The Beauty of the Blockchain

The me­te­oric rise in the value of bit­coins has put a spot­light on the blockchain, which is the pri­mary pub­lic, dig­i­tal ledger for bit­coin trans­ac­tions. A blockchain al­lows dig­i­tal trans­ac­tions to be trans­par­ent and dis­trib­uted, but not copied. It is thoug

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The bit­coin net­work has at­tracted at­ten­tion from al­most all in­dus­tries and ex­perts due to its vari­able mar­ket value. These cap­tains of in­dus­try and the ex­perts are try­ing to fig­ure out how this tech­nol­ogy can be adapted to and in­te­grated with their work. The dic­tio­nary def­i­ni­tion of blockchain is, “A dig­i­tal ledger in which trans­ac­tions made in bit­coin or an­other cryp­tocur­rency are recorded chrono­log­i­cally and pub­licly.” This def­i­ni­tion is de­rived from the most pop­u­lar im­ple­men­ta­tion of blockchain tech­nol­ogy— the bit­coin. But blockchain is ac­tu­ally not bit­coin. Let’s have a look at blockchain tech­nol­ogy, in gen­eral.

Dis­trib­uted ledger tech­nol­ogy (DLT)

Dis­trib­uted ledger tech­nol­ogy in­cludes blockchain tech­nolo­gies and smart con­tracts. While DLT ex­isted prior to bit­coin or blockchain, it marks the con­ver­gence of a host of tech­nolo­gies, in­clud­ing the time-stamp­ing of trans­ac­tions, peer-to-peer (P2P) net­works, cryp­tog­ra­phy, shared com­pu­ta­tional power, as well as a new con­sen­sus al­go­rithm. In short, dis­trib­uted ledger tech­nol­ogy is gen­er­ally made up of three ba­sic com­po­nents:

A data model that cap­tures the cur­rent state of the ledger. A lan­guage of trans­ac­tions that changes the ledger state. A pro­to­col used to build con­sen­sus among par­tic­i­pants around which trans­ac­tions will be ac­cepted by the ledger and in what or­der.

What is blockchain tech­nol­ogy?

Blockchain is a spe­cific form or sub-set of dis­trib­uted ledger tech­nolo­gies, which con­structs a chrono­log­i­cal chain of blocks; hence the name ‘blockchain’. A block refers to a set of trans­ac­tions that is bun­dled to­gether and added to the chain at the same time. A blockchain is a peer-to-peer dis­trib­uted ledger, forged by con­sen­sus, com­bined with a sys­tem for smart con­tracts and other as­sis­tive tech­nolo­gies. To­gether, these can be used to build a new gen­er­a­tion of trans­ac­tional ap­pli­ca­tions that es­tab­lish trust, ac­count­abil­ity and trans­parency at their core, while stream­lin­ing busi­ness pro­cesses and le­gal con­straints. The blockchain then tracks var­i­ous as­sets, the trans­ac­tions are grouped into blocks, and there can be any num­ber of trans­ac­tions per block. A block com­monly con­sists of the fol­low­ing four pieces of me­ta­data: The ref­er­ence to the pre­vi­ous block

The proof of work, also known as a nonce

The time-stamp

The Merkle tree root for the trans­ac­tions in­cluded in this block

Is a blockchain sim­i­lar to a data­base?

Blockchain tech­nol­ogy is dif­fer­ent from data­bases in some key as­pects. In a re­la­tional data­base, data can be eas­ily mod­i­fied or deleted. Typ­i­cally, there are data­base ad­min­is­tra­tors who may make changes to any part of the data or its struc­ture and even to re­la­tional data­bases. A blockchain, how­ever, is a write-only data struc­ture, where new en­tries get ap­pended onto the end of the ledger. There are no ad­min­is­tra­tor per­mis­sions within a blockchain that al­low the edit­ing or delet­ing of data. Also, the re­la­tional data­bases were orig­i­nally de­signed for cen­tralised ap­pli­ca­tions, where a sin­gle en­tity con­trols the data. In con­trast, blockchains were specif­i­cally de­signed for de­cen­tralised ap­pli­ca­tions.

Types of blockchains

A blockchain can be both per­mis­sion­less (e.g., bit­coin and Ethereum) or per­mis­sioned, like the dif­fer­ent Hyper­ledger blockchain frame­works. The choice be­tween per­mis­sion­less and per­mis­sioned blockchains is driven by the par­tic­u­lar use case.

A per­mis­sion­less blockchain is also known as a pub­lic blockchain, be­cause any­one can join the net­work. A per­mis­sioned blockchain, or pri­vate blockchain, re­quires pre­ver­i­fi­ca­tion of the par­tic­i­pants within the net­work, who are usu­ally known to each other.

Char­ac­ter­is­tics of blockchains

Here is a list of some of the well-known prop­er­ties of blockchains.

Fig­ure 1: Struc­ture of a block in the chain

Im­mutabil­ity of data

The im­mutabil­ity of the data which sits on the blockchain is per­haps the most pow­er­ful and con­vinc­ing rea­son to de­ploy blockchain-based so­lu­tions for a va­ri­ety of so­cio-eco­nomic pro­cesses that are cur­rently recorded on cen­tralised servers. This ‘un­chang­ing over time’ fea­ture makes the blockchain use­ful for ac­count­ing and fi­nan­cial trans­ac­tions, in iden­tity man­age­ment and in as­set own­er­ship, man­age­ment and trans­fer, just to name a few ex­am­ples. Once a trans­ac­tion is writ­ten onto the blockchain, no one can change it or, at least, it would be ex­tremely dif­fi­cult to do so.

Trans­parency

Trans­parency of data is em­bed­ded within the net­work as a whole. The blockchain net­work ex­ists in a state of con­sen­sus, one that au­to­mat­i­cally checks in with it­self. Due to the struc­ture of a block, the data in a blockchain can­not be cor­rupted; hence al­ter­ing any unit of in­for­ma­tion in it is al­most im­pos­si­ble. Though, in the­ory, this can be done by us­ing a huge amount of com­put­ing power to over­ride the en­tire net­work, this is not pos­si­ble prac­ti­cally.

De­cen­tral­i­sa­tion

By de­sign, the blockchain is a de­cen­tralised tech­nol­ogy. Any­thing that hap­pens on it is a func­tion of the net­work, as a whole. A global net­work of com­put­ers uses blockchain tech­nol­ogy to jointly man­age the data­base that records trans­ac­tions. The con­sen­sus mech­a­nism dis­cussed next en­sures the cor­rect­ness of data stored on the blockchain.

Se­cu­rity

By stor­ing data across its net­work, the blockchain elim­i­nates the risks that come with data be­ing held cen­trally, and the net­work lacks cen­tralised points of vul­ner­a­bil­ity that are prone to be­ing ex­ploited. The blockchain en­sures all par­tic­i­pants in the net­work use en­cryp­tion tech­nolo­gies for the se­cu­rity of the data. Pri­mar­ily, it uses PKI (pub­lic key in­fra­struc­ture), and it is up to the par­tic­i­pants to se­lect other en­cryp­tion tech­nolo­gies as per their pref­er­ence.

What are con­sen­sus mech­a­nisms and the types of con­sen­sus al­go­rithms?

Con­sen­sus is an agree­ment among the net­work peers; it refers to a sys­tem of en­sur­ing that par­tic­i­pants agree to a cer­tain state of the sys­tem as the true state. It is a process whereby the peers syn­chro­nise the data on the blockchain. There are a num­ber of con­sen­sus mech­a­nisms or al­go­rithms. One is Proof of Work. Oth­ers in­clude Proof of Stake, Proof of Elapsed

Time and Sim­pli­fied Byzan­tine Fault Tol­er­ance. Bit­coin and Ethereum use Proof of Work, though Ethereum is mov­ing to­wards Proof of Stake.

What are smart con­tracts?

Back in 1996, a man named Nick Sz­abo coined the term ‘smart con­tract’. You can think of it as a com­puter pro­to­col used to fa­cil­i­tate, ver­ify, or en­force the ne­go­ti­a­tion of a le­gal con­tract. A smart con­tract is a phrase used to de­scribe com­puter code. Smart con­tracts are sim­ply com­puter pro­grams that ex­e­cute pre­de­fined ac­tions when cer­tain con­di­tions within the sys­tem are met. Smart con­tracts pro­vide the lan­guage of trans­ac­tions that al­lows the ledger state to be mod­i­fied. They can fa­cil­i­tate the ex­change and trans­fer of any­thing of value (e.g., shares, money, con­tent and prop­erty).

Open source blockchain frame­works, projects and com­mu­ni­ties

Look­ing at the cur­rent state of re­search and some of the im­ple­men­ta­tions of blockchain tech­nolo­gies, we can cer­tainly say that most en­ter­prise blockchain ini­tia­tives are backed by open source projects. Here’s a list of some of the pop­u­lar open source blockchain projects.

Hyper­ledger is an open source ef­fort cre­ated to ad­vance cross-in­dus­try blockchain tech­nolo­gies. Hosted by the Linux Foun­da­tion, it is a global col­lab­o­ra­tion of mem­bers from var­i­ous in­dus­tries and or­gan­i­sa­tions.

Quo­rum is a per­mis­sioned im­ple­men­ta­tion of Ethereum, which sup­ports data pri­vacy. Quo­rum achieves data pri­vacy by al­low­ing data vis­i­bil­ity on a need-to-know ba­sis, us­ing a vot­ing-based con­sen­sus al­go­rithm. In­ter­est­ingly, Quo­rum was cre­ated and open sourced by J.P. Mor­gan.

Chain Core, cre­ated by chain.com, was ini­tially de­signed for fi­nan­cial ser­vices in­sti­tu­tions and for things like se­cu­ri­ties, bonds and cur­ren­cies.

Corda is a dis­trib­uted ledger plat­form de­signed to record, man­age and au­to­mate le­gal agree­ments be­tween busi­nesses. It was cre­ated by the R3 Com­pany, which is a con­sor­tium of over a hun­dred global fi­nan­cial in­sti­tu­tions.

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