Blockchain Real World Applications And Understanding

What is Blockchain? 

In 2008 the first blockchain was designed by Satoshi Nakamoto who introduced the idea in a white paper with Bitcoin. Bitcoin was the first execution of the technology. Blockchain is a type of Distributed Ledger Technology (DLT). A distributed ledger is replicated, shared, and synchronized data geographically spread across sites, institutions, or countries. It is important to note from the beginning that Distributed ledgers do not have a central administrator. DLT is the underlying technology for Bitcoin and other cryptocurrencies. 

Blockchain Real World Applications And Understanding

A Different Tool for Different People 

Cryptocurrencies are of least importance to a blockchain specialist because it does a lot more! As a matter of fact some blockchainers, as I like to call them, sometimes get annoyed when you bring up the topic of cryptocurrencies at their events. For crypto enthusiasts, blockchain is the technical backbone of digital currencies. The developers use it for storing data on a distributed network and for the futurists it is a tool for creating a decentralized society. 

Blockchain Building Blocks

Every block in a ledger is connected to the previous block by a cryptographic algorithm called a hash. The linked blocks form a chain, thus giving us the term “blockchain.” Blockchain is a form of database that is distributed, and operates on a consensus basis. The computers on the network, known as nodes, validate transactions and adds them to the blockchain. With no centralized source to verify changes, a distributed consensus algorithm is used to create agreement between nodes so that the same entry is made to each ledger. 

Decentralization: Each party on a blockchain has access to the entire database and its complete history. Every party can validate the records of its partners without an intermediary. 

Immutability: Each block has a timestamp and link to the previous block. The blocks are resistant to modifications. Once recorded, the data in any block cannot be altered retroactively without the alteration of all subsequent blocks. Algorithms are deployed to ensure the recording in the database is permanent. 

Peer-2-Peer (P2P) Transmission: Communication occurs directly between peers without a central node. 

Programmable: The transactions can be programmed. Users can set up algorithms and rules that automatically trigger transactions between nodes. 

Let’s Get Nerdy

A block contains data, its hash, and the hash of the previous block. Now let us get a little deeper in the explanation: 

Data: The data stored depends on the type of block. For example with a cryptocurrency it might contain information on the sender, receiver, and the amount of the transaction. 

Its hash: Once a block is created the hash is calculated. The hash is unique, basically it is the fingerprint for the block. It identifies both the block and its contents. 

Hash: Hash of the previous block. An example: Block 4 has its own hash, plus the hash of block 3. Only block 1 has no previous hash and this is known as the Genesis Block. If you alter the hash of block 3, all subsequent blocks are invalid because block 4 already has the correct hash of the previous block (block 3). Therefore all other bocks after 3 are invalid. The distributed P2P network: If you alter the hash of block 3 when sent to the network it will be rejected by the other nodes (because it was altered). To succeed with tampering, you must alter all the blocks. Redo the Proof-of-Work of each block to take control of 51% of the P2P network. *Proof-of-Work: Slows down the creation of new blocks. 

Types of Blockchains 

The first is a permissionless or public blockchain, which means that anyone can access it. Next is a permissioned which is private. This is a closed network of nodes and only those relevant to the transactions can gain access. This is best for governments, hospitals, insurers, etc. There is also a hybrid blockchain where anyone can access it but not all can make updates. Another hybrid version could be some data is readable to the public, some of it is not. 

Keep in Mind

Blockchain really shines best in low-trust environments. These are situations where participants are unable to deal directly with each other or lack a trusted intermediary. 

Blockchain verifies but does NOT validate therefore, garbage in garbage out. False data could have been entered, this also applies to all off-chain data. It is only as strong as the weakest link, for example if sensors registering data are incorrect the blockchain is incorrect. People also need to remember that lot of the technology involved is first world so it is not for everyone and it cannot solve all problems. The technology and human systems must be aligned. 

Do You Need Blockhain? 


In my effort to reduce some of the unneeded hype around blockchain technology we will review the questions that must be answered before setting up a network. Is the database being considered likely to be attacked or do you need redundant copies on multiple distributed computers? If yes, then there is possible need for a blockchain. If no, then there is no need for a blockchain. Does more than one participant need to update the data? If yes, then possible need for a blockchain. However if they trust each other, then no. If they would trust a third party, also no. Does the data need to be kept private? Yes, then a need for blockchain. Do you need to control who can make changes to the blockchain? If yes, you might need a permissioned blockchain. A no answer to the previous two questions leads to a possible need of a public blockchain. 

Before Getting on the Blockchain Train 

Before launching a blockchain project, you should investigate if your or some traditional database technology can meet your needs. It is essential to clarify if the problem requires blockchain technology instead of going blockchain and then attempting to see if you have any use for it. Any business case for blockchain must also account for the potential costs beyond hosting, licensing, and implementation. 

Much of the dramatic cost saving predictions, especially in the finance sector with replacing legacy systems is unlikely at the levels predicted. The hype often fails to sufficiently account for future costs in power and storage. Energy expenses may increase significantly as transactions volume goes up. The increased storage costs are because each node must maintain a ledger of all transactions from the beginning of the blockchain. Along with the technical aspects, employee education on blockchain and the practical adaptations must be included in the strategy. 

Blockchain as a Service (BaaS) 


BaaS provides companies the opportunity to test blockchain technology without the full financial or organizational risk of developing it themselves. Organizations can evaluate the technology for their specific needs before adoption. Microsoft’s Azure and IBM’s Hyperledger are two of the best-known BaaS examples. Developers are also busy generating their own decentralized apps on platforms such as Ethereum. Others are using the platforms to generate escrow smart contracts. These different platform options also gives developer teams opportunities to create and use their own tokens that allows them to hold ICOs. 

Build Your Own Blockchain?

Ethereum allows you to create your own test blockchain network, a demo version. It is identical to the main Ethereum chain, except that transactions and smart contracts on this network are only accessible to nodes that are connected to it. To become a node in the Ethereum network, your computer needs to download and update a copy of the entire Ethereum blockchain. They also provide the tools to download in order to interact with the network. These are, Eth and Geth. After setting up a test blockchain, you can build smart contracts, make transactions and even distributed apps without needing real Ether. To get started, you create some fake Ether, add it to your account and then use it to make transactions. 

Conclusion 

Thank you for making it through to the end of Blockchain: Real-World Applications And Understanding. Let’s hope it was informative and that the pages were able to provide you with the knowledge needed to achieve the goal of expanding your understanding of blockchains.

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