Introduction to blockchain

When goods are exchanged, a certain amount of trust is involved. The buyer wants to ensure that they receive what they pay for and the seller wants to ensure they get paid for what they sell. Similarly, if you lend someone money, you want to ensure that they pay you back as agreed. If it’s a good friend or someone you know well and there is a high level of trust, this exchange take place much more simply. But when it involves 2 strangers who don’t know or trust each other, it gets more complex. Similarly, as the value of the exchange increases the level of trust needs to increase.

To solve our issues of mistrust, we use a third party – a centralized intermediary / broker / middleman – to lower the uncertainty. Eg. a bank, escrow or PayPal to exchange money, eBay, Amazon and Discogs to sell goods, Airbnb to host your home to travellers… These intermediaries connect people together and establish trust that the owner has the right to sell, the buyer has the means to pay and will help to resolve issues that arise. The intermediaries have too much to lose if things go wrong and they become untrusted.

Typically, the intermediary validates and records the business transactions for all exchanges, updating all the parties involved, which is more efficient than each person trying to keep track themselves, reducing the the possibility of human error or fraud.

The problem of third party intermediaries is that it can still be inefficient and introduce overhead and delays in keeping everyone updated, transaction times and carrying out agreements. They are also a single-point-of-failure, vulnerable to fraud, security attack, technical malfunction, human error or a natural disaster, as all the information is kept centrally by them. It requires just one corruption, intentionally or unintentionally, for data to be lost and trust to diminish. Also, intermediaries usually expect payment for their services, which they are often accused of taking too high a cut for the services they provide and can increase the fees at any time. As people have little alternative they continue to use intermediaries and have little say. Some people fear that as intermediaries grow they may abuse their power (eg censorship, decline a transaction request or freeze all assets).

This is where the Blockchain can resolve these issues. Blockchain technology lowers uncertainty and allows people who don’t trust each other to efficiently exchange value without using a centralised third party intermediary. The trust is placed not in the users but in the technology – software code, cryptography and collaboration.

Blockchain technology validates and records the business transactions and assets for all exchanges of every participant (who owns what and who transacts what), stored in what is known as a ledger (database / registry). Each time a transaction is made, it is shared to all participant’s individual computers (which is known as peer-to-peer replication, between people directly and not via a central intermediary), where every computer (of which there can be millions) has an identical ledger that is updated locally, providing one version of truth that shows all the details of every transaction end-to-end. So the ledger is stored in multiple places & multiple people are responsible for updating and securing the ledger. Trust is established by increasing transparency, ensuring everyone has the same ledger and hence access to the same information.

How does blockchain work?

There are varying implementations of blockchain. Below is a simple description of how blockchain works:

  1. A user requests a new transaction, eg. Person A wants to transact with Person B.
  2. The requested new transaction is sent/broadcast to every computer on the specific blockchain network (P2P network of computers).
  3. Every computer in the network checks the new transaction (verification) and the user’s status against some validation rules /algorithms that are set by the creators of the specific blockchain network.
  4. Once verified, the new transaction is combined with other transactions to create a new data block. Each block has limited storage size to store the transaction data. When a new block is full, it’s timestamped and linked securely using public/private key cryptography (involving checksums and hash functions) to the previous block, which is linked to the previous block etc, forming a chain of blocks. Each subsequent block strengthens the verification of the previous block and hence the entire blockchain.
  5. A new block is validated by consensus by being sent/broadcast to the network of computers (rather than 1 single central authority) to perform checks on the cryptography. If the network doesn’t agree with the new block checks then the suspected fraudulent block is rejected, it will not be processed and will not be added to the blockchain.
  6. If accepted by majority of the network, the new block is added to the end of the existing blockchain in a way that is permanent and unalterable, creating a reliable & transparent record of the transaction. It is replicated on every computer’s ledger on the network, making it publically available and ensuring there is only one version of truth.
  7. The transaction is complete and part of the blockchain. Eg. Person A has transacted with Person B. It can not be altered in any way.

The transaction is stored permanently on the blockchain. Blockchain records all transactions ever made, in chronological order, from the first one until now, making it possible for anyone to inspect all the transactions.

As the ledger is decentralised and kept communally, no single computer, user or institution is in charge or controlling the blockchain. If any single computer keeping the records is hacked or knocked offline, other computers can continue without it. The built in redundancy means the blockchain is robust with no single point of failure.

Blockchain data structure is append only (data can only be added to the end of the chain). Individual transactions in a block or a whole block that’s already recorded in the ledger cannot be changed or deleted without being noticed obviously by others, as the checksum/cryptography wouldn’t be correct. Similarly, it’s not possible to Insert a block between two existing blocks. The ledger is very secure, verifiable and tamper-evident. This is why the blockchain is said to be immutable.

To make a change, every block on the chain (all history) would have to be hacked and not just on 1 computer but everyone’s computer (millions) simultaneously. This built-in validation and tamper-evident feature removes the possibility of tampering by a malicious actor (eg a database/system administrator) and makes it secure.

New transactions are constantly being processed into new blocks that are added to the end of the chain. As the number of transactions grows, so does the blockchain.

When a computer connects to the network for the first time it downloads the entire blockchain and stores the full ledger that has the entire transaction history.

Key attributes of blockchain

The following attributes are used to describe blockchain:

Use Cases: What is blockchain used for?

Blockchain was created by Satoshi Nakamoto in October 2008 for the digital cryptocurrency Bitcoin, with the aim to build a system of electronic money without banks or a central authority ruling. However, blockchain can be used to store, track and trade not just cryptocurrencies and transactions but virtually anything of value. There are many different blockchains used for many different purposes.

Blockchain can be used for ‘Smart Contracts’, where computer code is stored inside each block. The code can enforce agreements/contracts between all participants involved, without an intermediary’s involvement. Participants can agree to a contract with set predetermined terms and conditions. The code will run a program/application and only when the conditions are met will specific actions be performed. Blockchain doesn’t allow participants to change the agreement or back out. Eg. the code could read from external data sources, such as stock market prices or flight delays or weather for a specific location, and then perform actions such as buying/selling shares or making an insurance claim payout.

Ethereum is an example of a blockchain-based platform that runs smart contract code.

There is speculation that in the future smart contracts could replace the need for lawyers.

Most blockchain applications concern data management and data verification and are used within organisations that have fast-paced innovative cultures, such as the financial sector. However, there are use cases for it across all industries, including government, farming, agriculture, utilities, healthcare, insurance, AI, publishing, real estate and social media. Intermediaries facilitating data exchanges between participants in any industry could be replaced by a P2P system like blockchain.

Blockchain can be used for both static and dynamic data:

  • For history and ownership of static information/records that don’t change. Eg. land title, government voting records, identity records, patents and smart contracts (eg for insurance payout claims).
  • For dynamic tradable information and transactions of things that are exchanged and change owners over time. Eg. trade finance / fractional investing, supply chain, payment systems, insurance claims, initial coin offerings (ICOs) and blockchain as a service.

Although the variety of uses are increasing, Blockchain is still an emerging immature technology, which can be complex, expensive, inefficient, has scalability and interoperability issues and often existing technologies can solve the problem better. The value that blockchain brings needs to be carefully considered for each individual use case. Some have said that Blockchain is a solution in search of a problem. Blockchain may work for a particular use case but what value does it bring over a traditional database? If blockchain can be replaced with a database to give the same result then it’s nothing new and of little value. Also, if there’s only one entity involved, blockchain is not needed as information can be stored in one place (a database).

Remember that Blockchain was originally created to change the way we manage trust & ownership, share data securely across multiple parties and eliminate intermediaries, to distribute the power back to the users.

However, democratization and removing a central authority is not always happening, as in order for an organisation to justify and ensure a good return on investment in this new technology, usually someone in the organisation takes a lead role to pioneer and develop the platform. Then they bring in industry partners. Often an organisation is more concerned with digitalising the organisation, appearing to be transparent, collaborating with others and modernising their brand/reputation to attract attention and gain competitive advantage.

A good use case for blockchain is where a business has already gone through digitalisation, a centrally kept database would be a major liability and there is a low trust environment where participants can’t trade directly or there is a lack of an intermediary to facilitate.

What are the downsides of blockchain?

Other than cryptocurrencies, few blockchains have been used & tested in the real world for a decent amount of time (common usage is proof-of-concepts), so with the limited proven use cases it’s not clear if blockchains are better than old ways of recording data. It’s not clear if there are a lot of use cases needing decentralisation.

There are many different implementations of blockchain that have different consensus algorithms, which are still being experimented with to address various concerns associated with using blockchain.

Blockchain is said to be inefficient in comparison to traditional databases, where it consumes a lot of energy/resources (including high environmental impact), transacts/processes slowly, difficult to scale and is costly to maintain. Inefficiency increases with more users. This is due to the many computers on the network needing to share the ledger and perform the cryptographic and security activities. It’s worth noting that Bitcoin was purposefully designed to be energy intensive and requiring high computation as a barrier to entry and to manage the number of computers. It takes minutes to complete a Bitcoin transaction, where a transaction on a typical database takes fractions of a second. To increase efficiency, blockchain can be implemented in a way to place limitations on the amount of data stored. So rather than storing actual records, blockchain can be used as an index for locating the records (which are stored elsewhere).

Regarding ownership and privacy, the distribution attribute of blockchain can be a disincentive, although it is possible to have private blockchains, aswell as public blockchains, where those who are participating can be restricted and identified. You can also have permissionless and permissioned blockchains, where restrictions on what users can be do varies.

Security is another concern. Blockchain is still experimental and there is uncertainty. There is a lack of academic research, standardisation and regulation.

Blockchain being immutable, having tamper-evident records, can be a disadvantage aswell as an advantage, as it is not possible to modify or remove a record for legitimate or legal reasons.

There are technical hurdles to implementing blockchain due to a lack of standards and developers. Those working on blockchain projects are often enthusiasts learning as they go along. There are ~20Million active developers for Bitcoin & blockchain technology worldwide. Yet 1 in 1000 (~20,000 in total) feel confident in their skillset to consider themselves blockchain programmers & apply for open positions. It’s still early days.

Conclusion

Blockchain is just one way to solve a problem of centralised systems. In the future, there are likely to be different ways (that don’t use the blockchain) and different consensus technology allowing a different way to set up rules and establish trust. This is just the beginning.

8 thoughts on “Introduction to blockchain

  1. Hey, how’s it going?

    I want to pass along some very important news that everyone needs to hear!

    In December of 2017, Donald Trump made history by recognizing Jerusalem as the capital of Israel. Why is this big news? Because by this the Jewish people of Israel are now able to press forward in bringing about the Third Temple prophesied in the Bible.

    Jewish Rabbis have publicly announced that their Messiah will be revealed in the coming years who will be a leader and spiritual guide to all nations, gathering all religions under the worship of one God.

    Biblical prophecy tells us that this Jewish Messiah who will take the stage will be the antichrist “who opposes and exalts himself above all that is called God or that is worshiped, so that he sits as God in the temple of God, showing himself that he is God” (2 Thessalonians 2:4). For a time he will bring about a false peace, but “Therefore when you see the ‘abomination of desolation,’ spoken of by Daniel the prophet, standing in the holy place (Matthew 24:15)…then there will be great tribulation, such as has not been since the beginning of the world until this time, no, nor ever shall be” (Matthew 24:21).

    More importantly, the power that runs the world wants to put a RFID microchip in our body making us total slaves to them. This chip matches perfectly with the Mark of the Beast in the Bible, more specifically in Revelation 13:16-18:

    “He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, and that no one may buy or sell except one who has the mark or the name of the beast, or the number of his name.

    Here is wisdom. Let him who has understanding calculate the number of the beast, for it is the number of a man: His number is 666.”

    Referring to the last days, this could only be speaking of a cashless society, which we have yet to see, but are heading towards. Otherwise, we could still buy or sell without the mark amongst others if physical money was still currency. This Mark couldn’t be spiritual because the word references two different physical locations. If it was spiritual it would just say in the forehead. RFID microchip implant technology will be the future of a one world cashless society containing digital currency. It will be implanted in the right-hand or the forehead, and we cannot buy or sell without it. Revelation 13:11-18 tells us that a false prophet will arise on the world scene doing miracles before men, deceiving them to receive this Mark. Do not be deceived! We must grow strong in Jesus. AT ALL COSTS, DO NOT TAKE IT!

    “Then a third angel followed them, saying with a loud voice, “If anyone worships the beast and his image, and receives his mark on his forehead or on his hand, he himself shall also drink of the wine of the wrath of God, which is poured out full strength into the cup of His indignation. He shall be tormented with fire and brimstone in the presence of the holy angels and in the presence of the Lamb. And the smoke of their torment ascends forever and ever; and they have no rest day or night, who worship the beast and his image, and whoever receives the mark of his name” (Revelation 14:9-11).

    People have been saying the end is coming for many years, but we needed two key things. One, the Third Temple, and two, the technology for a cashless society to fulfill the prophecy of the Mark of the Beast.

    Visit http://WWW.BIBLEFREEDOM.COM to see proof for these things and why the Bible truly is the word of God!

    If you haven’t already, it is time to seek God with all your heart. Jesus loves you more than you could imagine. He wants to have a relationship with you and redeem you from your sins. Turn to Him and repent while there is still hope! This is forever…God bless!

    “EITHER HUMAN INTELLIGENCE ULTIMATELY OWES ITS ORIGIN TO MINDLESS MATTER OR THERE IS A CREATOR…” – JOHN LENNOX

    We all know God exists. Why? Because without Him, we couldn’t prove anything at all. Do we live our lives as if we cannot know anything? No. So why is God necessary? In order to know anything for certain, you would have to know everything, or have revelation from somebody who does. Who is capable of knowing everything? God. So to know anything, you would have to be God, or know God.

    A worldview without God cannot account for the uniformity and intelligibility of nature. And why is it that we can even reason that God is the best explanation for this if there is no God? We are given reason to know or reject God, but never to know that He does not exist.

    It has been calculated by Roger Penrose that the odds of the initial conditions for the big bang to produce the universe that we see to be a number so big, that we could put a zero on every particle in the universe, and even that would not be enough to use every zero. What are the odds that God created the universe? Odds are no such thing. Who of you would gamble your life on one coin flip?

    Is there evidence that the Bible is the truth? Yes. Did you know that the creation accounts listed in the book of Genesis are not only all correct, but are also in the correct chronological order? That the Bible doesn’t say the Earth was formed in six 24-hour days but rather six long but finite periods of time? That the Bible makes 10 times more creation claims than all major “holy” books combined with no contradictions, while these other books have errors in them? The Bible stood alone by concurring with the big bang saying, “In the beginning God created the heaven and the earth” (Genesis 1:1); and says our universe is expanding, thousands of years before scientists discovered these things. Watch a potential life-changing video on the front page of http://WWW.BIBLEFREEDOM.COM with Astronomer(PhD) Hugh Ross explaining all these facts based on published scientific data. He has authored many books, backed even by atheist scientists.

    Jesus fulfilled more than 300 Messianic prophecies concerning His birth place, details of His life, His mission, His nature, His death, and His resurrection. He came to pay a debt that we could not, to be our legal justifier to reconcile us back to a Holy God; only if we are willing to receive Him: “For the wages of sin is death, but the gift of God is eternal life in Christ Jesus our Lord” (Romans 6:23).

    God so loved the world that He gave us His only begotten son, so that whoever believes in Him, through faith, shall not perish, but have everlasting life. Jesus says if we wish to enter into life to keep the commands! The two greatest commands are to love God with all your heart, soul, strength, and mind; and your neighbor as yourself. All the law hang on these commands. We must be born of and lead by the Holy Spirit, to be called children of God, to inherit the kingdom. If we are willing to humble ourselves in prayer to Jesus, to confess and forsake our sins, He is willing to give the Holy Spirit to those who keep asking of Him; giving us a new heart, leading us into all truth!

    Jesus came to free us from the bondage of sin. The everlasting fire was prepared for the devil and his angels due to disobedience to God’s law. If we do the same, what makes us any different than the devil? Jesus says unless we repent, we shall perish. We must walk in the Spirit, producing fruits of love and forgiveness, so we may not fulfill the lusts of the flesh being hatred, fornication, drunkenness and the like. Whoever practices such things will not inherit the kingdom (Galatians 5:16-26). If we sin, we may come before Jesus to ask for forgiveness (1 John 2:1-2). Evil thoughts are not sins, but rather temptations. It is not until these thoughts conceive and give birth by our hearts desire that they become sin (James 1:12-15). When we sin, we become in the likeness of the devil’s image, for he who sins is of the devil (1 John 3:8); but if we obey Jesus, in the image of God. For without holiness, we shall not see the Lord (Hebrews 12:14).

    The oldest religion in the world is holiness (James 1:27). What religion did Adam and Eve follow before the fall? Jesus, Who became the last Adam, what religion does He follow? Is He not holy? He never told us to follow any religion or denomination but to deny ourselves, take up our cross daily, and follow Him (Luke 9:23). There are many false doctrines being taught leading people astray. This is why we need the Holy Spirit for discernment. Unlike religion, holiness cannot be created. It is given to us from above by the baptism of the Spirit. Jesus is more than a religion; He is about having a personal relationship with the Father. Start by reading the Gospel of Matthew, to hear the words of God, to know His character and commandments. Follow and obey Jesus, for He is the way, the truth, and the life!

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