What is a blockchain?

A blockchain is a form of technology which uses the internet and computer code to form a distributed database. You can think of a blockchain as a type of ledger, which holds a continuous record of transactions, called “blocks” (where blockchain gets its name from), that are recorded in numerous locations (on computers) to ensure that it remains tamper proof.
Still not making sense? Martin Jee, Blockchain and Technology recruiter, explains blockchain using the following analogy: Think of a football game where every football player can know what the score is simply by looking at the scoreboard. The score cannot be changed unless every player agrees, to ensure that things remain fair. This is similar to how every node (player) in a blockchain-based peer-to-peer network has an identical copy of the network’s ledger. In each scenario, you’d need to have a majority of participants who agree upon the historical record of events - which shows that the ledger has not and cannot be tampered with.

Who controls a blockchain?

Nobody controls a public, decentralized blockchain. No individuals, lawmakers or authorities are responsible. Rather a collective majority of nodes (or “players”) are responsible for maintaining the ledger. It’s also important to remember that a blockchain’s digital ledger is not stored in a physical or central server or location. There is no one source to hack or tamper with, no master record, no server or backup that is centralized and that can be corrupted. This is what makes blockchain inherently so much more secure than centralized systems.

What is the connection between blockchain and Cryptocurrency?

All Cryptocurrencies exist on a particular blockchain technology (eg. Ether on Ethereum). The value of any Cryptocurrency is generated in the accurate record of the amount of a particular currency in circulation (as recorded on a blockchain) and the fact that once the currency has its total supply in circulation, nobody has the power to create more.

What is a short history of blockchain?

Blockchain started with the introduction of Bitcoin by Satoshi Nakamoto all the way back in 2009. The value of Satoshi's Bitcoin was based on a system that is immutable and that can record the number of Bitcoins in circulation and all transactions made using Bitcoin. With this system, there was no need for individuals to trust each other, or a central power, as the need for trust was essentially removed.
It wasn’t until 2013, when Ethereum was launched, that the true power of blockchain was understood by the mainstream. Since then the blockchain sphere has exploded, with 2018 being the busiest year for new projects in the space.
Global entrepreneurs have realised the potential for blockchain technology, and there has been massive investment and R&D initiatives dedicated to discovering how blockchain can impact supply chains, healthcare, insurance, transportation, voting, contract management and more. Blockchain can be utilized in any industry, and people are beginning to notice. As of the time of writing, close to 15% of financial institutions are using some kind of blockchain technology.

What can blockchain be used for?

Beyond the obvious, there are endless real world applications for blockchain. It really is a revolutionary technology that can change the face of various industries. Blockchain helps boost efficiency in any arena you apply it to. Some of the ways blockchain can be utilized include:

Make micropayments
If something costs more to execute than the actual sale, it’s certainly not worth it for anyone. Blockchain gives us the ability to make small transactions with Cryptocurrency without incurring bank fees that exceed the original payment.

Transfer money
Sending digital money to anyone, anywhere, anytime using Cryptocurrency can circumvent the need of having to go through and ultimately put your trust in a third party or institution. Almost a decade into it’s life, the Bitcoin blockchain has still not been hacked  and the ability for anyone to access it shows it’s simplicity and ease of use. The adoption of mobile payments using Cryptocurrency in developing, or financially volatile, countries is the space to watch as new ideas of introducing Cryptocurrency to help improve people's lives are being introduced daily.

Lend people money
One of the fastest growing uses is peer-to-peer lending in the personal finance sector. With this, individuals will be able to lend funds to others and earn passive, interest-based income from offering this service. The thought that strict computer code can regulate the functions once performed by a bank without being influenced by greed and manipulation is very interesting.

Certify a supply chain
Increasing consumer trust in the origin of supply, using blockchain, would prove positive for supply chain certification. Research has shown that majority of people want to make ethical choices about the products they buy, and blockchain can empower both suppliers and consumers in this regard.

Prove identity
A reliable digital identity system is something out of a sci-fi film of the future. It is the ultimate use case of our connected world. Various blockchain-based digital proof of identity platforms have been launched and are being developed by various companies globally.

Smooth the shipping process
Some analysts believe that increasing the transparency and reliability of the shipping industries administration could lead to an increase of USD 1 Trillion. Maersk recently announced a blockchain-based bill of proof of concept which is just one of the ones to watch.

Trade Cryptocurrencies
Every Cryptocurrency in existence right now, exists as a result of blockchain. Blockchain enables us to make transactions with, and buy and sell Cryptocurrency whenever, wherever, and with whoever we see fit.

Is blockchain secure?

In one word, yes. It has not been termed ‘the trust protocol’ for nothing. It is precisely because the decentralized digital ledger of blockchain is so strongly immutable that it is such a potentially world-changing technology.

One of the largest benefits of blockchain is its ultra-secure network. Data transmitted using blockchain is inherently encrypted, so it’s much more secure than the standard username-password security system. However, the real security benefits come from blockchain's network of users.

Decentralized data stored using blockchain makes it extremely difficult to hack into because no “single point of failure” exists. Under usual circumstances, to break into a blockchain, hackers would need to overwhelm over 50% of the network in less time than it takes to create a new block. The amount of computing power required to do this in most blockchain networks is tremendous. Larger networks are much harder to hack because they are more decentralized and have more computers working to verify transactions.

What problems does blockchain solve?

Along with modern advancements comes modern problems. Friction points between buyers and sellers have developed into bureaucratic middlemen and gatekeepers. Cash is king, but it can only be used locally and has many other limitations. Trade across borders has grown, and with it so have currency conversion fees. Fraud and manipulation are also a huge global issue for banks and businesses.

As transaction volumes grow exponentially and people are becoming more accustomed to using apps on their phones to make purchases, more layers of software complexity are added to each trade, further exposing funds to losses due to errors or software failure. As we look forward, payments are becoming more autonomous and, soon transactions will occur with little to no human involvement at all. It should be clear that blockchain technology is emerging at a time where there are shortcomings in current transactional and payments systems.

Blockchain removes the middlemen from the trade equation, reducing the risk of fraud and loss for either party.

What is a “node”?

A node is simply any user on the network that dedicates resources and shares in the maintenance of the blockchain by running the node software. A node is a device on a blockchain network such as a mobile phone, a printer or a host computer, that is connected to the internet. They are in essence the foundation of a blockchain, allowing it to function and survive. Node software operators are also known as network peers. What this all means is that the parties involved do not need to trust each other, they need to trust the blockchain.

Nodes are often arranged in the structure of trees, known as binary trees. All nodes work together and are responsible for maintaining the transaction records of that particular blockchain.

What is a “smart contract”?

The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With smart contracts, you simply drop a Bitcoin into the vending machine (i.e. ledger), and your escrow drops into your account. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforces those obligations.

For example, suppose you rent an apartment from me. You can do this through the blockchain by paying in Cryptocurrency. You get a receipt which is held in our virtual contract; I give you the digital entry key which comes to you by a specified date. If the key doesn’t come on time, the blockchain releases a refund. If I send the key before the rental date, the function holds it releasing both the fee and key to me and you, respectively, when the date arrives.

The system works on the if-then premise and is witnessed by hundreds of people, so you can expect a faultless delivery. If I give you the key, I’m sure to be paid. If you send a certain amount in Bitcoins, you receive the key. The document is automatically canceled after the time, and the code cannot be interfered with by either of us without the other knowing since all participants are simultaneously alerted.

You can use smart contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes and crowdfunding agreements.

What are the cons of blockchain?

Blockchain is an immutable storage point for information, which most people see as a benefit of the system. However, some argue that this can also create problems as the data that is stored on the digital ledger needs to be correct and of high quality, as you simply cannot delete it should you change your mind regarding the details of the input. The phrase 'garbage in, garbage out' is very relevant to a blockchain system of record, just as it is with a centralized database. Well thought out and tested “rule sets” in the blockchain code that help dictate parameters of entries should help this problem.

Another security flaw in Bitcoin and other blockchains is that if more than half of the computers working as nodes tell a lie, the lie will become the truth. This is called a '51% attack' and was highlighted by Satoshi Nakamoto when they launched Bitcoin. Bitcoin mining pools are monitored closely by the community around the world for this exact reason, ensuring no one unknowingly gains such network power of control.

Are you anonymous on a blockchain?

Blockchain can either be Anonymous or Pseudonymous. Let’s simplify that:

Anonymous: Being anonymous means untraceable. Anonymity on the blockchain network gives a higher level of privacy. Z-cash is an example of a totally anonymous blockchain network. Anonymous blockchain is a very interesting technology, provided the security is not being compromised.

Pseudonymous: Using a pseudonym is to establish a long-term relationship with some other entity without disclosing personal identity to that entity. In a pseudonymous network, the wallet address is the pseudonym. All the transactions in the pseudonymous network are open and visible to all and thus it is widely accepted. I can’t identify you because I don’t know who the address belongs to but I can single the address out. A popular example of a pseudonymous blockchain network is Bitcoin. Bitcoin addresses are the pseudonyms that allow us to identify transactions and addresses.

What is a public blockchain?

A public blockchain network is completely open. Anyone can join and participate in the network, which will typically have an incentivizing mechanism to encourage more participants to join. Bitcoin is one of the largest public blockchain networks in the world today. One of the drawbacks of a public blockchain is the substantial amount of computational power that is necessary to maintain a distributed ledger on a large scale. More specifically, to achieve consensus, each node in a network must solve a complex, resource-intensive cryptographic problem called a proof of work to ensure all are in sync.

What is a private blockchain?

A private blockchain network requires an invitation and must be validated by either the network starter or by a set of rules put in place by the network starter. Businesses who set up a private blockchain will generally set up a permissioned network. This places restrictions on who is allowed to participate in the network, and in certain transactions.

Participants need to obtain an invitation or permission to join. The access control mechanism could vary: existing participants could decide future entrants; a regulatory authority could issue licenses for participation; or a consortium could make the decisions instead. Once an entity has joined the network, it will play a role in maintaining the blockchain in a decentralized manner.

Yes, it’s true that blockchain transactions are verifiable because you can trace the origin, but at the same time it continues to hide the entire details, and thus, it is pseudo-anonymous.

Can a blockchain be hacked?

The safety of adopting blockchain technology for businesses lies in the fact that it is a distributed, rather than centralized, network. For hackers, this means that in order to break into a data source, they would need to break into all of the computers in the distributed network at the same time. The computing power necessary to conduct such a hack has been compared to the equivalent of the "hashing power of a nation state and all the tech companies therein to overcome the more than 51% computational power of the network" .

So, blockchain is technically unhackable, however it does have weak points. These are slowly being overcome by work being done within the community.

If blockchain cannot be hacked then why do Bitcoin and Ethereum keep getting hacked?

Neither Bitcoin nor Ethereum have ever been hacked! Both blockchains have remained absolutely secure and are, due to the qualities explained, almost certain to remain so. What many people confuse with Bitcoin or Ethereum being hacked is actually Cryptocurrency exchanges or online wallets being hacked. If a hacker gains access to Bitcoin or Ether held on an exchange or in wallets, and also the keys necessary to facilitate a transaction, they can steal them, transferring them into an offline wallet to avoid being traced.

There is the additional complication that it is possible to register a Bitcoin address that has no links to the holder’s real-world identity. However, this is a potential criticism of the Cryptocurrency system and not related to the security of the Blockchain technology itself.

Blockchain and governance

Blockchain networks tend to support principles, like open access and permissionless use, that should be familiar to proponents of the early internet. To protect this vision from political pressure and regulatory interference, blockchain networks rely on a decentralized infrastructure that can’t be controlled by any one person or group. Unlike political regulation, blockchain governance is not emergent from the community. Rather, it is ex-ante, encoded in the protocols and processes as an integral part of the original network architecture. To be a part of a community supporting a blockchain is to accept the rules of the network as they were originally established.

Blockchain and regulations

The current state of regulation in the Cryptocurrency and blockchain space has attracted a melting pot of perspectives that have left many perplexed as to which governance structure to follow. With an uncertain road ahead, a unified regulatory framework for blockchain and Cryptocurrency will be crucial to utilizing these exciting technologies to their full potential.

This has already begun. In March, members of the G20 convened to discuss the future of Cryptocurrencies on the international stage. While no consensus was reached, members acknowledged the unique value proposition of the industry and pledged to publish a formal proposal by July. This is anticipated to be one of the first globally recognized resolutions to date, and will likely set the standard for government and regulatory scrutiny for years to come.

At present, it may seem as if there is more friction than unity between regulatory bodies and industry experts about how the space should develop. However, in the very near future, this is all expected to change, as blockchain becomes internationally recognized as an essential technology for companies seeking to connect the dots in an increasingly globalized world.

Blockchain and taxes

The potential of digitizing taxes has been noticed by many countries, and new solutions are arising, such as real-time electronic invoicing in Brazil. Propelled by a desire for greater efficiency and better compliance, tax authorities seek to gather and analyze information digitally, providing a better environment for creating foolproof solutions and software. On the other hand, taxpayers also expect that the process of taxpaying will become easier and less time-consuming. Blockchain is without a doubt one of the most promising technologies because of its ability to deliver reliable, real-time information to a large audience, as is the case with taxation, especially on an international level. At the World Economic Forum in Davos in 2016, 816 observers and technology specialists were asked when governments would begin to collect taxes using blockchain, showing that on average the expectation is that it will happen in 2023 or 2025.

How do blockchain-based businesses make money?

In general, independent blockchain businesses that have developed their own blockchains can generate revenue by selling the services or products that they develop. However the Bitcoin blockchain is a decentralized blockchain that does not charge anyone for its use. However, fees are generated for each transaction processed as the blockchain needs to compensate the miners who confirm that transaction. The fees are paid in Bitcoin. No central authority collects them.

Can a blockchain exist without a token?

A point that often adds fuel to the confusion around Cryptocurrency and blockchain is the assumption that they are interchangeable. Yes, a Cryptocurrency is indeed powered by a blockchain, but not all blockchains utilize a token. In fact, some blockchains do not use any Cryptocurrency or token. A token varies significantly depending on the type of blockchain or distributed ledger.

Shipment tracking is just one application of blockchain without Cryptocurrencies that has potential in transportation and logistics. Smart contracts are another: because the blockchain is at its essence code, it’s programmable, and can automatically execute actions when certain events are hashed into the chain.

Can anyone create a blockchain?

Anyone with computer science and coding abilities can learn how to develop a Blockchain and there are many blockchain developer courses and forums that can assist. You have to decide what type of blockchain you want to implement. There are lots of infrastructures available (Bitcoin vs Ethereum vs NEM, and many others), so depending on your goals, you have a lot to choose from.

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