Blockchain Technology
- [Features of Blockchain - geeksforgeeks]
- Overview
A blockchain is a distributed database or ledger shared between nodes in a computer network. They are known for their key role in maintaining a secure and decentralized record of transactions in cryptocurrency systems, but their uses are not limited to cryptocurrencies. Blockchain can be used to make data in any industry immutable - a term used to describe something that cannot be changed.
Since blocks cannot be changed, the only trust required is where data is entered by a user or program. This aspect reduces the need for trusted third parties, which are often auditors or others who add costs and make mistakes.
Since the launch of Bitcoin in 2009, blockchain usage has exploded through the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.
- How Does a Blockchain Work?
Like the Internet itself, the blockchain is decentralized and anyone can freely participate in the operation of the network. But unlike the stateless internet, blockchain records are cryptographically protected. Blockchains can also transfer state and value through non-fungible tokens (NFTs) and host self-executing code called “smart contracts.” When all these advantages are combined, the impact of blockchain on 21st century commerce -- from automating insurance to fundamentally optimizing supply chains -- is practically immeasurable.
If I send you bitcoin, the transaction is simultaneously recorded on the 12,000+ computers, servers, and other devices running bitcoin. Everyone on the chain can see the transaction and no one can change or delete it. Alternatively, you can send me a non-fungible token (NFT) on the Ethereum blockchain, and the transaction is simultaneously recorded on all the computers (aka "nodes") running Ethereum.
These two examples roughly explain what blockchain technology is: a way to maintain an immutable record of transactions on multiple computers, so that new transactions cannot be recorded on one computer without simultaneously being recorded on all on other computers. Blockchain applications have gone far beyond cryptocurrencies and NFTs, as governments and industries, from healthcare to agriculture to supply chain operations, are leveraging the technology to improve efficiency, security, and trust.
- DAO and Blockchain
A DAO or "Decentralized Autonomous Organization" is a community-led entity with no central authority. It is completely autonomous and transparent: smart contracts lay the ground rules, enforce agreed decisions, and at any time, proposals, votes, and even the code itself can be publicly audited.
Ultimately, the DAO is governed entirely by its individual members who collectively make key decisions about the future of the project, such as technology upgrades and funding allocation.
Generally, community members make proposals for the future operation of the protocol, and then come together to vote on each proposal. Proposals that reach some predefined consensus level are then accepted and executed through rules instantiated in the smart contract.
The familiar hierarchical structure seen in large corporations gives way to community collaboration under this framework. Each member of the DAO oversees the protocol to some extent.
Part of the elegance of this framework is the alignment of incentives. That is, it is in the best interest of an individual to be outspoken in voting and to only approve proposals that are in the best interest of the protocol itself.
- Blockchain Governance
Blockchain technology is described by many terms — "decentralized," "permissionless," "autonomous" — which can lead users to make assumptions about governance. For example, they might think that this is a wonderland for libertarians and anarchists, or that all members have an equal say in how the blockchain works. In reality, blockchain governance is a very, very complex thing with significant ethical, reputational, legal and financial implications. The creators of the blockchain decide who has power; how they get it; what oversight (if any) is there; and how decisions are made and implemented.
A quick look at two cases, one infamous and one in progress, is instructive. These events show how important it is to build blockchains and the governance of applications running on them with great care and diligence.
- Blockchain: a Comprehensive, Always Up-to-date Accounting Record
Blockchain is a comprehensive, always up-to-date accounting record of who holds what or who transfers what to whom. It is becoming a way for people to instantly conduct and verify transactions on the network without a central authority. A block is the "current" part of the blockchain, which records some or all of the most recent transactions, and once completed, enters the blockchain as a permanent database. Every time a block is completed, a new block is generated. Blocks are linked to each other in a proper linear time order (like a chain), and each block contains the hash of the previous block. Blockchain has no transaction costs.
Taking traditional banking as an example, blockchain is like a complete history of banking transactions. Just like banking transactions, Bitcoin transactions are entered into the blockchain in chronological order. At the same time, blocks are like personal bank statements. A complete copy of the blockchain records every Bitcoin transaction ever performed. As such, it can provide insights into facts such as how much value a particular address was worth at any point in the past.
- Three Main Types of Blockchains
There are three main types of blockchains: public (a platform where anyone on the platform can read or write to the platform), private (which only allows the owner to have rights to any changes that must be made), and consortium (public and Private hybrids where literacy can scale to a certain number of people/nodes).
Ethereum is a distributed computing platform based on a public blockchain. It provides a way to create online marketplaces and programmable transactions called smart contracts. Ethereum is the biggest innovation after Bitcoin.
- Smart Contracts and Distributed Ledger
A core component of next-generation blockchain platforms, smart contracts are computer agreements designed to facilitate, verify, or enforce contract negotiation or performance. Proponents of smart contracts claim that various contract terms can be partially or fully self-enforcing, self-enforcing, or both.
The purpose of smart contracts is to provide security over traditional contract law and reduce other transaction costs associated with contracts. Smart contracts automate business processes using self-executing software programs that run on distributed ledgers.
The blockchain is the database, and the smart contracts are the application layer that enables many of the benefits of blockchain technology. Smart contracts lead to the convergence of smart devices, analytics, artificial intelligence, cloud and blockchain technology.
Smart contracts are mainly used in connection with cryptocurrencies. The most prominent smart contract implementation is the Ethereum blockchain platform, also known as decentralized applications or dapps.
Additionally, trade finance, post-trade services, and event-driven insurance are the main use cases that financial services institutions are piloting/piloting. Loyalty and rewards, smart grids and digital rights management are the main use cases piloted in other areas.
- Emerging Applications For Blockchain
Blockchain shows great promise in a wide range of business applications. Now, more and more businesses from all walks of life are exploring how to use blockchain technology to remove friction in business processes and build trust systems for the exchange of value. A blockchain database powered by an enterprise-grade, scalable and secure core database is at the heart of unlocking potential.
By using blockchain, individuals can securely exchange money or purchase insurance without a bank account. Financial institutions can settle securities in minutes instead of days. Blockchain technology allows strangers to record simple, enforceable contracts without a lawyer. It can sell real estate, event tickets, stocks, and just about any other type of property or rights without a broker. Blockchain can also track and ensure that all payments are done correctly.
Businesses of all types (government, banking, insurance, finance, accounting, healthcare, legal, supply chain and logistics, manufacturing, retail, etc.) can more closely manage the flow of goods and related pay. Unlike existing financial ledgers or databases used by banks and other institutions, blockchains are not updated and maintained by a single company or government. Instead, it is run by the user network.
- The Challenges To Blockchain Technology
Blockchain's reputation has also brought some new challenges, including interoperability, flexibility, scalability and governance. There are now many blockchain-based currencies, each optimized for a different purpose. And none of these currencies are compatible with other currencies, making it difficult for users to transfer funds between them.
Also, there is a growing trend to use blockchain in other fields. These areas include the Internet of Things, supply chain, stock exchanges and other areas that are important for secure data transactions. However, the original blockchain used in Bitcoin was not designed to scale to all possible use cases, making it difficult to use it in these areas.
Since the blockchain is a decentralized system, once a problem occurs, no one will sue and be held accountable, and there are also challenges in management. It will take some time to resolve these issues. The industry will have to work with governments to develop standard rules and laws governing transactions.
Additionally, nodes holding a copy of the blockchain continuously receive updates. These nodes are distributed all over the world. Therefore, blockchain has high latency.
Blockchain needs to be transformed if it is to meet the requirements of every possible industry. The Hyperledger Project is an effort overseen by the Linux Foundation to advance blockchain technology by identifying and addressing important characteristics of a cross-industry open standard for distributed ledgers that could transform the way global commerce is transacted.
[More to come ...]
