Blockchain is a method created to achieve absolutely secure decentralized information storage.
Invented by the unidentified Bitcoin creator known by the pseudonym Satoshi Nakamoto, Blockchain relies on distributed computing to make it extremely resilient to retroactive editing. Functioning as a digital ledger, blockchain is based on linear progression, with each block referring to its predecessor with a hash pointer. No block can be altered without altering all blocks that come after it, and this requires consensus and verification from all systems on the network.
Blockchain ledgers are predominantly operated by peer-to-peer networks for the purpose of verifying cryptocurrency transactions, as this was the protocol’s intended function upon invention. However further functionality has been discovered and emergent uses in the auditing of smart contracts are being explored by various firms.
Using decentralization to achieve security, Blockchain achieved decentralized consensus that makes the protocol extremely resistant to Byzantine Faults. As a new technology, Blockchain isn’t widely used, however due to the permanent nature of its data storage structure, it may be used to record all kinds of data with secure knowledge that it will not be altered.
The first mention of the protocol, then “Block Chain”, occurred in 2008 in a white paper published by the aforementioned Satoshi Nakamoto, and was first implemented in a distributed format in 2009. Initially it was used solely as a secure public ledger for Bitcoin transactions. Blockchain allowed Bitcoin to become the first decentralized cryptocurrency to solve the double-spending problem, and the bitcoin-era Blockchain serves as a model for all future iterations.
Concepts similar to Nakamoto’s Blockchain have existed in the cryptography community for a long time, with the earliest comparable protocol reaching back to 1991. A cryptographically secured linear chain of data was first described by W. Scott Stornetta and Stuart Haber in that year, and in the next year hash trees were incorporated to allow for a single block to include multiple elements.
In the years between 1992 and 2008, there are no known records of similar systems being developed. In 2008, Bitcoin inventor Satoshi Nakamoto proposed the concept of a distributed blockchain which greatly increased the security of the 1991 concept. Blockchain at the time had a single purpose, which was to act as a public, secure ledge for all bitcoin transactions. Combining a distributed automatic timestamping server with the P2P Blockchain network, an entirely autonomous and secure ledger was created that did not rely on any single central admin. This also allowed Bitcoin to become the very first cryptocurrency that doesn’t suffer from the double spending issue whilst remaining decentralized.
Nakamoto referred to the system in the 2008 as “block chain”, two independent words. It wasn’t until 2016 that the combined word Blockchain became the most widely accepted spelling. The very first Blockchain ledger, the one which stores all Bitcoin transactions, has drastically increased in size from 20 GB in 2014 to 100 GB in 2017.
Non-Bitcoin applications of Blockchain already existed as soon as 2014. When Blockchain started seeing usage outside of Bitcoin, the new iterations were unofficially dubbed “Blockchain 2.0”, and the Bitcoin-only era was retroactively dubbed “Blockchain 1.0”. Blockchain 2.0 is considered the most secure option for the storage of digital data, with enthusiasts proposing potential functionality of truly anonymous financial transactions without intermediaries, greater control over IP by the owners and secure recordkeeping for personal ID and medical information. More abstract theories on the potential future applications of Blockchain technology include closing the wage-gap through the redistribution of wealth.
To this day, all Blockchain implementations which require access to any external data rely on so-called oracle machines to acquire this information. As of 2016, Blockchain has been adopted in various development projects. In the entertainment industry, uses for the collection of royalty payments has been explored by regulatory bodies, the central securities depository of the Russian Federation are exploring Blockchain-based automated voting systems, and a dedicated Blockchain research center was opened by IBM in Singapore.
Blockchain is considered to be what is called a foundational technology, meaning that it serves as the genesis of a vast and complex new thread for technological development that will begin evolving along its own branch. Blockchain is considered by some computer science experts and enthusiasts to be a new kind of programming language.
The primary contemporary use of Blockchain is to secure financial transactions. As a decentralized, distributed ledger relying on peer-to-peer systems, Blockchain requires that every single edit be approved by every system connected to the network with no central “hub” or authority. All nodes in the Blockchain are of equal authority, removing the vulnerable target of a higher authority node as seen in centralized systems. As every block refers back to the previous block, each is two reference points behind and in-front of it. This back-referring means that any block altered retroactively would alter all subsequent blocks, completely changing the whole chain, which would be rejected by the system. Even if a node is hacked, the others would deny the edit, and it would be impossible to simultaneously hack all nodes. This offers truly permanent records, immune to tampering or meddling.
This permanent logging of all transactions ensures that all cryptocurrency tokens are only transferred once, thus solving the double-spending problem. All participants of the Blockchain can audit each edit, however the system is extremely efficient thanks to the principle of collective interest, and near-automatic auditing is achieved through mass collaboration between all the participating nodes. Blockchain is vastly more cost-friendly than traditional systems.
The blocks of a Blockchain are composed of multiple elements or documents called transactions, which are organized in hash trees within the block, with the block itself referring with a hash link to the previous block in the chain. Simple back-referencing isn’t the sole descriptor of a Blockchain, as similar formats have been in use for years prior to the development of this system. Blockchain verifies transactions by referring back to all previous blocks, including the genesis block.
On occasion, multiple blocks may be created simultaneously, creating what is called a fork. These forks are managed by special algorithms embedded in the blocks that, when referring back for verification, attach scores to each branch and the higher scoring branch will be continued in the chain. Those blocks which are in the inferior branch of the fork are referred to as orphan blocks. While, sometimes, different nodes in the network may get different score results, leading to not all verify the same branch as dominant, as the one with more verifications grows longer and longer, the cumulative score will eventually guarantee that all nodes consider it dominant. Certain methods, like proof-of-work, ensure that one given branch is always considered dominant.
The inventor of Blockchain, Satoshi Nakamoto, was an enthusiast of decentralized computing and the concept of Bitcoin was rooted in a decentralized cryptocurrency which removes banks or other intermediaries from transactions. Blockchain, as such, is also reliant on decentralization for security. As a Blockchain network is distributed evenly across all nodes and lacks any central point of authority or control, it lacks an obvious vulnerability or weak point. If a node is hacked, the other nodes will ensure the security of the data by overriding any non-consensual edits made via the hacked node. Public-key cryptography involves an eponymous public-key being attached to every block, functioning as an address. This key is a long numeric string, the numbers of which are seemingly selected at random. When transactions are made, the tokens sent and received will be recorded in the network by being attached to the public-key of the current block. The users’ passwords are referred to as private keys, which allows access to the network.
Decentralization distributes equal authority across the whole network. All nodes connected will have identical copies of the entire blockchain, making it completely public, and all have the same permissions. In the case of miners, the mining node repeats a process of validating a transaction, attaching it to the current block’s public key, then disseminating the up-to-date information across the network to all other nodes. Blockchain networks rely on a wide array of time-stamping methods for the sake of verification. These include proof-of-work (primarily), proof-of-stake and proof-of-burn.
While decentralization is crucial for the security of the Blockchain, as more and more computational power is required with the growth of the network, theorists have predicted a possible gradual centralization of nodes. As fewer and fewer entities will be able to afford the vast resources required for effective mining, the number of nodes and operators will shrink over time.
Hard forks are differentiated from regular forks by being permanent. Simple forks very often resolve themselves with the inferior branch becoming an orphan, but in the case of a hard fork, both branches are considered equal, both are “dominant”. This usually occurs because following the fork different sets of rules are developed for the branches, meaning a score comparison becomes non-applicable. Hard forks are induced purposefully by the operators of the Blockchain networks, usually as a response to cryptocurrency theft.
The most notable hard fork is the intentional hard forking of Ethereum following the high-profile DAO hack when $50 million worth of ETH was removed from DAO accounts in 2016. Resulting from the fork were the “new” Ethereum and Ethereum Classic. This was done to reimburse investors, as the fork essentially doubled their cryptocurrency ownership, as they gained one Ethereum for every unit of Ethereum Classic (the original Ethereum chain) they owned.
Blockchain is, by its invention, intended to be an open and public system. The original Blockchain network has retained this nature, however as the technology spread, private and permissioned Blockchains have also arisen. These networks were no-longer decentralized, a core concept of the Blockchain, which has resulted in enthusiast debate over the definition and criteria of Blockchain, as centralized systems lose the benefits of Blockchain. Private Blockchains operate on the same principles as permissionless chains, which is why many argue that they still fit the definition. However, a centralized Blockchain more resembles a typical corporate database structure. The official definition of the Harvard Business Review was altered for clarity, stating that a Blockchain must be open to everyone to qualify.
Private blockchains incorporate authority hierarchies, giving some nodes a greater measure of control than others. These networks are not open to the public, and the network owner has full administrational permissions. This format has been widely criticized as it forsakes the security of the public Blockchain; if the admin is hacked, the intruder will have absolute control over the network, and will be allowed to edit transactions to their discretion with the nodes unable to intervene.
So-called permissionless blockchains, these truly benefit from decentralization as the vulnerabilities of the private blockchain do not apply. Bitcoin and most cryptocurrencies use a public blockchain precisely because of this attribute. These networks rely on proofs of work for authentication.
Known by their shorthand name ‘’’altchains’’’, this encompasses all blockchains that aren’t the main Bitcoin chain. As Bitcoin was the first to use blockchain technology, and technically blockchain was invented specifically for Bitcoin, all non-Bitcoin utilizations form a different category.
Though not a requirement, typically altchains expand the functionality of blockchain technology and adapt it for other uses. The first few altchains were also used for cryptocurrencies similar to Bitcoin. However as the technology proliferated, various other uses were implemented as well, including, but not restricted to, land registration, gaming, and a so-call borderless voluntary nation.
Over the years, blockchain has become widely used, it’s secure public ledger system being an attractive attribute. Tracking sales data and copyright registration are the two most frequent functions. IBM, ASCAP and PRS for Music partnered to devise a blockchain-based music distribution method. The Mycelia service tracks items through supply chains. CLS Group is expanding its range of currency trade deals using blockchain. A number of credit card companies, including VISA payment systems, Unionpay and more are developing blockchain based technologies.
The benefits of distributed ledgers for commercial purposes is obvious, and many companies have developed systems to capitalize on this. Many firms related to finances or IT have created systems related to banking, stock exchange and cloud services. A paper published by the Technical University of Munich shows that $1.55 billion was invested via venture funding into start-up companies focusing on developing blockchain technologies for finance, insurance, information, communication or professional service applications. The USA, UK and Canada showed the largest density of these start-ups.
Certain national governments have cooperated with certain companies to establish national cryptocurrencies. Current: eCFA – Senegal e-Dinar – Tunisia Upcoming: CryptoRuble – Russia
Many in-development blockchain based project spearheaded by entities such as IBM, Hyperledger Consortium, Swisscom, Intel and others will reach fruition in the upcoming years, vastly increasing the spread and functionality of current blockchain-based technologies. As of 2016, venture funding for start-ups focusing on blockchain is in decline. This is counteracted by the increase in industrial focus on the development of blockchain applications. The September 2015 report of the World Economic Forum indicates that 10 percent of the globe’s GDP may be stored on blockchain-based public ledgers by as soon as 2025.