It would be a mistake to rush headlong into blockchain innovation without understanding how it is likely to take hold. True blockchain-led transformation of business and government, we believe, is still many years away. Blockchain is a foundational technology: It has the potential to create new foundations for our economic and social systems. But while the impact will be enormous, it will take decades for blockchain to seep into our economic and social infrastructure.
The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum. Department of Defense precursor to the commercial internet. To ensure that any two nodes could communicate, telecom service providers and equipment manufacturers had invested billions in building dedicated lines.
The new protocol transmitted information by digitizing it and breaking it up into very small packets, each including address information. Once released into the network, the packets could take any route to the recipient. There was no need for dedicated private lines or massive infrastructure. Few imagined that robust data, messaging, voice, and video connections could be established on the new architecture or that the associated system could be secure and scale up.
To do so, they developed building blocks and tools that broadened its use beyond e-mail, gradually replacing more-traditional local network technologies and standards. As organizations adopted these building blocks and tools, they saw dramatic gains in productivity.
Netscape commercialized browsers, web servers, and other tools and components that aided the development and adoption of internet services and applications. Sun drove the development of Java, the application-programming language. As information on the web grew exponentially, Infoseek, Excite, AltaVista, and Yahoo were born to guide users around it.
Once this basic infrastructure gained critical mass, a new generation of companies took advantage of low-cost connectivity by creating internet services that were compelling substitutes for existing businesses. CNET moved news online. Amazon offered more books for sale than any bookshop.
Priceline and Expedia made it easier to buy airline tickets and brought unprecedented transparency to the process. The ability of these newcomers to get extensive reach at relatively low cost put significant pressure on traditional businesses like newspapers and brick-and-mortar retailers. Relying on broad internet connectivity, the next wave of companies created novel, transformative applications that fundamentally changed the way businesses created and captured value. These companies were built on a new peer-to-peer architecture and generated value by coordinating distributed networks of users.
Think of how eBay changed online retail through auctions, Napster changed the music industry, Skype changed telecommunications, and Google, which exploited user-generated links to provide more relevant results, changed web search.
Companies are already using blockchain to track items through complex supply chains. The very foundations of our economy have changed. Blockchain—a peer-to-peer network that sits on top of the internet—was introduced in October as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions.
Bitcoin is the first application of blockchain technology. Just as e-mail enabled bilateral messaging, bitcoin enables bilateral financial transactions. A team of volunteers around the world maintains the core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small community. Similarly, blockchain could dramatically reduce the cost of transactions.
It has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge. Consider how business works now. Keeping ongoing records of transactions is a core function of any business. Those records track past actions and performance and guide planning for the future.
Many organizations have no master ledger of all their activities; instead records are distributed across internal units and functions. The problem is, reconciling transactions across individual and private ledgers takes a lot of time and is prone to error. For example, a typical stock transaction can be executed within microseconds, often without human intervention.
However, the settlement—the ownership transfer of the stock—can take as long as a week. Instead a series of intermediaries act as guarantors of assets as the record of the transaction traverses organizations and the ledgers are individually updated. In a blockchain system, the ledger is replicated in a large number of identical databases, each hosted and maintained by an interested party.
When changes are entered in one copy, all the other copies are simultaneously updated. So as transactions occur, records of the value and assets exchanged are permanently entered in all ledgers. There is no need for third-party intermediaries to verify or transfer ownership.
If a stock transaction took place on a blockchain-based system, it would be settled within seconds, securely and verifiably. The infamous hacks that have hit bitcoin exchanges exposed weaknesses not in the blockchain itself but in separate systems linked to parties using the blockchain. If bitcoin is like early e-mail, is blockchain decades from reaching its full potential?
In our view the answer is a qualified yes. The adoption of foundational technologies typically happens in four phases. Each phase is defined by the novelty of the applications and the complexity of the coordination efforts needed to make them workable. Applications low in novelty and complexity gain acceptance first.
Applications high in novelty and complexity take decades to evolve but can transform the economy. In our analysis, history suggests that two dimensions affect how a foundational technology and its business use cases evolve. The first is novelty—the degree to which an application is new to the world. The more novel it is, the more effort will be required to ensure that users understand what problems it solves.
The second dimension is complexity, represented by the level of ecosystem coordination involved—the number and diversity of parties that need to work together to produce value with the technology. For example, a social network with just one member is of little use; a social network is worthwhile only when many of your own connections have signed on to it. Other users of the application must be brought on board to generate value for all participants.
The same will be true for many blockchain applications. And, as the scale and impact of those applications increase, their adoption will require significant institutional change. Identifying which one a blockchain innovation falls into will help executives understand the types of challenges it presents, the level of collaboration and consensus it needs, and the legislative and regulatory efforts it will require.
Managers can use it to assess the state of blockchain development in any industry, as well as to evaluate strategic investments in their own blockchain capabilities. In the first quadrant are low-novelty and low-coordination applications that create better, less costly, highly focused solutions. Bitcoin, too, falls into this quadrant.
Even in its early days, bitcoin offered immediate value to the few people who used it simply as an alternative payment method. You can think of it as a complex e-mail that transfers not just information but also actual value. If blockchain follows the path network technologies took in business, we can expect blockchain innovations to build on single-use applications to create local private networks on which multiple organizations are connected through a distributed ledger.
Much of the initial private blockchain-based development is taking place in the financial services sector, often within small networks of firms, so the coordination requirements are relatively modest. Nasdaq is working with Chain. Bank of America, JPMorgan, the New York Stock Exchange, Fidelity Investments, and Standard Chartered are testing blockchain technology as a replacement for paper-based and manual transaction processing in such areas as trade finance, foreign exchange, cross-border settlement, and securities settlement.
We anticipate a proliferation of private blockchains that serve specific purposes for various industries. The third quadrant contains applications that are relatively low in novelty because they build on existing single-use and localized applications, but are high in coordination needs because they involve broader and increasingly public uses. These innovations aim to replace entire ways of doing business. They face high barriers to adoption, however; not only do they require more coordination but the processes they hope to replace may be full-blown and deeply embedded within organizations and institutions.
Examples of substitutes include cryptocurrencies—new, fully formed currency systems that have grown out of the simple bitcoin payment technology. The critical difference is that a cryptocurrency requires every party that does monetary transactions to adopt it, challenging governments and institutions that have long handled and overseen such transactions. Consumers also have to change their behavior and understand how to implement the new functional capability of the cryptocurrency.
A recent experiment at MIT highlights the challenges ahead for digital currency systems. Even the technically savvy had a tough time understanding how or where to use bitcoin. Stellar offers its own virtual currency, lumens, and also allows users to retain on its system a range of assets, including other currencies, telephone minutes, and data credits.
Stellar initially focused on Africa, particularly Nigeria, the largest economy there. It has seen significant adoption among its target population and proved its cost-effectiveness. But its future is by no means certain, because the ecosystem coordination challenges are high. Although grassroots adoption has demonstrated the viability of Stellar, to become a banking standard, it will need to influence government policy and persuade central banks and large organizations to use it.
That could take years of concerted effort. To learn more about technology adoption, go to these articles on HBR. Into the last quadrant fall completely novel applications that, if successful, could change the very nature of economic, social, and political systems. They involve coordinating the activity of many actors and gaining institutional agreement on standards and processes. Their adoption will require major social, legal, and political change.
These automate payments and the transfer of currency or other assets as negotiated conditions are met. For example, a smart contract might send a payment to a supplier as soon as a shipment is delivered. A firm could signal via blockchain that a particular good has been received—or the product could have GPS functionality, which would automatically log a location update that, in turn, triggered a payment. Imagine a shared computer accessible to anyone, a single source of truth within which to store events, ownership and activities, and to execute workflow involving multiple parties without the use of separate systems and databases - and with no reconciliation required.
Surely it's more complicated? Why do I need to know about Blockchain? There are three reasons why you need to know about Blockchain: Blockchain technology doesn't have to exist publicly. It can also exist privately - where nodes are simply points in a private network and the Blockchain acts similarly to a distributed ledger.
Financial institutions specifically are under tremendous pressure to demonstrate regulatory compliance and many are now moving ahead with Blockchain implementations. Secure solutions like Blockchain can be a crucial building block to reduce compliance costs. Block-chain technology is broader than finance. It can be applied to any multi-step transaction where traceability and visibility is required.
Supply chain is a notable use case where Blockchain can be leveraged to manage and sign contracts and audit product provenance. It could also be leveraged for votation platforms, titles and deed management - amongst myriad other uses. As the digital and physical worlds converge, the practical applications of Blockchain will only grow.
The exponential and disruptive growth of Blockchain will come from the convergence of public and private Blockchains to an ecosystem where firms, customers and suppliers can collaborate in a secure, auditable and virtual way. We hope that helps in your Blockchain conversations - happy mining!
Richard Bradley Partner ribradley deloitte. Is your business ready for Blockchain? Contact us More future focused conversations in under words Blockchain services.
Each participant is given a unique alphanumeric identification number that shows their transactions. Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology. Cryptocurrencies are digital currencies or tokens , like Bitcoin, Ethereum or Litecoin, that can be used to buy goods and services.
Just like a digital form of cash, crypto can be used to buy everything from your lunch to your next home. Unlike cash, crypto uses blockchain to act as both a public ledger and an enhanced cryptographic security system, so online transactions are always recorded and secured. Here are some of the main reasons why everyone is suddenly taking notice of cryptocurrencies:. Of course, there are many legitimate arguments against blockchain-based digital currencies.
Many governments were quick to jump into crypto, but few have a staunch set of codified laws regarding it. Additionally, crypto is incredibly volatile due to those aforementioned speculators. Lack of stability has caused some people to get very rich, while a majority have still lost thousands. Whether or not digital currencies are the future remains to be seen. Originally created as the ultra-transparent ledger system for Bitcoin to operate on , blockchain has long been associated with cryptocurrency, but the technology's transparency and security has seen growing adoption in a number of areas, much of which can be traced back to the development of the Ethereum blockchain.
In late , Russian-Canadian developer Vitalik Buterin published a white paper that proposed a platform combining traditional blockchain functionality with one key difference: the execution of computer code. Thus, the Ethereum Project was born. Ethereum blockchain lets developers create sophisticated programs that can communicate with one another on the blockchain.
Ethereum programmers can create tokens to represent any kind of digital asset, track its ownership and execute its functionality according to a set of programming instructions. Tokens can be music files, contracts, concert tickets or even a patient's medical records. NFTs are unique blockchain-based tokens that store digital media like a video, music or art. Each NFT has the ability to verify authenticity, past history and sole ownership of the piece of digital media. NFTs have become wildly popular because they offer a new wave of digital creators the ability to buy and sell their creations, while getting proper credit and a fair share of profits.
Newfound uses for blockchain have broadened the potential of the ledger technology to permeate other sectors like media, government and identity security. Thousands of companies are currently researching and developing products and ecosystems that run entirely on the burgeoning technology. Blockchain is challenging the current status quo of innovation by letting companies experiment with groundbreaking technology like peer-to-peer energy distribution or decentralized forms for news media.
Much like the definition of blockchain, the uses for the ledger system will only evolve as technology evolves. Although blockchain is a new technology, it already boasts a rich and interesting history. The following is a brief timeline of some of the most important and notable events in the development of blockchain.
What Is Blockchain Technology? How Does It Work? Blockchain Technology Defined. Blockchain is most simply defined as a decentralized, distributed ledger technology that records the provenance of a digital asset. What is Blockchain? Of course, blockchain is more complicated than a Google Doc, but the analogy is apt because it illustrates three critical ideas of the technology: Blockchain Explained: A Quick Overview A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single-source-of-truth for the data Digital assets are distributed instead of copied or transferred, creating an immutable record of an asset The asset is decentralized, allowing full real-time access and transparency to the public A transparent ledger of changes preserves integrity of the document, which creates trust in the asset.
How Does Cryptocurrency Work? Cryptocurrencies are digital currencies that use blockchain technology to record and secure every transaction. A cryptocurrency for example, Bitcoin can be used as a digital form of cash to pay for everything from everyday items to larger purchases like cars and homes.
It can be bought using one of several digital wallets or trading platforms, then digitally transferred upon purchase of an item, with the blockchain recording the transaction and the new owner. The appeal of cryptocurrencies is that everything is recorded in a public ledger and secured using cryptography, making an irrefutable, timestamped and secure record of every payment. Blockchain Applications Blockchain has a nearly endless amount of applications across almost every industry.
The ledger technology can be applied to track fraud in finance, securely share patient medical records between healthcare professionals and even acts as a better way to track intellectual property in business and music rights for artists. History of Blockchain Although blockchain is a new technology, it already boasts a rich and interesting history.
Electronic Frontier Foundation, Wikileaks and other organizations start accepting Bitcoin as donations. Bitcoin Magazine launched by early Bitcoin developer Vitalik Buterin. R3, a group of over blockchain firms, is formed to discover new ways blockchain can be implemented in technology. PayPal announces Bitcoin integration.
The government of Japan recognizes the legitimacy of blockchain and cryptocurrencies. Dubai announces its government will be blockchain-powered by IBM develops a blockchain-based banking platform with large banks like Citi and Barclays signing on. More Stories. Cryptocurrency for Change: How Token Economies Are Upending Markets These 4 industry case studies show how cryptocurrency is shifting our global economy — and fast. Continue Reading. One Solution? A Decentralized Internet? Goodbye ATM, hello blockchain bank: 12 companies ushering the industry into the future.
Bullish on blockchain: 12 companies using distributed ledger technology to transform financial trading. From welfare payments to law enforcement, Blockchain is tackling some of government's biggest issues. Blockchain banking: How finance is embracing technology meant to disrupt its status quo.
Check yes or no: Is blockchain voting the future of elections? Level-up: 7 blockchain companies shaping the future of gaming. Faster, cheaper, safer: 9 companies using blockchain payments. Blockchain is capturing attention from big oil. G20 Summit addresses cryptocurrency regulation. Aetna joins health care provider blockchain alliance.
Blockchain is helping refugees make financial inroads. Wharton panel discusses blockchain in developing countries. Want to pay taxes in bitcoin? Move to Ohio. Blockchain on the verge of transforming renewable energy in Africa. Blockchain in the automotive industry? Experts split on potential. All bets on blockchain, says Overstock CEO.
Swiss Railway uses blockchain to ID workers on construction sites. Middle management facing a pink slip from blockchain. Blockchain startup provides free genomic sequencing. A Genesis block is basically the very first block in a Blockchain. Now, suppose we want to add some more blocks to this Blockchain. Here, 91b is nothing but the Hash of the previous block the Genesis block. There are 2 transactions:.
This turns out to be 8ab32k. As a result, there will be a mismatch in the value of this hash in block1 remember, the first value of each block is the hash value of its parent block. As a result, the chain becomes invalid. This effectively holds for each block in the Blockchain because as soon as we modify a block, the hashes of all subsequent blocks become invalid and so, the chain collapses.
Therefore Blockchain provides a high level of data security. From the above picture of Blockchain, it is clear that we can code it in pretty much any programming language. Let us take a look at a sample Python code:. As a result, the Blockchain is now corrupted. Think of Blockchain as a distributed and secured data structure that can be used in places where no middlemen are involved. The decentralized nature of Blockchain is what helps in removing the middlemen and it comes from the above immutability of Blockchain.
It is an interesting data structure and as we all have seen cryptocurrency is a real-life implementation of it. PS: Looking for Blockchain tutorials? Here are the programming community-recommended best Blockchain tutorials. Entrepreneur, Coder, Speed-cuber, Blogger, fan of Air crash investigation!
Fascinated by the world of technology he went on to build his own start-up - AllinCall Research and Solutions to build the next generation of Artificial Intelligence, Machine Learning and Natural Language Processing based solutions to power businesses. View all posts by the Author. Looking forward to engaging more with your crew!
Thanks Aman Goel for your post. Please I would like to know if the "hash" you talked about is the same as "md5" in PHP? Don't have an account? Sign Up. Already have an account? We recognized you are using an ad blocker. We totally get it. Still, ads support Hackr and our community. That's why we give you the option to donate to us, and we will switch ads off for you.
Submit a tutorial Jobs Sign In. Programming and Blockchain Programming. Programming Tutorials. Related Tutorials Bitcoin. Blockchain Programming. Virtual Reality. Data Science. Competitive Programming Course aff. Become a Blockchain Developer udacity. View More. What is Blockchain Technology? Aman Goel.
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If they fail to do their job properly, they can be voted out, the same way politicians can be. Cryptocurrencies such as EOS use this consensus mechanism. The process of cryptographic hashing is fundamental to ensuring the security of a blockchain. It involves one-way encryption of data to a unique piece of text and is a process that cannot be reversed. On the Bitcoin blockchain, the result of the hashing process is a character piece of text called a hash.
As each unique piece of digital text cannot be reversed to decipher the original data, blockchain is considered to be very safe from hackers. Thankfully, such events are rare, due to the sheer amount of hash power needed to conduct an attack. We all know cryptocurrencies use blockchain, but what else in the world benefits from the wonders of blockchain technology?
A multitude of coins — from altcoins to stablecoins to DeFi tokens — are in existence today, thanks to the technology invented by Satoshi Nakamoto. Through advanced cryptography, blockchain can put an end to this. Records can be added to a trusted and secure blockchain, becoming longer over time. When new records are added, a consensus is needed — thus making the chain very difficult to hack into or break.
A decentralized mobile platform, allows patients to manage their health information and sell it to third parties, if they wish, in return for tokens. There are also shortcomings to EHRs, in terms of doctors accessing patient information that comes from another institution.
Attempts have been made to bring together EHRs in many countries under one system, but this has often proved to be a doomed process. In the U. It will, however, be able to act as an extra layer for additional functions, and prove that records are complete and unmodified, recording patient consent when it comes to data sharing.
A smart contract works the same way any contact would, but through a blockchain, which takes away the need for any third-party intermediaries. Only when preset conditions which have been set in the computer code of the blockchain are met does a transaction within the contract take place. Smart contracts were first established on the Ethereum blockchain in Today, they have many uses, some of them listed below.
Smart contracts can make insurance claims a quicker and cheaper process by helping to clearly define when objective criteria have been met. This may not be the case when these decisions are left up to lawyers as this may make the process more subjective, and in turn, lead to a longer and more expensive claim process. Supply chains can become easier to manage through the use of smart contracts. As with insurance claims, smart contracts can take away any subjectivity, making it easy to verify if set targets are being met within the blockchain.
Within healthcare, smart contracts have the potential to revolutionize the complicated prescription drug supply market in the U. Smart contracts can make buying and selling a house a lot less stressful. By cutting out the need for a middleman, such as a housing agent, buyers can handle transactions with a potential seller by themselves.
Once the conditions of selling a house are met, the purchasing of a property can be completed solely through the use of a smart contract. Believe it or not, the wonders of blockchain technology have even infiltrated the video game industry. In , a game was released called CryptoKitties. The premise of the game is that you breed, buy and sell virtual cats. Since then, blockchain technology has been increasingly adopted in the video game industry, albeit this is still in its infancy.
Collectible card games have led the way in adopting the technology. The exciting reality is that the potential of blockchain technology has just begun to be tapped. It really is only the beginning of this journey. Blockchain technology can help to alleviate poverty and corruption by giving financial inclusion to those who are unbanked. Besides, blockchain technology also provides tremendous growth potential for small businesses in developing countries, with the decentralized nature of cryptocurrency allowing many of them to truly operate on a global scale for the first time.
This is something that is already starting to be implemented. By storing personal database information on a public, distributed ledger, the risk of identity fraud will be greatly reduced. As already noted, blockchain holds massive potential for changing the way healthcare records are met. This capability is likely to extend to government, employment, tax, and even voter records. We will try to capture the essence of blockchains truest value and demonstrate how pervasive and entrenched this technology could be in our daily lives.
Finally, we will be discussing how this technology works. We will do a deep dive into the different components of this technology exploring each of their functions to discover the vital role they play for it to work. We will also try to explain its different implementations while citing the different advantages and disadvantages of each of these solutions. Let us begin where it all started, a time when a new revolutionary financial instrument was released over a decade ago as a reaction to the failings of traditional finance which almost met its absolute and total collapse in The pseudonymous developer or group of developers who called themselves Satoshi Nakamoto introduced to us the first successful and relevant use case of blockchain technology more than a decade ago.
It positioned itself as an alternative financial system that does not require a centralized authority to ensure that transactions will push through , verifiable , and are immutable. This was made possible through the use of a new type of database that is characterized by its decentralized structure and unique data recording mechanism. According to Satoshi Nakamoto, the database is made of a chain of records or blocks whose data is sequentially written by a randomly selected miner.
Miners are participants in the Proof-of-Work consensus mechanism where they compete to solve cryptographic problems for the chance to write the next block in the network and get the current rewards by doing so. Once the next block is written it is confirmed and copied to all the participating nodes in the network.
This will ensure that there is only one version of the data exist within the network. The term blockchain was later coined by community members to describe this new decentralized database and has since been used loosely in the industry to describe distributed ledger technology DLT which is the proper name to describe them. Different generation blockchains have their own use cases, advantages, and disadvantages.
Newer generation blockchains or more properly known as DLTs are not always better but generally speaking, newer DLTs tend to address the prevailing challenges of previous generation blockchains. To have a clearer vision of the blockchain landscape let us explore its different generations. Please note that we will continue to use the term blockchain to address distributed Ledger technology DLT as it is the generally accepted term to describe the said technology.
The blockchain technology used to secure the bitcoin network is considered a first-generation blockchain. This blockchain uses the Proof-of-work PoW consensus protocol. A consensus protocol is simply the way how participants in the decentralized network agree on the validity of records or blocks within the network.
This enables everyone to agree in a single version of the truth. This process includes the selection of who miner writes the next record block , how often each miner is selected, and how much percentage of the total participants is needed to achieve consensus or agreement.
The PoW consensus protocol is so effective that up until now it is widely regarded as one of the most effective consensus protocols for decentralized systems like cryptocurrencies. However, it is far from perfect and has its fair share of weaknesses. The huge energy required to keep the system running has many people asking if it is worth all the energy wasted running the network. This gave rise to other cryptocurrencies whose PoW consensus protocol serves another purpose aside from the selection of the miner that writes the next block.
An example of this is Primecoin which uses the PoW system with the practical use of computing prime numbers. King Sunny is the Pseudonymous name of the creator of Primecoin he is also the developer of Peercoin which is the first cryptocurrency that utilized Proof-of-Stake PoS as its main consensus mechanism.
PoS does not have miners hence there is no need to buy expensive mining equipment and thus lowering the barrier to entry to would-be consensus participants. More importantly, it does not require the massive energy requirements of Proof-of-Work based algorithms. Despite the innovative solution of Primecoin and Peercoin , they are both considered 1st generation blockchain as both of these cryptocurrencies use blockchains that do not feature a scripting language that allows decentralized applications to run on top of it.
They also do not solve the scalability issue needed to achieve mass adoption. However, Primecoin and Percoin can be considered improvements over the original consensus protocol of bitcoin, as they utilize a more useful consensus protocol and a much more energy-efficient solution respectively.
Early adopters quickly realize the potential of the underlying technology of bitcoin. This was turned down by the bitcoin community which led him to create Ethereum together with other well-known people such as Charles Hockinson founder of Cardano , Gavin Wood inventor of Solidity and Joseph Lubin founder of ConsenSys. This new blockchain platform features a cryptocurrency called Ether, a Virtual Machine, and a Turing complete programming language. The release of Ethereum marks the beginning of blockchain 2.
The Ethereum Network uses the same time-tested consensus algorithm that made bitcoin such a successful financial instrument, Proof-of-Work PoW. This means it enjoys the same level of security and decentralization bitcoin has to offer and more. Unlike bitcoin which primarily acts as a currency, medium of exchange or store of value, Ethereum is a computing platform for decentralized applications that functions like an operating system that runs smart contracts written in Solidity.
This means it is the main currency that will be used to pay for all fees within the Ethereum Ecosystem. It is currently second only to bitcoin in terms of market valuation. The launch of Ethereum opens the floodgates of innovation as it opened a whole new world of blockchain-based use cases that goes beyond cryptocurrencies. It enabled blockchain developers to quickly deploy smart contracts on top of Ethereum which eventually led to the creation of a new crowdfunding mechanism called Initial Coin Offering ICO.
While the second-generation blockchain was able to greatly expand the use case of blockchain technology it does not address many of the weaknesses of the former blockchain Blockchain 1. The most glaring weakness of the first and second-generation blockchain are their inability to scale to mass adoption. Bitcoin and Ethereum use the Proof-of-Work consensus protocol which is very difficult to scale.
While there have been many second layer solutions for both networks the vast majority of them are still under development and largely unproven. Gen 1 and Gen 2 blockchains do not only have scalability challenges but they also suffer from expensive transaction fees especially during a congested network. Hence, those who are willing to pay for higher fees will be confirmed and transacted faster than those that have fewer fees.
During a network congestion network users of both chains drive up transaction fees as they compete to have their transactions prioritized. The older generation blockchains are also plagued with energy-wasting Proof-of-Work consensus algorithms that only compute an arbitrary mathematical problem with no real use aside from getting the chance to write the next block of the network.
Knowing fully well that mass adoption will not be possible without addressing the aforementioned challenges some leading experts have developed new consensus protocols that they hope will address these problems. One of which is Daniel Larimer , a computer scientist that developed the delegated Proof-of-Stake dPoS consensus algorithm.
The creation of dPoS paved the way to third-generation blockchain technology which aims to address the problems of the older generation blockchains. It uses elected validators or block producers which are selected by token holders. Those who get the highest votes become part of the committee or select witnesses that will take turns producing blocks.
T ake for example EOS , the top 21 elected block producers will take turns to write the next block while others will validate transactions. They do not require expensive mining equipment to operate like the Proof-of-Stake type consensus mechanism. Operational efficiency is achieved through delegation of consensus participation through voting mechanisms where representatives are voted.
Those with the highest votes become block producers who have the right to write new blocks or validate transactions. They receive block rewards for their participation in which they share a portion of the rewards to their voters. Unlike blockchain-based DLT it does not require miners to write new records on its ledger. It does away with the inefficient, expensive, and slow consensus protocol, making them more scalable. It offers the benefits of blockchains with better performance.
DAG is nothing new, it is a concept used in mathematics, computer science, and general applications. As the name implies, DAG is a graph that moves in one single direction Directed without cycles Acyclic connecting the other edges. In other words, it is not possible to move through the entire graph starting at one edge.
The edges of the directed graph have one direction. The graph is a type of topological sorting, where each node is ordered. This is then applied to DLT where transactions are linked in the following way:. DAG uses nodes and groups of nodes that can be developed simultaneously. This means unlike blockchain which can only produce one block at a time, transactions are added directly to the distributed ledger w here they can be validated at the same time.
DAG horizontally scales as transactions can happen in parallel or concurrently which allows it to process a lot more transactions at the same time and at a much higher rate. In IOTA each new transaction must validate at least two previous transactions before it can be validated. To ensure that participants in the network do not validate their own transactions a randomizing algorithm is in place.
This method of reaching consensus allows multiple transactions to be verified simultaneously. DLT engineers continue to innovate in the space improving scalability, security, and decentralization. Most of the third generation DLTs address scalability issues but seem to have difficulty maintaining the same level of decentralization as the previous generation DLTs.
To address this challenge DLT developers created various mechanisms to increase decentralization from randomizing block producers to the implementation of sharding technology. Nonetheless, third-generation blockchains and DAGs reached considerable success in the industry.
While we are still in the middle of the third generation blockchain evolution it is not hard to see what will be the next focus of future developments. We believe that next-generation blockchains will focus on privacy and interoperability.
Thus, newer generation blockchain will not only be decentralized, secure, and scalable but they will allow enhanced privacy as well as being able to work with other DLTs. It is still in the early research and development stages but we have some promising projects that are working on the technology to make it a reality.
Privacy is one of the most sought after features in the industry with multiple projects working towards different implementations of privacy features. However, project developers should be careful in implementing this feature into their project as regulatory bodies around the world have generally been hostile towards privacy-centric cryptocurrencies. This stems from the fact that many privacy coins are fast becoming the cryptocurrency of choice for illicit activities.
The blockchain industry is a highly fragmented industry. The number of players keeps on increasing every day offering new use cases that leveraged DLT. However, the siloed approach is a major barrier to mass adoption. In other words, chains that may have some weaknesses in some aspects of their project can make use of other blockchains for comparative advantage or mitigate risks. To answer this question we need to state what is the value proposition of Blockchain Technology.
Without decentralization blockchain technology is no different from regular databases. Decentralization removes the need to have an intermediary or a single authority that acts as gatekeepers of truth or having to trust an entity to ensure the trustworthiness of any transaction. Through blockchain, people will be able to transact with each other directly without having to worry that transactions will push through and will not be reversible. Take for example the first use case of blockchain technology— bitcoin.
I t was released during the height of the Financial Crisis of as an alternative to the widely considered outdated, unsustainable and unfair financial system. The old monetary model relied heavily on centralized entities like centralized banks which have been under public scrutiny after the financial systems around the world imploded.
This brings into question the sustainability and trustworthiness of such a financial system. This is on top of the increasing awareness that these can easily weaponize to push the agenda of more powerful countries. Centralization usually means the concentration of power and control to a single or small group of people or entities.
This may lead to corruption and abuse. Centralization also means there is one point of failure. Imagine having all your information in a centralized database, your data is always at risk from hackers and wayward employees of these centralized organizations. Unlike centralized systems where truth emanates from the few central and influential figures, truth is determined through a consensus mechanism that is ideally participated by everyone.
Through blockchain technology, each and every bitcoin is accounted for and transactions are confirmed, validated, and immutable. The same is true when the technology is used in decentralized applications like blockchain-based social media. User-generated content will forever be etched on the blockchain where everyone can see and review the content. There will be no centralized entity that will be able to remove contents or block access to them without the general consensus of the participants on the network.
Since there are no central authority there is a slim chance that anyone can manipulate information in decentralized social media. Blockchain technology also allows us to have more freedom. Bitcoin is the manifestation of the emancipation of money. There is no single entity controlling it and is unstoppable. It disintermediates banks and traditional financial institutions that monopolize the industry and have been proponents in propagating unfair monetary policies.
They do not lean toward protecting the vested interest of the privileged few and they empower the marginalized that needed financial help the most. If it can disrupt one of the most powerful industries in the world it is safe to say that it has the capacity to disrupt any kind of centralized system. The release of Ethereum greatly expanded the use of cases of blockchain technology.
In other words, it has removed the reliance of users to centralized entities and enabled them to transact peer-to-peer without the need for third-party intervention to ensure security and safety. Centralized entities will not be able to manipulate information, restrict access, or censor anyone. Blockchain technology enables organizations, systems, and structures to be more inclusive.
The technology is designed to be agnostic to how it is used or who uses it. It does not care about boundaries, regulations, policies, or any restrictions. When a transaction is triggered it is guaranteed to execute exactly what it is expected to do. No centralized entity will be able to influence its outcome, change its finality nor stop it.
Hence, blockchain is an enabling technology that allows those who are marginalized to get access to what they need. Marginalization takes on many forms, be it in finance, information, freedom of expression, gender, and many more. Through blockchain technology, they are empowered to have access and control. Bitcoin was created using blockchain technology and it enabled millions of people across the world to have access to direct exchange of value without being restricted by governments or organizations that seek to control the movement of money for their own self-interest.
This technology is also used to create new types of social networks that are unstoppable, and censorship-free. Blockchain breaks the monopolies of centralized organizations that seek to keep for themselves control and power. Banks have the power to restrict depositors from accessing their own money under the suspicion of unusual activities or for the simple observation that the depositor may not fit the profile relative to the amount they have in their account.
The banks can hold it as long as they want and depositors are not able to track where their money went while it is under investigation, given the opaqueness of bank operations. Conversely, blockchain-based financial instruments are much fairer, they do not restrict the access to funds of their rightful owners. In addition, they are more transparent, there are many tools publicly available to monitor transactions on blockchains.
Once records are written in the blockchain they cannot be easily removed without the general consensus of the majority. Ownership is defined as a state or fact of exclusive rights and control over tangible and intangible properties.
These may include objects, real estate, intellectual property, or even your own personal data. Hence your money deposited in banks not anymore your money as you do not have exclusive control over them, instead banks become your co-owner as you need to ask permission from them to release your money. The same is true when using centralized multimedia outlets which at first seem free but in reality, you are paying with your own personal data.
Whenever we use social media or any internet site we create data. These data are then exploited by internet companies and sold to organizations that used them for marketing or social engineering. They feed us with information or contents that may influence our behavior. This may take the form of advertisements that can influence consumer behavior or political ads that may sway public opinion.
Blockchain-based alternatives allow users to monetize their data and contents thus establishing true ownership. Blockchain disintermediates centralized structures by offering users alternative systems that allow them to interact directly which others. This means users need not share sensitive information about themselves to use certain services. Opening bank accounts require you to share identification documents, sensitive information, billing information as well as other private data.
Blockchain alternatives generally do not require this type of authentication. In fact, there are even blockchain-based ID systems that can be used to attest for identity without having to share too much private data. Privacy is a fundamental human right and should be protected and respected. Centralized structures became concentrated data custodians of users, making them prime targets of hackers. What is even more bothersome is the reality that these they can easily do whatever they want with the data of their customers.
They can use it to data mine or sell user information to the highest bidder. We have seen this in the past and we will continue to do so in the future, the only way to avoid this is to use decentralized alternatives. The internet was one of the most important technological advancements in recent history and many proponents of blockchain technology BT believe that BT will be instrumental in its next evolutionary step.
The internet accelerated the exchange of information and data, enabling users to gain faster access to them as well as led to many innovations on how humans can interact with each other. Blockchain will further enhance the use of the internet by introducing a trust layer into its protocol. This will enable the internet to evolve into something more than a medium of information but become an internet of value exchange.
Blockchain will not only enable the internet to evolve but it will also help it address some of its major problems. These include censorship , fake news , identity theft , fraud , and the many threats and risks brought about by having centralized entities dominate the internet industry.
For so many years the level of trust on the internet has deteriorated. This was the result of years of misinformation, prevalence of low-quality content, and the inability of users to check the truthfulness contained in websites. By leveraging blockchain technology developers are able to create solutions especially in the realm of establishing trust.
There are many types of blockchain technology and we can categorize them in many ways depending on how they are organized, how their data are structured , the type of consensus mechanism they use , and their use cases.