BlockChain
-Blockchain Technology Beyond Bitcoin
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
A blockchain is essentially a distributed database of records or public ledger of all transactions or digital events that have been executed and shared among participating parties. Each transaction in the public ledger is verified by the consensus of a majority of the participants in the system. And, once entered, information can never be erased. The blockchain contains a certain and verifiable record of every single transaction ever made. Bitcoin, the decentralized peertopeer digital currency, is the most popular example that uses blockchain technology. The digital currency bitcoin itself is highly controversial but the underlying blockchain technology has worked flawlessly and found a wide range of applications in both the financial and nonfinancial world.
The main hypothesis is that the blockchain establishes a system of creating a distributed consensus in the digital online world. This allows participating entities to know for certain that a digital event happened by creating an irrefutable record in a public ledger. It opens the door for developing a democratic open and scalable digital economy from a centralized one. There are tremendous opportunities in this disruptive technology and revolution in this space has just begun.
This white paper describes blockchain technology and some compelling specific applications in both the financial and nonfinancial sector. We then look at the challenges ahead and business opportunities in this fundamental technology that is all set to revolutionize our digital world.
Bitcoin is the most popular example that is intrinsically tied to blockchain technology. It is also the most controversial one since it helps to enable a multibillion-dollar global market of anonymous transactions without any governmental control. Hence it has to deal with several regulatory issues involving national governments and financial institutions.
This is where blockchain technology comes in handy. It has the potential to revolutionize the digital world by enabling a distributed consensus where every online transaction, past and present, involving digital assets can be verified at any time in the future. It does this without compromising the privacy of the digital assets and parties involved. The distributed consensus and anonymity are two important characteristics of blockchain technology.
The advantages of Blockchain technology outweigh the regulatory issues and technical challenges. One key emerging use case of blockchain technology involves “smart contracts”. Smart contracts are basically computer programs that can automatically execute the terms of a contract. When a pre-configured condition in a smart contract among participating entities is met then the parties involved in a contractual agreement can be automatically made payments as per the contract in a transparent manner.
Smart Property is another related concept that is regarding controlling the ownership of a property or asset via blockchain using Smart Contracts. The property can be physical such as a car, house, smartphone, etc. or it can be non-physical such as shares of a company. It should be noted here that even Bitcoin is not really a currency — Bitcoin is all about controlling the ownership of money.
Blockchain technology is finding applications in a wide range of areas — both financial and non-financial.
Financial institutions and banks no longer see blockchain technology as a threat to traditional business models. The world’s biggest banks are in fact looking for opportunities in this area by researching innovative blockchain applications. In a recent interview, Rain Lohmus of Estonia’s LHV bank told that they found Blockchain to be the most tested and secure for some banking and finance-related applications.
Non-Financialapplications opportunities are also endless. We can envision putting proof of the existence of all legal documents, health records, and loyalty payments in the music industry, notary, private securities, and marriage licenses in the blockchain. By storing the fingerprint of the digital asset instead of storing the digital asset itself, the anonymity or privacy objective can be achieved.
BlockChain used in Industries, Banking sector, Economy, Mining, Networking, etc.
Medicines being developed as a securities exchange that uses the Counterparty implementations of Bitcoin 2.0. The goal here is to create a cutting edge stock market. Counterparty is a protocol that implements traditional financial instruments as self-executing smart contracts. These smart contracts facilitate, verify, or enforce the negotiation of contract and eliminate the need for a physical document. This eliminates the need for an intermediary, such as a broker, exchange, or bank.
Blockstream is an open-source project with a focus on sidechains — interoperable blockchains — to avoid fragmentation, security, and other issues related to alternative crypto-currencies. Uses can range from registering securities, such as stocks, bonds, and derivatives, to securing bank balances and mortgages.
Coinsetter is a New York-based bitcoin exchange. It is working on a Project Highline, a method of using the blockchain to settle and clear financial transactions in T+ 10 minutes rather than the customary T+3 or T+2 days.
Augur is a decentralized prediction market that will allow users to buy and sell shares in anticipation of an event with the probability that a specific outcome will occur. This can also be used to make financial and economic forecasts based on the “wisdom of crowds”. Bitshares are digital tokens that reside in the blockchain and reference specific assets such as currencies or commodities. The Token holders may have the unique feature of earning interest on commodities, such as gold, and oil, as well as dollars, euros, and currency instruments.
Insurance Assets that can be uniquely identified by one or more identifiers that are difficult to destroy or replicate can be registered in the blockchain. This can be used to verify ownership of an asset and also trace the transaction history.
In Networking, I will now summarize the steps described above; this is what happens in the network −
- Anybody who wants to obtain services from the third party who has advertised on the network first creates a transaction (message to the desired recipient)Over a given period of time, there could be many senders (buyers) and receivers (sellers) creating such transactions. All transactions are broadcast on the network to all nodes. Note that it is not necessary that a given transaction must reach each and every other node in the network. Each node assembles the new transactions into a block. Note that the set of transactions in each block is independent of the set in blocks created by others and will naturally be different than others. This does not matter; the system ensures that every transaction broadcast on the network gets included in some block over a reasonable amount of time. Generally, the sender will incentivize the node by offering a certain amount of bitcoins to the miner for its efforts. The miner may opt for giving priority for inclusion in the block to those with higher incentives.
- The node now works on finding the proof-of-work for its assembled block. When the node finds a proof-of-work, it broadcasts the assembled block on the network. The nodes that receive the new block will accept it only after verifying that all transactions in the block are valid and not already spent. If the block is accepted as valid, the node which is working on its own new block will have to re-assemble the transactions in its block ensuring that the transactions are not duplicated. The node now works on finding the proof-of-work on its newly created block; while doing so it will take the hash of the accepted block as the previous hash.
- Likewise, the blockchain continues growing forever.
