When people talk about cryptocurrency they often mean bitcoin, the digital currency. The monetary aspect is just the tip of the iceberg when it comes to cryptocurrency. The technology behind bitcoin, called the blockchain, is a groundbreaking new internet driven technology for which money is just 1 of the possible applications of this new technology.
Blockchain is actually very comparable to a regular database, except that all the data on this blockchain database are shared and continually updated. There is no central server where all the data is stored, instead millions of computers, called nodes, are connected with the network to keep it running. All the data is publicly available and easily verifiable. Blockchain enables a collective bookkeeping system to be exploited automatically by all the nodes. All transactions are written into what is called the ledger. This ledger is available for everyone to consult.
So a bockchain is a network run by nodes. A node is simply a computer connected to the blockchain network that verifies and validates transactions. These nodes are often referred to as “miners”.
The fact that this network is controlled by thousands and even millions of computers makes it near to impossible to hack it. This characteristic also makes it impossible for one single entity to control the entire blockchain. This is what is called decentralization.
Blockchains can be separated into two main groups. The permissioned and unpermissioned blockchains. The one we are the most familiar with are the unpermissioned blockchains. This is the kind of blockchain that bitcoin and many other altcoins use. It is a blockchain where anybody can join the network. It’s a well distributed network that uses a lot of ressources and often at the core of this network lies a cryptocurrency. The permissioned blockchain is a more closed blockchain. The creation of new blocks happens by selected members of the network. Not anybody can join the network of nodes. It’s a more centralized form of blockchain. This kind of blockchian needs less ressources and often a cryptocurrency is not needed to operate the bockchain. These types of blockchains are more relevant for governments.
The blockchain has also no point of failure. In ordinary databases there can always be errors due to human or machine errors. The blockchain registers every transaction automatically. Furthermore every transaction has to be verified and accepted by the whole network. This eliminates the risk of point of failures.
The blockchain is transparent and incorruptible. The Bitcoin network works in 10 min intervals. After every ten minutes the network bundles every transaction that happened within these 10min. Blockchain is actually a self-auditing system of digital value. Every 10 min a checkup happens after which all these new transactions are bundled in a block and coupled to the blockchain.
Together they act as a powerful and robust second generation network. So every node can join the network voluntary. All participants join the network because they are incentivized to do so. When a transaction is verified the node who found the cryptographic puzzle gets the reward in bitcoins.
Each node of the blockchain owns a full copy of the blockchain. In this blockchain all info about transaction history is being stored. On basis of cryptographic mathematical principles, transactions are verified by the “miners”. They maintain the ledger. The math behind blockchain ensures that all the nodes automatically and continuously agree about the current state of the ledger. If someone tries to corrupt a transaction the nodes will not agree and thus the transaction won’t be verified. So all these nodes unanimously agree about every transaction. Everyone with a computer has access to this single and shared file of truth. This is the so called transparency characteristic from the blockchain.
By keeping all the data stored across the network, the blockchain eliminates risks that comes when data is being held centrally. The internet today has security issues that every one is aware of. We now mostly rely on a system with username/ password. Blockchain security uses cryptographic encryption technology to achieve this. In the blockchain users get a “public” key and a “private” key. The public key is your address where you can deposit or receive funds on. This key is a long randomly generated string of numbers. The “private” key is the password you need in order to access your funds. You lose your private key you lose access to your funds. When you print this information out you get what is called a paper wallet.
Bitcoin has been implemented as a digital currency. Using the blockchain we can program these tokens to represent almost anything e.g. oil barrels, euro, kilowatt, digital certificates, degree’s, election votes, energy surplus,…
Blockchain technology makes our currency smarter by automatizing cash and money flows. You can program all sorts of rules into the money. To make this more clear an example: the spending of a company often happens through specified budgets. You can program budgets that can only be used for certain activities, eliminating thus any risk of misallocation of funds.
This way you can get Compliancy before a transaction takes place. This means that all the rules of the transaction are met before a transaction is done. This is now often not the case. Look at for example health care. It can be totally possible to program on the blockchain that healthcare allowances given by government can only be used in specified agencies and medical centers. This will prevent that not a single dollar will be spent on other things that what they are meant for.
All this automation will lead to much less bureaucracy. Accountants, controllers and organizations will save incredible amounts of time.
Blockchain has a programmable and open character. This enables us to innovate our whole financial system, decrease bureaucracy and be more transparent than ever.
But there is more… automatic machines will be part of our economy. They already are a great part of our economy. A problem with machines is that the concept of trust is not embedded in these technologies. Thankfully bitcoin is very familiar with this concept. For example a drone that delivers packages to a vending machine. Thanks to the blockchain the drone will be 100% sure that that vending machine is the right recipient and he will also know that the goods have been paid for. The vending machine can be programmed to do its own inventory, to order new goods and to pay for them automaticcaly.
Internet has opened up our economies in a way we could’ve never imagined. Blockchain is doing the same thing, this is just the beginning. Applications are being thought of every day. All the characteristics mentioned above are so disruptive that this technology will change our lives for better or worse.
Now that we understand the technology behind bitcoin let’s see where this new technology could be implemented.
Applications built on the blockchain technology :
• Monetary
This is until now the most developed application built on the blockchain. Bitcoin was firstly implemented with the purpose to form a digital currency based on cryptographic principles. This currency is open source and uses peer to peer network. Nowadays many cryptocurrencies have been invented with the only purpose of being an exchangeable cryptographic currency. Bitcoin is the most know and most popular among all of them. Others have emerged like for example: Litecoin, Monero, tenX,…
• Smart contracts
This distributed ledger makes it possible to program simple contracts that will auto execute when certain conditions are met. The most famous cryptocurrency that has implemented this application on its blockchain is ethereum. Ethereum was developed and invented by Vitalik Buterin, a young Russian programmer and cryptocurrency researcher.
Vitalik has built ethereum specifically to realize the possiblility of smart contracts. Ethereum itself is still in developing phase, although many apllications are already being built on the ethereum platform.
At current state of technological development, smart contracts can be programmed to perform only simple contracts. A lot of new features will be implemented on ethereum and other platforms that will enable anybody to program a smart contract on the blockchain.
A simple example of such a smart contract would be for example: selling a house. Before you can sell your house the buyer will need to have the funds, have all the administrative papers in order and has to pay a notary. You can program via a smart contract that this transaction only takes place if those 3 conditions are met. When all conditions are met a transaction takes place. The funds go from the buyer to the seller and the property goes to the buyer.
• The sharing economy
With the surge of sharing economy companies like Uber and AirBnB we can ask ourselves if blockchain can improve these business models.
Currently users have to rely on a central intermediary like Uber. Implementing a blockchain in these businesses would enable peer to peer payments which in turn would lead to direct interaction between users. The result would be a truly decentralized sharing economy.
An example of an early adopter of this application is OpenBazaar. OpenBazaar uses blockchain to create a peer to peer second hand marketplace like e-bay. This means users can transact with vendors without to pay transaction fees.
The nature of the protocol used in this blockchain and the way blockchains operate will mean for vendors that reputation will be even more important than in market places like e-bay. This will indeed diminish the risk of scams.
• Crowdfunding
Crowdfunding is also one of the most used applications of blockchains. Through the ethereum platform hundreds of crowdfunding projects have already taken place. The ethereum platform has proven that this function is very efficient.
For example Basic Attention Token, an Initial Coin Offering launched on May,31 2017 could raise as much as 35 Million $ in under 30 seconds. BAT is an ethereum based altcoin that allows marketers to sell and publishers to buy ads without to constantly having to trach the users.
These crowdfunding applications are being used already. Many governments are seeking to regulate these blockchain based crowdfunding practices. This is maybe not so bad considering all the ICO’s that turned out to be complete scams. It will be interesting to see where regulation and blockchain will meet each other.
• Governance
The transparent character and the fact that all transactions are publicly available for everyone makes it also very suitable for elections or any other kind of poll taking. Smart contracts can help automate the whole process.
Applications developed for this purpose make it possible to enable organizational decision making on the blockchain. This will make any company or entity using this technology for decision making fully transparent and verifiable. The decision making process will ensure that there is always a decentralized consensus between all the parties. An example of such an application being implemented is called Boardroom.
Boardroom is governance framework and a decentralized application built for companies and even individuals to manage their smart contracts on a blockchain of their choice ( permissioned or unpermissioned). Voting of board members can be done unanimously, safe and very efficiently.
• Supply chain auditing
Consumers are more and more concerned about the history of their products. Nowadays you often buy goods based on the trust that the seller gives you the right info. But what if all relative info is registered on a blockchain? In that case you could scan the barcode into the system and the whole history of the product would be encrypted in the blockchain.
The whole food industry is a joke right now. There is more food production than there is demand for it. Never the less more than half of the world population is living in poverty. Linking the blockchain to the whole food supply chain could help us better reallocate our food resources.
In industries like for example the diamond and art sectors this could be really interesting. These products have long histories and can even gain value if they were in hands of certain people. Another example would be horse or dog breeding. The purer the ancestors the more valuable the puppies are. This pureness and list of ancestors can be encoded in a blockchain.
In the UK a company is using the ethereum blockchain to ensure that fish sold in Sushi restaurants in Japan are being sustainably harvested by its suppliers in Indonesia. This company is called Provenance.
• File storage
Decentralized file storage is another great blockchain application that will bring enormous benefits. One major advantage would be security. Files correctly stored on a blockchain will be near to impossible. The files will be protected by the whole blockchain it will be running on.
Nowadays most cloud storage services like for example dropbox are still centralized and depend on the servers of the provider of these servers. Putting these cloud storage services on a blockchain would also take away the risk of the owner of the service to do any harm to the system in place.
Coupling a blockchain to these services would also speed up file transfer and streaming times. These improvements are not only convenient but they are necessary to keep up with the increasing amount of content that is out there on the internet.
• Prediction markets
Prediction markets are also gaining some traction. It is proven that event outcomes can be predicted with great accuracy by averaging out opinions. These prediction techniques were already used in many areas.
Linking them to the blockchain could scale this technique up and it could offer more accuracy and transparency. A cryptocurrency that is just doing that is Augur. You can buy shares of event outcomes like for example who is going to win the election? The prices of these outcomes change via mechanisms of demand and supply. If you predict the right outcome you will get paid in Augur.
• Protection of intellectual property
In the internet world there is not much talk about intellectual property. Almost every content is out there for free. But what if we could couple a system to a blockchain that ensures artists and producers of content that no one can access their property unless it is paid for. This can be automated through the use of smart contracts.
Mycelia is a music distribution system that already uses smart contracts to sell directly to audiences or to license sample to producers. The capacity of some cryptocurrency to handle cheap micro payments is also a sign that blockchain has a lot to offer to this economic area.
• Internet of things
Internet of thing is the automatization of electronic devices. For example window curtains that close automatically when the light is too intense. Or air temperature in a storage facility. The combination of sensors, software, network and a blockchain could atomize a lot of processes. This would in return lower production cost.
• Neighbourhood Microgrids
Blockchain makes it possible to buy and sell energy from neighbors. When solar panels make excess of energy this excess can then be sold to the blockchain. A smart contract can then automatically redistribute all the energy.
Many projects that aim to do just this are already implementing prototypes. One of them is LO3. Their company mission formulates very well what they aim to achieve: “we are revolutionizing the future of energy: reimagining how it can be generated, conserved, traded and shared”.
• Identity management
There is definitely a need for a better identity management on the internet. The ability to verify your identity has been a major topic in the internet world. With the amount of different accounts and passwords a person has nowadays this topic has gained more and more attention.
Distributed ledgers offer secure methods to verify ones identity. These techniques can then be adopted by any service that requires identity verification. One example is Civic. Civic is an altcoin that aims to tackle the problem of consumer identity theft and reducing online identity fraud.
• Land title registration
Blockchain being in fact enormous databases can contain any kind of record-keeping. It does it more efficiently, faster and more transparent.
This is why some countries are developing projects to register all their land on a blockchain. One of these countries is Dubaï but many others will follow. The idea is that when a piece of land gets transacted this gets registered on the blockchain. This will eliminate any form of doubt relating to who owns what.
• Stock trading
Blockchain can also be used in the stock market. Confirmation time will have to get better but in theory it could potentially remove the intermediaries out of the stock market.this would make the whole financial system more efficient.
Of course there are many other applications possible with the blockchain. These are just a few to show how wide the range of possibilities are. It sure will be very interesting to see how these technologies get adopted in the near future.
Author: Felich
https://blockgeeks.com/guides/what-is-blockchain-technology/
https://blockgeeks.com/guides/smart-contracts/
http://boardroom.to/
https://www.openbazaar.org/
https://www.provenance.org/
https://augur.net/
http://lo3energy.com/