Blockchain is a hot topic globally today. It, along with Bitcoin and digital currency, became the subject of discussion in many newspapers and people’s conversations. However, when it comes to blockchain, there is still a lot of controversy. Some worry that Bitcoin may just be a bubble, many consider the technology behind it to be a breakthrough, and that technology will continue on its way until it is accepted and integrated with the Internet. .
Even Jamie Dimon, CEO of JP Morgan, who was fiercely opposed to Bitcoin and caused a lot of anxiety for the digital currency community, agreed that DLT (distributed ledger technology) technology) has huge potential to transform finance and other disciplines. Furthermore, JP Morgan along with many banks have conducted blockchain testing for different real-world use cases.
So what is Blockchain really? In what areas in life can it be applied and why is it so interesting?
Note: The article is a lot of words and a bit brain-damaging, drink a glass of water and relax your mind before you are ready to learn about this blockchain technology.
What is blockchain?
Blockchain is a distributed or easier to understand digital ledger than a database in a network. The ledger is shared among the people who join the network. This shows that in the entire system there is not only one single location, a single document can serve as a single authority, since duplicates of the same ledger version are located in many places.
All these copies are updated when new data or transactions are written to the blockchain through consensus of all participating. Miners are responsible for approving transactions and monitoring the network by solving sophisticated formulas with the help of a computer. It is a P2P peer-to-peer system, eliminating all intermediaries, enhancing security, transparency, and stability as well as minimizing costs and human error.
By allowing digital information to be distributed but not copied, blockchain technology has created the backbone of a new type of Internet.
In his book Blockchain Revolution (2016), Don & Alex Tapscott stated: “Blockchain is an indestructible digital ledger of economic transactions that can be programmed to record not only those Financial transactions that can record everything of value “.
How does blockchain work?
Blockchain technology is perhaps the best invention from the Internet itself. It allows the exchange of value without the need for trust or trustworthy evidence. Imagine you and I bet $ 50 on San Francisco tomorrow’s weather. I bet it will be sunny, you bet it will rain. Today we have three options for managing this transaction:
- We can trust each other. Rain or shine, the loser pays the winner $ 50. If we were friends, this could be a good way to bet. However, whether it is a friend or a stranger, it is still not easy to pay the other person.
- We can turn the stake into a contract. With a contract in place, both parties will be more likely to pay, however, if either of them decides not to pay, the winner will have to pay extra to cover the legal costs and possible judgment. take a long time. Especially with a small amount of cash, this does not appear to be the optimal way to manage transactions.
- We can turn to a neutral third party. Each of us gives 50 dollars to a third person, she will give the total amount to the winner. But, she can also run away with all the money. So we will choose one of the first two options: trust or contract.
Neither trust nor contract is the optimal solution. We cannot trust strangers and enforcing contracts takes time and money. Blockchain technology is interesting because it provides us with a safe, fast and cheap third option.
Blockchain allows to write a few lines of code, the program runs on the blockchain, to which we both deposit 50 dollars. This program will keep $ 100 safe and check tomorrow’s weather automatically on multiple data sources. Sunny or rainy, it will automatically transfer the full amount to the winner. Each party can verify the contract logic, and since it is running on the blockchain it cannot be changed or stopped. This effort might be too high for a $ 50 transaction, but imagine selling a home or business.
The goal of this section is to explain how blockchain works without discussing in-depth technical details, but enough for you to have a general idea of the underlying logic and mechanism.
The most known and discussed application of blockchain technology is Bitcoin. A digital currency that can be used to exchange products and services, like the US dollar (USD), Euro (EUR), dong (Vietnam), and other national currencies. Let’s use this blockchain technology’s first application to learn how it works.
What is Bitcoin?
A Bitcoin is a digital currency of Bitcoin that, like the dollar, has no value in itself. It is valuable because we agree to exchange goods and services for a larger amount of money under our control and we believe others will do the same.
To keep track of the amount of Bitcoins each of us owns, blockchain uses a ledger – a digital file – that keeps track of all Bitcoin transactions.
This file is not stored on a centralized server, like a bank or data center. It is distributed all over the world through computer networks, storing data and performing computation. Each computer represents a node of the blockchain network and has a copy of the ledger file.
If David wants to send Bitcoin to Sandra, he will broadcast a message to the network saying that the amount of Bitcoins in his account will decrease to 5 BTC, and the amount of Sandra’s account will increase with the same amount. Each node in the network receives the notification and applies the requested transaction to the copy of the ledger, thus updating the account balance.
The fact that the ledger is maintained by a group of connected computers rather than a neutral entity like a bank:
- In the banking system, we only know our own transactions and account balances, on the blockchain everyone can see every other person’s transactions.
- While you can trust your bank, the Bitcoin network will be distributed and if something goes wrong there is no help to call or anyone to sue.
- The blockchain system is designed in such a way that trustlessness, safety and reliability are obtained through special mathematical functions and code.
To be able to perform transactions on the blockchain, you need a wallet, a program that allows you to store and exchange Bitcoins. Since only you can spend your Bitcoins, each wallet is protected by a special cryptographic method, using a different pair of keys but with a connection: a private key. and public (public).
If a message is encrypted with a particular public key, only the owner of the paired private key can decrypt and read the message. On the other hand, if you encrypt a message with your private key, only the paired public key can be used to decrypt it. When David wants to send Bitcoin, he needs to broadcast a message encrypted with his wallet’s private key, so he and only him can use the Bitcoin he owns, as David is a person. Only knows the private key he needs to open his wallet. Each node in the network can cross-check a transaction request coming from David by decrypting the transaction request token with his wallet’s public key.
When encrypting a transaction request with your wallet’s private key, you generate a digital signature that is used by computers on the blockchain network to verify the source and authenticity of the transaction. A digital signature is a string of text that is the result of combining your transaction request and your private key, so it cannot be used for other transactions. If you change a character in the transaction request message, the digital signature will change, so no potential attacker can change your transaction request or change the amount of Bitcoins you are sending.
In order to send Bitcoin, you need to prove that you own the private key of a particular wallet, as it is necessary to use it to encrypt the transaction request message. Note that you only broadcast the message after it’s been encrypted, so you never have to reveal the private key.
Each node in the blockchain is holding a copy of the ledger. So how does one button know what your account balance is? The blockchain system does not track account balances, it just records each transaction that is requested. The books do not actually track balances, it just keeps track of every transaction that is broadcast in the Bitcoin network. In order to know your wallet balance, you need to analyze and verify all transactions that ever took place across the entire network connected to your wallet.
This balance verification is done by linking to previous transactions. In order to send 10 Bitcoins to John, Mary must create a transaction request that includes links to previous incoming transactions (amount received) with a total balance equal to or exceeding 10 Bitcoins. These links are called inputs, nodes in the network will verify that the total amount of these transactions equals or exceeds 10 Bitcoins and that these inputs have not been spent. In fact, every time you reference inputs in a transaction it is deemed invalid in any future transaction. All done automatically in Mary’s wallet and checked by the Bitcoin network nodes, she just sent a 10 BTC transaction to John’s wallet using his public key.
So, how can the system trust input transactions and consider them valid? It checks all previous transactions that correlate with the wallet you use to send Bitcoin through references and inputs. To simplify and speed up the verification process, a special record of unused transactions is kept by the network nodes. Thanks to this security check, you cannot spend twice the amount of Bitcoins you receive.
All the code to do transactions on the Bitcoin network is open source, which means anyone with a laptop and an Internet connection can make the transaction. However, if there is an error in the code used to broadcast the transaction request message, the Bitcoin involved will be lost forever. Remember that since the network is distributed, there’s no customer support service to call or anyone who can help you recover your lost transaction or forgotten wallet password. For this reason, if you are interested in trading on the Bitcoin network, you should use the open source and official version of the Bitcoin wallet software (such as Bitcoin Core) and to save the password of your wallet or The private key to the storage is very secure.
Main features of BlockChain
A distributed database
Imagine a spreadsheet that is duplicated thousands of times through a network of computers, which is designed to update the spreadsheet on a regular basis so that you can understand the basics of blockchain.
Information held on a blockchain exists as a continuously harmonized and shared database. Here’s how to use the network with obvious benefits. Blockchain databases are not stored in a single location, meaning that the records are stored in a public, easy to verify. No centralized version of this database exists, so hackers have no chance of attacking it either. Blockchain is stored by millions of computers at the same time, its data can be accessed by anyone on the Internet.
Blockchain is like Google Docs
The common way to share a document when collaborating is to email a Microsoft Word document to someone else and ask them to edit it. The problem in this case is that you need to wait until you get a backup sent back before you can view or make other changes, as editing is blocked until the collaborator. Your editing is complete. That’s how the current database works. It is not possible for two owners to edit a record at the same time. That is how the banks maintain the balance and the transfer balance, they quickly block access (or decrease the balance) during the transfer, then update the account and reopen access (or refresh). Google Docs is different, both parties have concurrent access to the same document, and a single version of the document is always visible to both. It’s like a shared ledger, but it’s a shared document. The scatter part works only when the sharing involves a few people.
Compiled from the opinions of William Mougayar, venture advisor, 4x trader, marketer, strategist, and blockchain expert.
Blockchain sustainability
Blockchain technology is like the Internet because it has a built-in power. By storing the same blocks of information on its network, blockchain cannot:
- Controlled by any one entity
- There is no single flaw or error.
Bitcoin was released in 2008, ever since, the Bitcoin blockchain has been operated, operating without significant disruption. To this point, any problems related to Bitcoin are caused by hacking or poor management. In other words, these problems come from bad intentions and human error, not Bitcoin’s own flaws.
The internet has proven to be durable for nearly 30 years. This is a good track record for blockchain technology as it continues to be developed.
Transparent and unbreakable
The blockchain network exists in a state of agreement, checking automatically every 10 minutes. A kind of digital value self-controlled ecosystem, the network will regulate every transaction that happens in about 10 minutes. Each of these groups of transactions is called a block. Two important features are drawn from here:
- Transparency: Data is embedded in the network as a public, block.
- It cannot be corrupted: Changing any unit of information on the blockchain means using a large number of computers to overwrite the entire network.
In theory, this could happen. In fact, it doesn’t happen. For example, controlling the system to take over Bitcoin will ruin its value.
A network of nodes
A network of computational nodes that make up the blockchain. The node here is a computer connected to the blockchain network that uses the client to confirm and forward transactions. The node will receive a copy of the blockchain, which is loaded automatically when joining the blockchain network.
Together, these nodes create a powerful tier 2 network, a completely different perspective on how the Internet might work. Each node is an “administrator” of the blockchain network and automatically participates in the network, the driving force for this participation is the chance to win Bitcoin.
Nodes are also known as Bitcoin mining , but the terminology is a bit misleading. In fact, each of them is competing for Bitcoin by solving puzzles. Bitcoin has been the “life” of blockchain since its inception. Bitcoin is only being recognized as a very small part of the potential of blockchain technology.
There are around 700 digital currencies similar to Bitcoin, there are also many variations of the original blockchain concept currently active or in development.
The idea of decentralization
By design, blockchain is a decentralized technology. Whatever happens on it is a function of the network. Some important suggestions stem from this. By creating a new way to confirm transactions aspects of traditional commerce may become unnecessary. Transactions on the stock market, for example, can be carried out on the blockchain at the same time, or can be stored as a red book, completely public. And the decentralization has come true.
The global computer network uses blockchain technology to jointly manage the database and record Bitcoin transactions. That is, Bitcoin is managed by its network and no one is central. Decentralized means the network operates on a user basis, or P2P. Possible forms of collective cooperation have only just begun to be explored.
Increased security
By storing data on its network, blockchain eliminates the risks associated with centrally organized data. Its network has no vulnerabilities. Meanwhile, the security issue on the Internet is becoming more and more complex. We all rely on the username / password system to protect our identities and assets online, but the system is still more likely to break. Blockchain’s security method uses encryption technology with public / private key pairs. The public key (a long string of random numbers) is the address of the user on the blockchain. Bitcoin sent over the network will be recognized as belonging to that address. The private key is like a password, allowing holders access to Bitcoin or other digital assets. Store data on the blockchain and it will not be damaged. This is true, although protecting your digital assets will require the security of your private key by printing it out, creating a digital wallet to hold like a paper wallet.
Where can blockchain be used?
This list is taken from the article “What is Blockchain Technology? A Step-by-Step Guide For Beginners” on blockgeeks.com, I have omitted some because it is too long and confusing, here are the rest:
Smart contract
Distributed ledgers allow coding of simple contracts, which will be executed when certain conditions are met. Ethereum is an open source blockchain project, built specifically to fulfill this requirement. However, in its early stages of development, Ethereum has the potential to take advantage of blockchain on a much larger scale.
At the technology’s current level of development, smart contracts can be programmed to perform simple functions. For example, a transaction can be paid out when a financial instrument meets a number of standards, with the use of blockchain technology and Bitcoin allowing automatic payments, without the need for human involvement. intermediaries testify.
Sharing economy
With companies like Uber and AirBnB, the sharing economy has proven early successes. However, at the present time, users who want to rent a ride-sharing service must rely on an intermediary, Uber. By allowing for peer-to-peer payments, blockchain opens up a new doorway for direct interaction between parties, resulting in a truly decentralized sharing economy.
For example, OpenBazaar uses blockchain to create eBay on a peer-to-peer basis. Download the application to your computer, you can transact with OpenBazaar providers without paying transaction fees. The protocol’s “no rules” style means that the personal reputation of the business interaction is more important than the interaction itself on eBay.
Expand the fundraising market
Initiatives like Kickstarter and Gofundme are “paving the way” for this emerging peer-to-peer economy. These websites have shown that people want to have a direct voice in product development. Blockchain takes this work to a new level thanks to its ability to generate more venture capital for startups.
In 2016, there was a testament to this. DAO (Decentralized Autonomous Organization), based on Ethereum, raised $ 200 million in capital in just 2 months. Participants who bought DAO were voted on a venture capital smart contract (voting rights were based on the number of DAOs they were holding). The proceeds of the project are justified, the project launched does not need risk assessment. Thus, it can be seen that blockchain has the potential to open up a new paradigm for economic cooperation.
Administration
By creating results that are transparent and publicly accessible, distributed database technology can bring full transparency to elections or any other form of polling. Ethereum-based smart contracts will help automate the entire process.
Applications such as Boardroom, allowing organizations to make decisions on blockchain, thereby helping the corporate governance process become transparent, verify digital assets, fairness or internal information.
Supply chain inspection
Consumers increasingly want to know what percentage truth is in their product standard claims. Blockchain provides an easy way to confirm that the products we buy are genuine. Transparency comes with a blockchain-based timestamp of the date, location – on a diamond, for example, will correspond to the product number.
In the UK it is possible to check the origin of consumer goods through the supply chain. Using the Ethereum blockchain, a pilot project of quality checks ensures that fish sold in Japanese Sushi restaurants has been properly mined by fish suppliers in Indonesia.
File storage
There are obvious benefits to decentralized hosting on the Internet. Distributing data throughout the network protects files from getting hacked or lost.
Inter Planetary File System (IPFS) makes it easy to conceptualize how a distributed web can operate. Similar to the way bittorrent moves data over the Internet, IPFS eliminates the need for server-client relationships. An Internet made up of completely distributed web pages has the potential to increase file transfer speeds and streaming times. This improvement is not only convenient but also a necessary upgrade for the currently overloaded content delivery systems on the web.
Market prediction
The accuracy of an event is higher as more predictions about the probability of the event are made, which is proven. Unexplored deviations can lead to erroneous judgments. Averaging opinions from predictions helps to eliminate those biases. There are already the first applications to adopt blockchain in market prediction. For example, Augur, the market prediction app is still in development. It offers sharing offers about the outcome of real-world events. Participants can make money by buying on correct predictions. The more stocks that were bought on the correct prediction, the higher the amount received. With a small investment (less than $ 1) anyone can ask a question, create a market based on a predicted outcome and collect half of the total transaction fees the market generates.
Protection of intellectual property rights
As you know, digital information can be infinitely reproduced and widely distributed thanks to the Internet. This has given web users around the globe a free content goldmine. However, copyright owners are not so lucky, they lose control of their intellectual property and the money that should have belonged to them from that right. Smart contracts can protect copyrights and automate online sales of works, eliminating the risk of duplication and redistribution.
Mycelia uses blockchain to create a peer-to-peer music distribution system. Founded by British singer-songwriter, Imogen Heap, Mycelia allows musicians to sell songs directly to the audience as well as license templates for producers and distributes profits to musicians, singers, and so on. both of these functions are performed automatically by smart contracts.
Internet of Things (IoT)
If you do not know about the Internet of Things, read here ( Internet of Things – IoT or Network of Things What is a connected network? ). In a nutshell, the IoT is the control network management of certain types of electronic devices, such as the temperature of the air in a warehouse. Smart contracts can automate remote management of this system. A combination of software, sensors and networks facilitates the exchange of data between objects and the operating mechanism. The results increase the system’s work efficiency and cut tracking costs.
The biggest manufacturers in manufacturing, technology and telecommunications are all vying for IoT dominance. Think Samsung, IBM, AT&T. Extending existing infrastructure controlled by humans using IoT applications will perform tasks ranging from predicting mechanical parts to large-scale automated data statistics and system management.
Identity management
The need for identity verification on the web is becoming more and more urgent, especially for online financial transactions. Existing solutions to serve this need are not really perfect. With blockchain, we will have advanced methods to prove who we are, along with the ability to digitize personal documents. As noted above, in the sharing economy or business transaction, a good identity is crucial.
Developing digital identity standards is a very complex process. In addition to technical challenges, a universal online identity solution requires collaboration between individuals and governments. Add to that the need to navigate legal systems in different countries and the problem becomes exponentially difficult. Internet e-commerce currently relies on an SSL certificate (little green key in the browser) for secure web transactions. If blockchain were to be adopted, it would be a lot easier.
AML and KYC
Blockchain has a strong potential for anti-money laundering (AML) – anti-money laundering and know your customer (KYC) – knowing your customers. Currently, financial institutions have to go through a multi-step, labor-intensive process to find new customers. Costs for KYC can be reduced through customer verification while improving monitoring and analysis efficiency.
Polycoin, a startup with AML and KYC, involves analyzing transactions. Transactions identified as suspicious are forwarded to the relevant department. Another startup Tradle is developing an app called Trust in Motion (TiM). Described as “Instagram for KYC”, TiM allows customers to take snapshots of key documents (passports, utility bills, etc.). Once verified by the bank, this data will be stored as crypto on the blockchain.
Securities transactions
The blockchain’s capabilities in the stock market are being vigorously tested. When done peer-to-peer, transaction confirmation becomes almost instantaneous. As a result, intermediaries such as auditors, custodians, … can be eliminated.
Neighborhood Microgrid
Blockchain technology allows the buying and selling of renewable energy, generated by neighboring micro-grids. When solar panels make excess energy, Ethereum-based smart contracts automatically redistribute it.
Disadvantages of using Blockchain
Blockchain is not a miracle or all charms, it also has certain obstacles that we need to overcome in the near future. The ads or hype surrounding blockchain can leave many people blind, not realizing the very clear fact that blockchain has a disadvantage of use that causes industries to find ways to minimize it before. can be applied on a large scale.
Very expensive
Since each blockchain replicates itself to every node on the blockchain, a large amount of redundancy is created. Every time a Bitcoin transaction is made, it is confirmed multiple times because there are many nodes on the network. This process uses a lot of electricity. Private blockchains may not be affected as much as they can limit blockchains to a small number of computers. However, if it were a bank, it would have to process thousands of transactions per minute globally, then this would be a big problem.
Takes up storage space
Right now, to operate a node on the Bitcoin blockchain, you have to download 60GB of data. What if the data is 1 Terabyte? If the Bitcoin market thrives, there will be realities of blockchain with terabyte capacity appearing. Back then, only server farms and those really interested in large-scale digital currency commercialization could run whole nodes. This will create a centralized network, which is seen as a strange decentralization.
Unbreakability also has its downsides
Assuming you have a wallet online, you lose your authentication key to open that wallet. No link to reset password, no hotline support. You lose all the money in your wallet. No recall. You lose white.
If you know how to handle the data responsibly, you won’t come across the assumption above. Your money will still stay in your pocket, and of course, you have full control over it. But power always comes with responsibility, something not everyone understands. People like that are the reason why a quarter of the Bitcoin on earth disappears forever.
If you put something on the blockchain, you have to be sure you won’t regret it. Because the transaction once done cannot be reversed, or redone,. It will be on the blockchain forever, literally.
Blockchain and Internet
Today we can divide the modern technology era into two special phases: Before the Internet and after the Internet, this is how the World Wide Web broke down. The Internet boom has changed the way we deal, communicate, share information, promote business, entertain, research, …
You would think that everything we are doing now is almost an Internet connection. Well, many experts like to think that blockchain technology has the potential to create a revolution just like the Internet did.
Here are some aspects of blockchain that are very similar to the Internet in the years before 2000:
- Experts agree and direct us to pay attention to blockchain, that it has the potential to change almost anything.
- Big companies are investing in blockchain and testing it for different use cases, with very positive feedback on its usability.
- People invest in almost all blockchain related projects. For example, Bioptix, a company listed on NASDAQ, changed its name to Riot Blockchain and immediately its share price increased by 20%. In the UK, an investment company changed its name from On-line Plc to On-line Blockchain and its share price jumped up to 394%.
- There is no blockchain infrastructure on a global or international level, but the attraction and number of people working on the pilot are enormous.
- People don’t really understand what it is, but they are sure it can change our lives.
Does history repeat itself?
Some experts have drawn a long list of similarities between the two eras and phenomena, while others warn that blockchain may end up like the dot com bubble in 1999, after that. the point of maturity is reached when it is widely accepted. This means that blockchain facilitates overvalued assets, which can cause future market corrections, affecting many companies and entire industries.
We do not know what the future will be like, but despite the change and crisis since 1999, the Internet has not disappeared, it has continued its path by shaping the entire industry. The same thing will most likely happen with blockchain technology as well.
Blockchain can really transform the market, as we can control every transaction, contract or any movement in the network. We can make P2P transactions and processes transparent, secure with the help of cryptography, timestamped, and easy to track. This is different from today’s Internet, where intermediaries play an important role. Companies like Facebook, Google, governments, banks, and high-tech companies are all intermediaries that influence information and processes in the Internet. Blockchain removes such intermediaries for the benefit of all.
Reference articles from sources:
- https://medium.com/@micheledaliessi/how-does-the-blockchain-work-98c8cd01d2ae
- https://blockgeeks.com/guides/what-is-blockchain-technology/
- https://blog.iqoption.com/is-blockchain-the-next-revolution-after-the-internet/
