confederate army to reveal the plans of the Union.
But it was in 2008, hence the Financial Crisis, looming on all of us, that a pioneering individual or group of individuals, named “Satoshi Nakamoto” released the White Paper (a document) where it was highlighting and envisioning a PEER-TO-PEER form of electronic cash, named “Bitcoin.”
Initially a niche for internet “punks” and visionaries that envisaged Satoshi’s vision, Bitcoin started its remarkable journey to become the global phenomenon nowadays.
It is important to note though, when we talk about Blockchain, we inevitably think about Bitcoin and so-called “Cryptocurrencies” (although is preferable to address them as “Crypto Assets”)
Bitcoin is not the entirety of Blockchain — only one use case of the technology.
In the last two decades, we assisted at the evolution of the traditional ledgers: due to the modern era of interoperability, connection, and use of the internet, ledgers have evolved to become DECENTRALIZED, aka a ledger of any transactions or contracts supported by a decentralized network across different location and people.
To grasp this concept, it will help by making the example of a notebook:
imagine a notebook, where the BLOCKS are the pages of the note:
we fill up the pages with all sorts of data: recording financial transactions, voting records & results, medical records, music, etc… and all the pages are linked together.
Now, the major use of the blockchain revolves (as in the case of Bitcoin) on the transfer of “value” from one entity to another, without the need of a centralized entity, as it happens nowadays in our financial system.
Assets are distributed among tens of thousands of computers in the world, hence, a PUBLIC LEDGER is available for all the entities involved in the mesh network, and the data of such transaction is stored on the “blocks,” encrypted with the highest level of cryptography preventing tampering and corruption of such important information.
We can therefore identify the following features regarding the blockchain:
- it is solving the problem of DOUBLE ENTRY = accounting method where a transaction is equally recorded in two or more accounts;
- deeply established TRUST in the veracity (truthfulness) of the data;
- transactions are done FAST (speed);
- HIGHLY SECURE;
- TRANSPARENCY;
- IMMUTABILITY (cannot be changed) — [bare in mind example of the traditional DATABASE method (“CRUD” = Create, Read, Update, Delete) with an admin = control over the data];
- DECENTRALIZED (not need a 3rd party): it removes the MIDDLEMAN, therefore facilitating transactions and reducing costs;
- IRREVERSIBLE (once confirmed cannot be undone);
- EXTREMELY DIFFICULT TO HACK (the hacker will need to assume control of the majority of the network =blockchain makes sure there is no more one single point of failure);
- STRENGTH & RESILIENCE, all because of the shared network;
We can identify TWO types of Blockchains, both with their peculiar features and stark differences:
1) PUBLIC BLOCKCHAINS
Every computer is a NODE (aka “point of communication”) in the peer-to-peer network: those nodes maintain the network, provide updates and store the ledger.
- a public network is PERMISSIONLESS (hence anyone can effectively join the blockchain);
- anyone can read, write and participate in the blockchain;
- data cannot be changed once validated (immutability);
- protect user ANONIMITY;
- secure due to mining (51% rule)
Examples of these are Bitcoin (BTC), Litecoin (LTC), and Ethereum (ETH)-(until the migration to ETH 2.0).
2) PRIVATE BLOCKCHAINS
In the private blockchains, the user joins the network through a membership service which allows the creators/admins to effectively control who the members are and who can control the nodes.
The MEMBERSHIP is nothing more than the identity of the user, through its PKI (= Public Key), stored in his/her WALLET (a collection of user’s credentials of public and private keys).
- the network is PERMISSIONED and normally used by enterprises;
- there are restrictions in place;
- admin/creators decide on who to or not to participate in both network and transactions;
- admin/creators know the identity of the user;
- dishonest participants will incur in work or cost where they don’t behave properly;
- it assures security, privacy, and compliance;
- high speed (due to fewer nodes participating into the network aka “Consensus support”) hence a HIGHLY SCALABLE network;
- transactions are processed by SELECTED nodes in the blockchain.
Examples of these are Hyperledger, Ripple (XRP), Corda, and Quorum.
Blockchain is a fascinating technology that is gaining more and more traction as we go, and its momentum will undeniably mark the course of our lives, opening to a virtually endless amount of use cases.
The KEY element of the blockchain is TRUST obtained via COLLABORATION and CRYPTOGRAPHY
We can think of it as another LAYER on top of the internet: it enables SECURE and TRUSTED transactions and records to occur (concept of trust) and creates a defense barrier between trusted and untrusted parties, without the need for relying on a THIRD-PARTY (i.e. centralized institution) to validate the transactions or records.
