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Blockchain Definition

Blockchain is a software technology that allows the sharing of information peer to peer.

Key Points

  • Blockchains, like their name indicates, store data in “blocks” which are chained together.
  • Every transaction is saved into a new block.
  • A new block is then chained to the previous block of data.
  • The data is chained in chronological order and sealed with a time stamp.
  • The information stored in the blockchain can be shared without the need of  third-party intermediaries, such as banks, government organisations, etc.
  • The goal of blockchain is to allow digital information to be recorded and distributed only. Editing is not possible and nothing can be undone.
  • The three main characteristics of a blockchain are: Immutability, decentralisation and safety.

Immutability

  • Transactions are permanently recorded, immutable, and cannot be changed by anyone.
  • The data stored in each block is visible to everybody, yet not changeable.
  • When a new block is stored, it transforms into “stone” and becomes part of the blockchain timeline.
  • Each new block is given a timestamp with the exact date and time it was recorded.
  • No single person or group of people have control, rather all together, collectively.

Decentralisation

  • Each computer or group of computers is in a different geographic location and are operated by separate individuals or groups of people.
  • These computers that makeup the network are called nodes.
  • This method aids in the establishment of a precise and straightforward sequence of events.

Safety

  • Each new block stored in the block chain is saved chronologically and linearly.
  • Each block has its own hash, as well as the hash of the previous block and the time stamp.
  • A math function converts digital data into a string of numbers and letters, resulting in hash codes.

BLOCK = HASH (previous block)+ Timestamp

Advantages

  • Accuracy of the Chain

  • Cost Reductions

  • Decentralisation

  • Efficient Transactions

  • Private Transactions

  • Secure Transactions

  • Transparency

  • Banking the Unbanked

Disadvantages

  • Technology Cost

  • Speed Inefficiency

  • Illegal Activity

  • Regulation

Ledger

A ledger records activity, ownership and transfer of value between stakeholders.

Public Ledger

  • A public ledger is a record-keeping system.
  • The ledger maintains participants’ identities anonymously (pseudonymously)
  • It records all the transactions executed between network participants.
  • Scaling and security concerns are one of the challenges for public ledgers. 
  • Similar to the bank records, the transaction details on a public ledger can be verified and queried by the two transacting participants. Their identities remain unknown. 
Old School Ledger
Diary Ledger Example

Centralised vs Distributed (Decentralised) Ledgers

Centralised Ledger

Centralised Ledger (Owned/ Controlled)

  • The general ledger is the backbone of any accounting system which holds financial and non-financial data.
  • Example: A general ledger contains all the accounts for recording transactions relating to a company’s assets, liabilities, owners’ equity, revenue, and expenses.
Distributed Ledger

Distributed (not owned)

  • A database that lives across a network of multiple sites, geographies or institutions.
  • Each participant may each have their own identical copy of the ledger.
Centralised Ledger
Distributed Ledger

Ledgers and Ownership

  • Nodes are devices in charge of handling transactions and keeping track of all records, including those of ownership.
  • Anyone can become a node by downloading the free open-source Bitcoin programme.
  • No single node prevails over the others. None is trusted, and all nodes are treated equally.

What problem does blockchain solve?

Byzantine Generals Problem in Blockchain Technology

  • The main challenge that distributed networks are faced with is consensus.
  • In the event of a faulty or defective component, the network needs to manage the failure and prevent any damage. 
  • A failed processed could be triggered by a component that crashes, re-boots or shuts down, or even behaves byzantine.
  • This problem is best known as “problem of the Byzantine Generals”. 
  • In the case of Bitcoin, the entire network of nodes needs to agree on the validity of transactions. 
  • There is always a risk of misinformation or miscommunication between users, whether accidental or deliberate, which is why consensus is key.
  • Distributed Ledger Technology, and several other types of computer networks, would fail to function properly.
  • The loyalty of more than 50% of the nodes that constitute the blockchain network is key to reach consensus and, thus, provide a solution to the problem.
Byzantine Generals Problem Explained

Blockchain Cryptography

Hash

A hash is a function that transforms a string of letters and numbers into a fixed-length encrypted output.

What is a Blockchain Hash?

  • A cryptographic hash function is a mathematical process that transforms identical data into a unique, fixed-size code, which is widely used to verify data authenticity.
  • Any data alteration, whether accidental or malicious, would fully alter the hash code.

Cryptographic Hash Functions

  • Password storage is the most coord storage is the most common use for a Hash
  • Hash functions are one of the ground pillars of the blockchain technology and ensure immutability.
  • Solving the hash starts with the data available in the block header.
  • Each block header contains:
    • Version number
    • Timestamp
    • Hash of previous block
    • Hash of the Merkle Root
    • Nonce
    • Target Hash
  • Fun Fact: Satoshi wanted to avoid confusion in Bitcoin addresses, so he removed O0lI characters.

Bitcoin Hash Key

Private Key (PrivKey)

  • It is initially generated at random, and is kept secret at all times. 
  • It is used to transfer bitcoins from one owner to the other. The original owner has to digitally sign off the transaction to validate it.
  • The digital signature of a transaction confirms ownership and can be used to check that the transaction is genuine.

Public Key (PubKey)

  • The public key is generated from the private key using a unique has function.
  • It is used by the new owner to verify the digital signature of a transaction.
How do Digital Signatures Work

What are some uses of blockchain?

  • Currency 
  • Digitalised Commodities 
  • Record keeping
  • Process monitoring
  • Quality Assurance

Companies Currently Using Blockchain Technology

Bank and Finance HSBC BBVA Barclays VISA Intesa Sanpaolo
Supply Chain AB InBev Walmart DB Ford Unilever
Healthcare Pfizer Change Healthcare FDA CDC DHL
Insurance AEGON Prudential MetLife AIA AIG
Energy SIEMENS Shell Adnoc CNE Tennet
Real Estate Westfield JLL Brookfield Coldwell Banker LINK
Trade ANZ Bank of China SEB Scotiabank MIZUHO
Government Government of Dubai MAS Seoul Lantmäteriet Uganda National Drug Authority
IoT Smart Electric Power Alliance McKesson Van Dorp Commonwealth Bank Maersk
Travel ETIHAD Airways Singapore Airlines DELTA British Airways Lufthansa

Uses for Blockchain outside Crypto

Blockchain (in conjunction with “smart contracts”) has many other applications outside the crypto world. It can help address more complex issues. For example:

  • Public Records:
    • Land titles, Criminal records, Voter records, Court records
  • Private Records:
    • Wills, Trusts
  • Other uses:
    • Certifications, Medical records, etc.

Music/ Art Registration

  • Ownership is registered permanently therefore no need for record labels to have a share of the artist’s work.
  • Smart Contracts technology allows artists to set automated payments to them based on licenses they design themselves.

Academic Certificates

  • Ease of Publication & Distribution
  • Independent validation
  • Immutable Records 
  • Reduced time and cost to issue (and re-issue) certificates
  • Data is accessible, even if the university or the institution’s website is no longer accessible.
  • Employers can verify job applications instantly, ensuring that a candidate is presenting valid academic certifications.

Real Estate Management

  • Property owners could digitally prove and transfer ownership immediately without the need to pay and wait for third-party verification.
  • A “digital ownership certificate” cannot be replicated, making selling or advertising properties you don’t own almost impossible, reducing property fraud.
  • Faster mortgage process and transfer of ownership.
  • Credit history, income could be checked immediately, saving time spent dealing with banks, attorneys, and intermediaries.
  • Homeowners may show that they own the property and have lived there for a certain amount of time.
  • Digital IDs may be attributed to properties, which would include the chain of ownership, a list of repairs, and other relevant information.

Supply Chain Shipping

  • Allows digitisation of the supply chain process
  • Reduce the time spent in transit and during the shipment process, by tracking the paper trails of shipping containers.
  • Enhance product accountability and protection while lowering costs and complexity
  • Reduce fraud and defects in product quality by improving stock control.

Solar Energy Management

  • Energy buying and selling is decentralised and direct among participants, ensuring independence from a third-party power supplier.
  • Transaction data is stored, as well as the amount of electricity produced per participant in a network.
  • A community or an area may set up a solar-powered energy trading system and keep track of transactions between residents.
    • Instead of selling excess energy back to the power provider, users can exchange it among themselves.
    • Participants can sell their excess energy to whom they decide and decide its price.

NFTs – Non- Fungible Tokens

A non-fungible token (NFT) is a digital file stored on a blockchain that certifies its uniqueness.

What are NFTs?

  • NFTs are non-fungible digital tokens that run, mostly, on the Ethereum blockchain using smart contracts.
  • CryptoKitty is the first NFT, with each kitty being an ERC-721 token.
  • They can be used to share digital assets and use the blockchain to check their validity.
  • While anyone can access copies of these digital products, NFTs are monitored on blockchains to provide the owner with a proof of ownership that is distinct from copyright.

But why buy NFTs?

  • Artwork NFTs are comparable to autographed art pieces.
  • Non-fungible basically means that it’s one-of-a-kind and can’t be replaced by anything else.
  • A bitcoin, for example, is fungible, meaning you can exchange one for another and get exactly the same thing.
  • A digital file, including the art that comes with an NFT, can be replicated as many times as you want.
    • NFTs are built to give you something that can’t be copied: ownership of the work.
  • To put it another way, anybody can buy a Picasso print, however, the original can only be owned by one person.
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Gucci Ghost NFT Screenshot

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