The Opportunities of the Blockchain Technology
Today, Blockchain technology, AI, IoT and autonomous vehicles are is the “hot” topic. The speculative valuation of Bitcoin gives the blockchain technology popularity. Тhe technology behind the Bitcoin is very innovative. Moreover, it provides solutions to use cases beyond its original purpose. This technology will become part of our lives.
So what is blockchain — the history, the concepts, the use cases and the future it offers?
Тhе ledger itself is defined as a register, book that records all incoming and outgoing transactions, assets in the domain of interest. Assets can be either physical or intangible. In general — anything that can be attributed with some kind of value can be recorded and/or moved through the blockchain network. The technology adds transparency, reducing risks.
Blockchain builds trust through the following five qualities:
- Distributed and sustainable;
- Secure, private and indelible;
- Transparent and auditable;
- Consensus-based and transactional;
- Orchestrated and flexible;
Eary developments of the blockchain technology
The basis of the blockchain technology originates from computer science and cryptography circles. But most of these science papers remained to be partial solutions and academic. The history begins with the Merkle Tree in 1979. But, its first successful implementation was Bitcoin.
What is the problem that Bitcoin tries to address? Cash is useful only in local transactions. On contrary, long-distance transfers take a long time to finish and are prone to errors. They also require third parties to ensure transactions are safe. Moreover, fraud and cyber attacks are not excluded. Finally — half of the people of the world do not have bank accounts.
First successful implementation of Blockchain? Bitcoin (crypto-currency)
Satoshi Nakamoto published the white paper “Bitcoin: A Peer-to-Peer Electronic Cash System”. This paper was the start of the first cryptocurrency in the world. It discussed digital cash transfers across the internet in the first distributed trustless cash protocol. Also, this is an open source project with code base available to all interested parties. This was the first practical and proven application of the blockchain technology. Bitcoin has created a strong cross-border following. Currently, bitcoin has a rapid increase in value and high price volatility as well. The Bitcoin’s architecture diagram can help us understand the blockchain basics:
The data is stored in a chain of blocks, thus the name “blockchain”. Blockchain gives the means to record and store transactions. Key characteristics of the blockchain are:
How blockchain addresses the challenge?
The blockchain “database” has two types of elements: transactions and blocks. Blocks hold batches of transactions with hashs encoded into a Merkle tree. Each block has the hash of the prior block and links the two elements of the chain. The linked blocks form the chain. The process is iterative and every new block confirms the integrity of the prior one. Usually, a new block generates in time frames of 10 minutes. In Bitcoin, it takes up to 5 seconds in some other blockchains, depending on use cases. For a transaction to be final, enough peers in the transactions need to “witness” the new block.
Blockchain and bitcoin
New methods are used to mine new blocks. Original mining strategy in Bitcoin is Proof of Work consensus protocol. The general rule of consensus is to continue with the longest (winning) chain which eliminates hostile actions, spam, double spending and network splits in the time frame between 2 block generations. The Proof of Work protocol increases the difficulty of the computational work needed to be done as proof that blocks can be generated.
Bitcoin transactions explained
Every owner of the Bitcoin has its own unique account address.This combined with his private and public digital signature proves the ownership of the Bitcoin wallet. Public keys sign the transactions.The private key in pair with the account address proves the ownership to the network without sharing secrets. You can send/receive portions of 1 coin (decimals).The ledger records the transactions and the wallet adds and subtracts the amounts of Bitcoins. A person can print his account address, his public and private keys and put the printed document in a safe location. This is the as paper / offline wallet. The savings are guaranteed in this scenario until Bitcoin network is operational. Thanks to its distributed manner the ledger can survive any possible scenario. Since the summer of 2017, there is a satellite world coverage that streams the blocks to all parts of the world. Bitcoin works out of the box and shows the possibilities in the future.
New blockchain developments
There are newer cryptocurrencies such as Litecoin, Monero, Dash. They try to solve some of the limitations of Bitcoin design. The focus is on lowering the cost, the speed of transactions and privacy of the senders. Current market cap of Bitcoin is about 262 billion USD (or 460 billion of the top 6 cryptocurrencies). The market decides the value of the “coin” and it is completely arbitrary like gold. The market traders agree upon the value of the unit by selling and purchasing it for a certain price. Bitcoin started with a value of below 1 cent and it has reached a value of $19000 per coin. There is a division of Investment analysts in two camps. One team expects future growth as new practical scenarios become relevant. They compare Bitcoin to the new wave of investment in IT like the Silicon Valley boom. But, almost all national banks are very concerned about the rise of cryptocurrencies. The volatile price, lures small investors by promises of high and fast returns. Also, the nation states concern about money laundering and “dark web” transactions. Some analysts compare the Bitcoin with the Tulip mania case . This was among the first historical records of market bubbles.
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