Blockchain Technology Unleashed
Blockchain is mechanics behind Bitcoin… and much more than that. Experts contend that the technology is no less pervasive and disruptive as Internet itself was in its day. At the moment, we are barely scratching the tip of the iceberg and talk about blockchain practical uses in terms of experiments and startups. The real fun is predicted to start in 3 to 5 years, but it would certainly pay to learn more about blockchain to-day.
Basically, blockchain is a data management method with some key features.
- Information is encrypted and batched into blocks which are then connected in a linear, chronological order. Thus, we get an incessantly growing chain (ergo blockchain), where each block contains a link to the previous one.
- There is no central authority to control what is going on – only participants, or nodes, agglomerated into a distributed peer-to-peer network, and the algorithm setting the rules. Hence, human bias, corruption, etc. are out of the equation, as well as intermediaries tearing off their slices of the pie.
- Adding a new block requires more than half of the nodes to say yes, and once a block has been added no one can change or erase it.
- Signals within a blockchain are not exchanged between certain nodes – they are broadcast to all of them at the same time, thus making the system public and transparent. Indeed, it is easier to steal a cookie from a stashed away box, than from a jar in a marketplace observed by thousands of people.
- To make the system even more stable and secure, each node stores a copy of all the blocks that have ever been added, from the very beginning. This way, if an attacker hacks a node or many nodes, the remaining ‘healthy’ ones will continue to operate, accepting the longest blockchain, i.e. the ‘true’ one, as valid.
So, blockchain comes in handy virtually in any field where we want processes to be fast, cheap and trusted, from financial management to music industry. This article outlines the four major applications:
Ultimately, money is about a verified entry in a database of accounts, balances, and transactions. Traditionally, it was up to trusted third parties, like banks or financial services companies, to verify entries. But in 2009 Nakamoto introduced a type of electronic cash allowing for a money system relying not on trust, but on math – Bitcoin. It boils down to a simple formula: pick up a token, build a blockchain-based P2P network, agreeing about what can and cannot be done within it, add encryption to ensure everything’s fair and square, and voila – cryptocurrency is served. There are hundreds of them now – Ether, Cardano, NEO, Zcash, etc. etc. – to suit different needs and fields. The trick is to make people follow you, which leads us to the notion of
Initial Coin Offer (ICO)
If a conventional business seeks to go public, they do IPO (Initial Public Offering). If a cryptocurrency startup wants to go public, they opt for ICO. The difference is that instead of issuing shares, fledgling blockchain projects offer investors cryptocurrency tokens. It’s a way to raise money for new ventures, a kind of crowdfunding. This is how Etherum, for instance, raised circa $18 million in bitcoin in 2014. Among other successful ICO campaigns are those by Tezos, Bancor, TenX and so on.
Smart contracts are contracts which are automatically enforced by computer protocols. The idea was first suggested as early as in 1994 by Nick Szabo. Yet, it was not put to good use until blockchain & cryptocurrencies emerged, making it much easier to register, verify and execute smart contracts. Now the two concepts work together to trigger transactions when a certain condition of an agreement is met.
Distributed and safe data storage
Storing bulky chunks of information – say, video archives – directly in a blockchain wouldn’t be a good idea, because each node in such a network would have to duplicate all those gigabytes. That’s why data storage companies like Storj, Filecoin or Decent use blockchain as an ‘incentive layer’: to implement smart contracts between owners of information and ‘farmers’, who store it on their machines; to pay farmers in cryptocurrency; and to keep records of what is happening to the data stored.