The blockchain revolution is here..
And it disrupting everything.
Are we at the dawn of a new revolution? Is the blockchain revolution really as or more significant than the revolution brought about by the Internet?
Blockchain technology is being hailed as one of the most revolutionary technological advances of the day.
In a paper titled The Truth About Blockchain, Harvard Business Review hails this technology as foundational because of its potential to create a new basis for our economic and social systems. That paper predicts that the process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum.
PwC (PricewaterhouseCoopers) has named blockchain a tech breakthrough megatrend for CIOs, and Gartner has named it to its list of the top 10 strategic technologies for 2017. After hitting the peak of Gartner hype cycle in 2017, blockchain technology is predicted by Gartner to advance most quickly in the manufacturing, government, healthcare, and education sectors in coming days.
In this series of blog posts, we will deal with the core concepts related to blockchain technologies: patterns, cryptocurrencies, and the underlying technologies and architecture.
In the current blog post we start a general introduction of blockchain and address some basic questions.
Lets get started..
What is blockchain?
Blockchain is a seamless, secure, decentralized digital ledger that records all transactions, settlements, and ledger updates for multiple parties.
It maintains this continuously growing list of all transactions in records called blocks. Blockchain creates a secure way to share these pieces of information and perform transactions in a decentralized manner without approval from a single central party like a bank or credit card issuer. Only authorized network members can see details of their own transactions. All updates in the shared ledger system are validated and updated in all participants shared ledger for transparency, security, and accuracy. Because of all these updates, blockchain is immutable, auditable, and can easily trace its past activities.
How this can change the world?
Blockchain technology creates smart contracts that are embedded in digital code and securely stored in transparent, shared databases, where they are protected from deletion, manipulation, and revision. As a result, every agreement, every process, and every payment can have a digital record and signature that can be accurately identified, validated, stored, and shared.
Third-party intermediaries like lawyers, brokers, and bankers may no longer be needed to authorize transactions. All participating players in any transaction, from any part of the world, can freely and seamlessly transact and interact with one another in an open and secure way. These features drastically cut transaction cost and time; this is the immense potential of blockchain.
What are the main obstacles?
Despite blockchains potential impact on almost every business, there are several concerns slowing its widespread adoption.
Concerns about privacy and security are one of the biggest obstacles to blockchain adoption. Blockchain data are publicly visible by design, which creates regulatory concerns for governments and corporations. Governments and corporations have specific regulatory requirements to protect access to their data. Currently, there is no laws and regulation to address the new use cases with blockchain adoption. So new regulations need to be created and current laws must be altered. All these are time-consuming processes.
Like all new and nascent technologies blockchain implementations have vulnerabilities. Cyber criminals have been able to hack and steal from multiple cryptocurrency exchanges. Governments of several countries and corporations have expressed concerns over opportunities for malicious behavior and potential gaps in security of using and transacting cryptocurrencies. Vendors are working on building strong encryption and security mechanisms, and many blockchain entities and consortiums are evaluating options to ensure the technology is trustworthy for protecting private information.
There are other important obstacles to blockchain adoption including its sheer complexity, high initial costs, the difficulty of integration with legacy systems, and a talent gap.
When it was introduced?
Blockchain was first described in 2008, when a revolutionary paper on the topic of peer-to-peer electronic cash, Bitcoin: A Peer-to-Peer Electronic Cash System, was published under the pseudonym Satoshi Nakamoto. That paper introduced the term chain of blocks, which has now evolved into the word blockchain. To this day, no-one knows who Satoshi Nakamoto really is.
What is bitcoin?
The first major blockchain technology innovation was bitcoin, a digital currency. Bitcoin is digital cash that is exchanged through the Internet, peer-to-peer via a trustless system.
Every time someone buys bitcoin (or any digital coin) on a decentralized exchange, sells coins, transfers coins, or buys a good or service with virtual coins, a record of that transaction is added to the blockchain via blocks. People compete to mine bitcoins using computers to solve complex math puzzles.
(In the upcoming blogposts we discuss bitcoin mining and how transactions work in more details)
Bitcoin has following major characteristics.
- Decentralized No single authority controls bitcoin. Bitcoin operates in a trustless system. See the section below named What is trustless system?
- Controlled supply Total number of bitcoins that can be generated (mined) is fixed. Unlike traditional currencies like dollar, euro etc. bitcoin cannot be issued in an unlimited manner.
- Immutable Once complete, Bitcoin transactions cannot be reversed or tampered with.
- Divisible – The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001). This enables micro transactions that traditional currencies cannot.
- Anonymous – Bitcoin can be used to do transaction anonymously. Participating parties don’t need to identify themselves while doing a transaction.
What is trustless system?
Traditionally, transactions in conventional currencies require a trusted third-party, a central authority, to keep a ledger of who owns how much. Examples of trusted third parties include banks, credit card companies, brokers, etc. After adopting this technology, no central authority or third party is needed; each part of the ecosystem can validate what the other parts are telling it without needing to trust anybody. For example, if we create a bitcoin transaction, all nodes in the distributed system that receive it verify that the signatures are valid and discard the transaction if they are not. The bitcoin blockchain is shared among all of the participants, all of whom can independently verify its validity.
Bitcoin refers to many things!
Blockchain technologies can be confusing, as the term bitcoin refers to three different things.
- First, bitcoin refers to the underlying blockchain technology platform.
- Second, bitcoin refers to the protocol that dictates how assets can be transferred.
- Third, bitcoin refers to the largest cryptocurrency (so far) in the market.
Following diagram will show the three entities and how they are interconnected.
We will deep dive into underlying technologies and various implementations in the upcoming posts..
- Mastering Bitcoin: Programming the Open Blockchain By Andreas M. Antonopoulos
- Blockchain: Blueprint for a New Economy – Melanie Swan
- Mastering Blockchain – Imran Bashir
- Bitcoin: A Peer-to-Peer Electronic Cash System – Satoshi Nakamoto
- Blockchain: The Fifth Disruptive Computing Paradigm – Keegan F Denery