A 10,000 Feet Overview Of Blockchain

By Pritam Pal, Practice Head - DevOps & Cloud Solutions at TechAspect Solutions

pritamBlockchain Fundamentals

Two decades ago, the only imagi­nable way of getting information was newspapers and television news channels. Finance was completely managed and controlled by banks. Everything was centralized.

With the advent of Decentralized Technologies, information became free flowing and transactions became faster. Hailing a cab made way for instant one-click digital bookings. Reserving a room made way for on-the-fly app-based bookings. Now, we are heading towards Distributed Technology where no centralized or decentralized entity retains com­plete ownership. It’s called Peer to Value Exchange.

Blockchain gives you the power to carry out any monetary transac­tion digitally via a unique ‘hash ad­dress’ without being dependent on central or decentralized institutions like banks. Blockchain applications run on the distributed database.

Blockchain database isn’t stored in any single location, which means that the records it keeps are truly public and easily verifiable. No cen­tralized version of this information exists for a hacker to corrupt. Host­ed by millions of computers simul­taneously, the data is accessible to anyone on the internet.

It allows you to transact anything from a share certificate to transfer­ring ownership of your car or house. Virtually anything of value can be tracked and traded on Blockchain network. Every agreement, every process, every task, and every pay­ment in the world would have a digital record and signature that can be identified, validated, stored, and shared.

Individuals, organizations, ma­chines, and algorithms would freely transact and interact with one an­other with little friction. This is the immense potential of Blockchain.

“Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of Blockchain”

History

The first work on a cryptographi­cally secured chain of blocks was de­scribed in 1991 by Stuart Haber and W. Scott Stornetta.

For a long time, nothing hap­pened. There was no real imple­mentation until 2008 when the first distributed Blockchain was concep­tualized by Satoshi Nakamoto in 2008. This was called ‘The Bitcoin’.

The Bitcoin design has been the inspiration for other applications. If you read Satoshi Nakamoto's original paper in October 2008, the words block and chain were used separately. When the term moved into wider use it became a single word - Blockchain.

In 2014, ‘Blockchain 2.0’ emerged, enabling users to write more sophisticated smart contracts. In early 2017, the Harvard Busi­ness Review suggested that blockchain is a foun­dational technology and thus "has the potential to create new foundations for our economic and social systems.”

Bitcoin

Bitcoin is one among the thou­sands of applications built on Blockchain technology and it’s clearly the most famous one. Bitcoin started the Cryp­tocurrency momentum. From $0.003/ BTC, it has grown to over $8100 as I write this. The market capitaliza­tion of Bitcoin has exceeded $70 billion. The technology underlying cryptocur­rencies, which is Blockchain is said to have powerful applications in var­ious sectors ranging from healthcare to shipping. Corporates are making investments in cryptocurrency as it’s expected that in future all FIET cur­rencies would become obsolete.

The number of Bitcoins is lim­ited at 21 Million. Of these, over 15 Million is mined, which supports the claim that it’s more stable than government-backed currencies that can be devalued by central banks printing money.

While paying with bitcoin would take more time to become main­stream, its transaction fees make it very attractive. While companies like Visa, Amex, and Paypal charge 6-7% fees, with Bitcoin payments one can leverage the same facility with as low as 0.5%.

You can open a Blockchain-based wallet like Coinbase and by using your bank account, store and sell Bitcoins from there.

How it Works

1. Transaction: Two parties A &B decide to exchange a unit of value. It can be a digital currency, digital repre­sentation of some asset, like share cer­tificate, birth certificate, degree details, tax information or a lead generation report, and a transaction is initiated.

2. Block: The transaction is packed with other pending transactions there­by creating a ‘Block’. The Block is then sent to Blockchain System's network of participating computers.

3. Verification: The participating computers (Whom we call miners in Bitcoin Blockchain) evaluate the trans­action and through complex math­ematical calculation determine if they are valid, based on agreed-upon rules and algorithms. When 51% participat­ing computers say Yes, the transaction is considered valid.

4. Hash: Each verified block of transactions is time stamped with a cryptographic hash. And each block contains a reference to previous block's hash thus creating a chain of records which can’t be falsified except by con­vincing the participating computers that the tempered data in one block and all prior blocks is true. Such a feat is considered impossible.

5. Execution: The unit of value moves from the account of party A to the account of party B.

Advantages of Blockchain Technology

Transparency and Immutability: Any changes made on the Blockchain ledg­er are viewable by the public, creating transparency. Altering these changes will require a huge amount of com­puting power to override the whole network thus making it immutable.

No Third-party Needed: Two par­ties are able to make an exchange with­out the intermediation of a third party, strongly reducing or even eliminating counterparty risk.

Data Quality: Blockchain data is complete, consistent, timely, accurate, and widely available.

Built-in Robustness: Similar to the robustness of the internet, the Blockchain is not controlled by a sin­gle entity and has no single point of failure, making it more durable to malicious attacks.

Fast Transactions and Low Fees: In comparison to interbank transac­tions which can take days, transac­tions on the Blockchain could oc­cur within minutes. Also, in the absence of third parties, transaction costs are much lower due to the re­moval of overhead costs involved in facilitating transactions.

Disadvantages of Blockchain

 

Technology

The implications of Blockchain be­ing utilized in the digital marketing industry make it seem like a panacea for some of the despairs and per­vasive issues in the online advertis­ing ecosystem, however, the Block­chain solutions discussed do have their limitations.

Cultural Adoption: Blockchain represents a complete shift from the established financial and commerce model. It will require both users and operators to invest in the system.

Teething Problems: Resolving challenges like consistent transaction speed, verification process, and data limits will be crucial in making Block­chain widely applicable.

Regulations: Regulatory entities usually lag behind technological inno­vation. Currently, there are no regula­tions on how the transactions should be written. This could create a hurdle in the widespread adoption of Bitcoin and Blockchain in highly regulated in­dustries and governments where the regulation status remains unsettled.

Large Energy Consumption: Blockchain miners are attempting 450 thousand trillion solutions per second in efforts to validate transactions, us­ing substantial amounts of computer power, which is not sustainable in the long run.

With Bitcoins crossing the $10,000 mark and tons of Blockchain based ap­plications coming up with Initial Coin Offerings, Blockchain is poised for a long future and in next 10 years, every other business will be touched by it.

We would be coming up with more detailed blogs on ‘Ethereum’ and on ‘How to make your own Block­Chain Apps or Smart Contracts’. Stay tuned and stay distributed!

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