A blockchain is a data structure that makes it possible to create a distributed, public database to store, process, share, and manage any type of information in a
publicly accessible database
. In a continuous list of data records (called blocks ) these are linked by means of cryptography . The beginning of any blockchain is the creation block, or rather the
genesis block
.
Essentially, a blockchain is an incorruptible digital ledger of economic transactions that can be programmed to capture not just financial transactions but virtually anything of value.
Quick Navigation
Where did the blockchain idea originate?
The 4 functional principles of a blockchain
What are the advantages and disadvantages of the blockchain?
How does a blockchain function technically?
The 4 different types of blockchains.
What can blockchain technology be used for? (10 application examples for blockchain technology)
List of top 18 Blockchain companies in 2021
Blockchain Glossary
Where did the blockchain idea originate?
1983
–
David Chaum
publishes the first white paper describing an electronic currency
1993
–
W. Scott Stornetta and Stuart Haber
publish a paper describing the basics of a cryptographically secured chain of individual digital hash blocks, which today make up the individual components of a block chain
1997
–
Adam Back
proposes a Proof-of-Work algorithm concept originally used against denial-of-service attacks and e-mail spam.This eventually would become the basis of Bitcoin’s Proof-of-Work algorithm in order to be able to implement the concept of a digital currency. It paved the way for the cryptocurrency Bitcoin
2008
–
Satoshi Nakamoto
publishes a paper on what became Bitcoin and the Bitcoin blockchain
The idea of the
Bitcoin blockchain
is described in the
Bitcoin white paper
. The person or group behind the pseudonym “Satoshi Nakamoto” describes existing, serious problems in dealing with monetary values.
Emerging
blockchains are seeing increased funding
and investment are being developed to prevent an abuse of trust and the associated abuse of data on a systemic level. Misappropriation of funds, abuse of trust or simply fraud is made more difficult by the blockchain technology.
The 4 functional principles of a blockchain
The core tenet of Blockchain is to transform control
. That is why a Blockchain is “decentralized”. Within a Blockchain, the control of monetary values or information becomes. Think of it this way. In terms of information, a bank in a Blockchain would make all the information about its customers including transactional history public for everyone to copy and save locally.
At its core,
Blockchain has 4 functional principles
:
1. Anonymity and pseudonymity
In the above example, when a bank releases all its accounts to the participants in a Blockchain, the accounts would be anonymized.
Each account has its own address, which consists of a sequence of numbers and letters. Each blockchain address contains a string of alphanumeric characters, but can also be shown as a scannable QR code.
Even though everyone can look at each account and see all the transactions in the account and the current balance, the account cannot be assigned to a real person.
2. Decentralization
Functionally, the information about individual accounts is not stored centrally. The blockchain, viewed as a ledger, is stored within a decentralized computer network. This means that many different computers around the world are connected to one another via the Internet. Each of these computers kept the entire ledger.
Because a Blockchain is made up of interconnected computers in a system, no one controls it
. The system is
architecturally decentralized with no infrastructural central point of failure. There is one common agreed state and the system functions as a single computer. Each computer, also known as a node, interacts on a direct, peer-to-peer basis, without the need for third parties. Within the blockchain, information is distributed to every single “node” on the network. Each node has an updated copy of all recorded data.
3. Transparency
Within a Blockchain, the information is
transparent and anyone can join the network and, as a result, view all information on that network. The concept of transparency of information within a Blockchain is one of the biggest promises of
the Blockchain
technology, which provides a fully auditable and valid ledger of transactions. The transparency of the public ledger aims to address the concerns surrounding fraud and digital piracy.
4. Security
If a Blockchain participant tries to fraudulently amend their locally stored ledger of the whole blockchain, other participants can detect the fraud because the versions will not reconcile with other copies of the blockchain. The blockchain ensures that fraudsters are quickly identified. Fraudsters can be identified via the decentralized network by comparing the respective blockchain versions and excluded from the network. In the same way, a bank’s customers could see when their own money is being used for wrong purposes by their banker.
What are the advantages and disadvantages of the blockchain?
Advantages of the blockchain
All participants in the blockchain must agree on transactions before they are recorded. Once the approval process has been completed, the transaction is encrypted and linked to the previous transaction. This
offers security
because the information is not on a single server, but in a network of computers. It is almost impossible to compromise transaction data.
Blockchain
provides data accuracy, transparency and consistency
. Within the distributed ledger, every transaction is securely documented and transparent for all parties involved. Amendments to ledger details can only be made if all authorized participants are in agreement. Modifying a single transaction record would require the modification of all subsequent records and the approval of the entire network.
Within a blockchain, the decentralized digital ledger technology
ensures less friction and disorder.
It becomes easier to trust each other so clearing and settlement can happen faster.
Within a blockchain, you don’t need so many third parties or other bodies to give guarantees. Trust in the trading partner no longer plays a role; you can fully rely on the blockchain. This results in
a reduction in transactional costs
for the participants in the blockchain.
A blockchain provides valuable insight into historical transaction data can help verify the authenticity of products and assets and prevent fraud. Companies can therefore not only track down weak points in branched supply chains, but also trace items back to their origin and their producers.
Disadvantages of the blockchain
Within a growing blockchain, the
storage requirements for each node
(computer) become exponential
. If data in the terabyte range were to be generated, it would have to be stored on every node in the network, which is hardly realistic, especially since the Internet connection would be extremely heavily loaded. It is therefore important to play through exactly which transaction scenarios can be mapped and which cannot.
What no one seems to mention is a possible scenario where
there is no agreement
among the blockchain participants. If an update to the ledger is not agreed upon, does that mean the blockchain splits and two independent new blockchains with the same history are created?
The blockchain is also not 100%
tamper-proof
. If a participant manages to control more than half of the participant nodes (which in fact never happens), he can theoretically change the transaction history.
The verification of the transactions and their synchronization take time. In addition, transactions in the network must be processed independently by each node. The blockchain does not offer better
performance of
in comparison to a central database.
Transparency
is actually desired with the blockchain, but the shot can also backfire because others can also gain insight into past and sometimes future transactions.
How does a blockchain function technically?
The way a blockchain works can be described by the
Bitcoin blockchain
. Bitcoin describes a digital unit that functions as a value carrier.
A simple explanation of how a blockchain works
Bitcoins are generated using the so-called
proof-of-work algorithm
. This algorithm is integrated in software that can be downloaded and operated by individual computers (nodes) within the Bitcoin network.
The algorithm is used to offset transactions (transfers) from one account to another account with other transactions in such a way that the entire data set can be integrated into the blockchain in encrypted form. This computational process is also commonly called mining .
1. Cryptography
4 users are accessing the Bitcoin Blockchain using a
Bitcoin Wallet
: When a participant A in the Bitcoin blockchain transfers a bitcoin participant B and Participant C transfers a bitcoin to participant D, and participant E transfers a bitcoin to participant F, the three transactions are cryptographically encrypted using a hash function and combined in
a transaction block
.
The transactions are offset against each other because this saves time and storage space. For each newly created block, “miners”, i.e. the operator of a computer within the Bitcoin network that uses the hash function to offset transaction data, receive a reward of currently 6.25 Bitcoin.
NOTE:
The more hash power a computer provides, the more transactions it can process per second
2. Algorithm
The algorithm used for Bitcoin mining is the
SHA-256 algorithm
. It converts the transaction information into hexadecimal numbers and assigns it to a place within the block chain.
The newly generated hash blocks contain information from the previously inserted hash block. This is where the term blockchain comes from. From a technical perspective, the blockchain is nothing more than a string of hash blocks.
3. The blockchain caveat
The more transactions are made within the Bitcoin network, the more blocks have to be generated by mining. Likewise, the more blocks are integrated into the blockchain, the larger it becomes and the more bitcoins are generated. And last but not least, the more bitcoins that have been generated, the more transactions can be made. With every transaction, with every newly generated block, it is updated on every computer on which the Bitcoin blockchain is stored.
The 4 different types of blockchains.
The following 3 types of blockchains use cryptography to allow each blockchain participant to manage the ledger in a secure way without the need for a central authority to enforce the rules, which is one of the tenets of a blockchain.
1. Public (Permissionless) blockchains
Public blockchains, such as Bitcoin, are large distributed networks that are run through a native token. They’re open for anyone to participate at any level and have open-source code that their community maintains.
Overview of Public (Permissionless) blockchains
Public (Permissionless) blockchain Features
Access
Read and write
Public to anyone
Network users
Anonymous
Native token
Yes
Security
Economic incentives
Proof of work
Proof of stake
Proof of space
Speed
Slow
Examples
Bitcoin
Ethereum
Monero
Zcash
Steemit
Dash
Litecoin
Steller
etc
Effects
• Potential to disrupt current business models through disintermediation
• Lower infrastructure costs: no need to maintain servers or system admins radically reduces the costs of creating and running decentralized applications (dApps)
Source: “
Token Economy
” by Shermin Voshmgir, 2019
2. Private (Permissioned) blockchains
A private blockchain is a “permissioned” blockchain. One can only perticipate if invited to join the blockchain by the network administrators. The participant and validator only get restricted access. The
Distributed Ledger Technology (DLT)
is the best description of a private blockchain.
Overview of Private (Permissioned) blockchains
Private (Permissioned) blockchain Features
Access
Read and write
Participation by invitation only
Network users
Every participant is known
Native token
Not necessary
Security
Legal contracts
Proof of authority
Speed
Fast
Examples
Ripple
R3(Banks)
EWF (Energy)
B3i (Insurance)
Corda
Effects
• Reduces transaction costs and data redundancies and replaces legacy systems
• Simplifies document handling and getting rid of semi-manual compliance mechanisms; reduces costs but not disruptive
Source: “
Token Economy
” by Shermin Voshmgir, 2019
3. Hybrid blockchains
A hybrid blockchain is a blockchain that combines features from centralized networks and decentralized networks for specific usecases. Each node in the chain can vary based on which portions of centralization decentralization are used.
Overview of Hybrid blockchains
Hybrid blockchain Features
Access
Read and write (for invited participants)
Read (Public)
Network users
Every participant is known
Native token
Individual methods of tokenization
Security
Legal contracts
Proof of authority
Speed
Fast
Examples
BigchainDB
NANO
peaq
Effects
• Every user creates verifications of their own transactions. This means that the entire network does not need to update the overall massive ledger.
• A structure of network interoperability in which each network is a blockchain and Domain-based policies can operate for certain data between specific users in each network
Source:
Hybrid Approach, Front-to-Back Designing and Changing Trade Processing Infrastructure
, by Martin Walker, 2018
4. Sidechains
Sidechains are blockchain ledgers that use alternate means of record keeping,consensus algorithm, and run in parallel to a primary blockchain. Entries from the primary blockchain can be linked to and from the sidechain allowing the sidechain to otherwise operate independently of the primary blockchain.
Overview of Sidechains
Hybrid blockchain Features
Access
Read and write (for invited participants)
Network users
Every participant is known
Native token
Individual methods of tokenization
Security
Sidechains are responsible for their own security.
Sidechains are independent. That means if they are somehow hacked or compromised, the damage will be contained within that chain and won’t affect the “main chain”.
Speed
Fast
Examples
RSK
(short for Rootstock)
Ardor’s Blockchain
Effects
• Sidechains add flexibility and allow developers to experiment with Beta releases of Altcoins or software updates before pushing them on to the main chain.
• They allow cryptocurrencies to interact with one another.
• Traditional banking functions like issuing and tracking ownership of shares can be tested on sidechains before moving them onto main chains.
Source:
Inside Blockchain, Bitcoin, and Cryptocurrencies
by Niaz Chowdhury, 2019
What can blockchain technology be used for? (10 application examples for blockchain technology)
The blockchain technology can help to overcome existing challenges and reduce costs within individual processes. Possible application examples for blockchain technology in practice
1. Cross-border payments
Blockchain streamlines international payment process. Because it is peer-to-peer, and every transaction is stored on a distributed ledger, the transactions are validated by the network. That means there is no need for middlemen to establish trust. This reduces fees and delays in payments: the receiver gets access to funds as soon as they’ve been transferred.
2. Blockchain smart contracts
A smart contract is an agreement between two parties in the form of computer code, stored on a public blockchain and cannot be modified or changed. Smart contracts can be used to power the whole process of capturing all the necessary details before something is shipped or a service is rendered.
3. Blockchains for identity management
Databases to enable identification and verification such as driver’s licenses, passports and identity cards could be digitally securely implemented. A manipulation would also be almost impossible. Decentralization guarantees that there is no loss of data.
Who can confirm my identity if I am forced to leave my home, my country in an extreme situation? What happens if documents are lost or destroyed? The quick establishment of identities is one of the greatest challenges when fleeing and can significantly simplify and accelerate cooperation with authorities or aid agencies through humanitarian organizations. Many ambiguities and bureaucratic hurdles could be overcome if, for example, people could be clearly identified using biometric features.
4. Blockchain to combat money laundering (AML)
Blockchain is useful as a tool in new anti-money laundering solutions for fraud and risk management. Through recordings, the individual transactions can also be assigned to the respective participants and thus money laundering can be avoided. This is because the data that is stored on the framework is immutable. Blockchain accomplishes this by eliminating the transparency issues since all contracts are stored and cannot be manipulated.
5. Digital elections
It also shows that blockchain technology could also be used in the course of online elections. The basic system would be seen as a neutral space. The voters could vote in the elections without fear of manipulation. Each voter can thus also track their own vote and check whether it was correctly taken into account. Falsifying or modifying the voice is also impossible.
6. Processing of insurance via the blockchain
With smart contracts that automatically initiate transactions on the blockchain, insurance companies get an added value because the processing of claims or insurance benefits can thus be presented in an automated and secure manner.
7. Administration and issuing of educational certificates
Educational qualifications such as references or certificates represent a basic requirement in professional life and some people rely on forgeries in order to receive a certificate from a renowned specialist institution. By using the blockchain, educational institutions, universities and technical colleges are given the opportunity to prepare non-forged degrees and certificates. These are secured with a personal key and internationally recognized. This means that the official certification and the sending of the original documents would be omitted.
8. Revolution in supply chain management
By generating simpler contracts and continuously tracking the corresponding goods, advantages can be generated. The supply chain of a food from the place of origin to the final supermarket would be documented in a completely transparent manner. Distributed data processing in a blockchain would streamline the process.
9. Optimize mobility with the help of the blockchain
The option of distributing access rights also plays an important role in the context of mobility. In addition, the technology can document ownership of an item and is ideal for use in this area. With the help of distributed ledger technology, it would be possible to use a vehicle when required and pay directly for the service used. In the course of electrification, too, problems due to the new form of mobility can be solved with the help of this technology. B. secure billing procedures can be implemented.
10. Revolution in the energy market
The energy market is also constantly changing. Blockchain technology is preparing to increase the transparency of this market through the traceability of transactions. For example, the billing of private solar systems can be optimized in this way. Such positive regulation can accelerate the announced energy transition. In the course of electromobility, billing for e-filling stations can also be implemented in this way and the actual payment process can be secured.
List of top 18 Blockchain companies in 2021
Blockchain Company
Blockchain Services
ScienceSoft
• Blockchain Consultation
• Blockchain Audit
• Migration of legacy solutions to the Blockchain Infrastructure
• Blockchain Testing Services
• Blockchain Training
Prolifics
• Cloud
• Data & Analytics
• DevOps
• Digital Business
• Quality Assurance
Ripple Lab
• Decentralized Financial Tool
LeewayHertz
• Building Blockchain Application
Blockchangers
• Blockchain Development & Consulting
Techracers
• Information Technology services
Chromaway
• Building Smart Contracts and Dapps
OpenLedger ApS
• Building Blockchain Solutions and Products
Ezetech
• Web Development and Tech Consulting
LimeChai
n
• Web Development and Tech Consulting
Chain
• Building Cryptographic Ledger
Intellectsoft
• Distributed Ledger and Smart Contract Protocol
SALT Lending
• Cryptocurrency lending marketplace
Gemini
• Digital asset exchange that allows users to buy, sell and trade cryptocurrencies
Circle
• Online money transfer and cryptocurrency investment platform
Coinbase
• Cryptocurrency marketplace
Chronicled
• The decentralized Blockchain ecosystem that helps industries track-and-trace every move their shipment takes.
Voatz
• A mobile voting platform running on blockchain.
Blockchain Glossary
Address (Wallet Address)
Used to send and receive transactions on a blockchain network. An address is an alphanumeric character string, which can also be represented as a scannable QR code.
Airdrop
A token distribution method used to send cryptocurrency or tokens to wallet addresses. Sometimes airdrops are used for marketing purposes in exchange for simple tasks like reshares, referrals, or app downloads.
Air-gapping
A method for securing computers in which the device does not connect to the internet or any other open networks.
Altcoin
Any digital currency alternative to Bitcoin. Many altcoins are forks [see below for definition] of Bitcoin with minor changes (e.g., Litecoin).
Bitcoin (BTC)
The first cryptocurrency based on the Proof of Work blockchain. It is the premier cryptocurrency
Blockchain
A consensus digital ledger comprised of unchangeable, digitally recorded data in packages called blocks. Each block is ‘chained’ to the next block using a cryptographic signature. This allows blockchains to act like a ledger, which can be shared with and accessed by anyone with the appropriate permissions.
Block Height
The number of blocks connected together in the blockchain. For example, Height 0 would be the very first block, which is also called the Genesis Block.
Block Reward
The reward given to a miner after it has successfully hashed a transaction block. Block rewards can be a mixture of coins and transaction fees. The composition depends on the policy used by the cryptocurrency in question, and whether all of the coins have already been successfully mined. The current block reward for the Bitcoin network is 6.25 bitcoins per block.
Client
Software that accesses a blockchain via a local computer and helps to process transactions. A client usually includes a cryptocurrency software wallet.
Coin
A coin or altcoin is a representation of digital asset value that is generated via their own independent blockchain.
Cold Wallet / Cold Storage
An offline wallet that is never connected to the internet. These wallets protect cryptocurrencies from getting hacked online.
Confirmation / Block Confirmation
A confirmation means that the network has verified the blockchain transaction. This happens through a process known as mining, in a Proof of Work system (e.g., Bitcoin). Once a transaction is successfully confirmed it theoretically cannot be reversed or double spent. The more confirmations a transaction has, the harder it becomes to perform a double spend attack.
Cryptocurrency
Digital currency that is based on mathematics and uses encryption techniques to regulate the creation of units of currency as well as verifying the transfer of funds. Cryptocurrencies operate independently of a central bank.
Cryptography
A method for secure communication using code. Symmetric-key cryptography is used by various blockchain networks for transfer of cryptocurrencies. Blockchain addresses generated for wallets are paired with private keys that allow transfer of cryptocurrency. Paired public and private keys allow funds to be unlocked.
Consensus
The process used by a group consisting of peers that is responsible for maintaining distributed ledger use. The way to reach consensus on the use of the ledger’s contents.
Consensus Algorithm
The consensus algorithm is the blockchain element that determines how
consensus
is reached on that blockchain. In other words; it is the part of the blockchain protocol that describes
who
gets to validate blocks of data (and thus is entitled to the reward) and how others can
verify its legitimacy
Hashing
Hashing is the procedure that a miner on a Proof-of-Work blockchain constantly repeats in order to find an eligible signature – a proof of work) i.e the procedure of repeatedly inserting a random string of digits into a hashing formulae until finding a desirable output.
Nonce
The nonce is a small piece of data in the block that can be changed randomly and repeatedly all the time so miners can keep hashing the data of the entire block (changes every time the nonce changes) until they find a suitable outcome (signature).
Consensus Algorithm — Proof-of-Stake
When the Proof of Stake algorithm applies when a miner stakes the cryptocurrency in order to increase their chances of being selected to validate a block.
Consensus Algorithm — Proof-of-Authority
The Proof-of-Authority algorithm is an alternative form to the PoS algorithm. Instead of staking cryptocurrency (wealth), in PoA you stake your identity. This means voluntarily disclosing who you are in exchange for the right to validate blocks.
Hyperledger
Hyperledger is an open source platform set up for stakeholders to coordinate efforts to create advanced cross-industry blockchain frameworks and technologies.
Consensus Algorithm — Proof-of-Work
When the PoW algorithm applies, the first miner that presents a ‘proof of work’ for a block gets to validate it.
Permissionless blockchains
A permissionless blockchain is a public decentralized blockchain where users
don’t need
permission from anyone on the network in order to perform certain actions, including joining the network.
Permissioned blockchains
A private blockchain is a “permissioned” blockchain. One can only perticipate if invited to join the blockchain by the network administrators. The participant and validator only get restricted access. The
Distributed Ledger Technology (DLT)
is the best description of a private blockchain.
Miner (or forger)
A miner is a node on the network attempting to add new blocks to the blockchain. On a Proof-of-Work blockchain a miner does this by
hashing
.
On a Proof-of-Stake blockchain miners are often called ‘forgers’ instead, because they add blocks to the blockchain by
staking
.
Node (validator) (client)
A node is basically a small server that stores, updates and broadcasts a full copy of the blockchain. A blockchain exists on nodes. If no nodes are online, a blockchain is offline and can’t be updated or used.
Smart contract
A smart contract is a
digital contract
programmed on a blockchain (specifically designed to host smart contracts, like the Ethereum blockchain)
dApp
dApp stands for decentralized application. This could be any smart contract deployed on the Ethereum blockchain, as they all operate autonomous, aka decentralised.
Genesis block
The genesis block is often referred to as the
first block
on a blockchain. The genesis block of Bitcoin was created on January 3, 2009; and indicates the birth of the Bitcoin blockchain.
Stale block
A stale block is a valid block that was once broadcasted by a miner while another valid block was being broadcasted by another miner simultaneously. Therefore
Stale Blocks
are no longer part of the current best blockchain because they were overridden by a longer chain.
Orphan block
An orphan block is a block (Bitcoin blockchain) received by a node that does not (yet) recognize the block’s parent block.
Uncle blocks
An uncle block is the same as a stale block but then on the Ethereum blockchain.
Merkle Tree
A merkle tree is the basic concept of creating blockchain signatures (hashing). It is called a tree because signatures are created from data and then combined with other signatures to create a new, overarching signature
P2P (Peer-to-peer)
Peer-to-peer stands for a decentralised network where all participants are
directly connected with each other
without some sort of central connectivity point. All peers (participants, nodes/miners) are directly connected with one another.
Public Key
A public key is your wallet address and is needed by other entities to send you messages or transactions.
Private Key
A private key is the privately held key that allows a wallet owner to send signed transactions from their respective address (public key).
ASIC
ASIC stands for
application specific integrated circuit
and basically refers to hardware specifically designed to optimally perform a single task (such as hashing).
Multi-signature
A multi-signature is a signature formed by multiple other signatures combined. Some operations or actions on a blockchain may require a multi-signature, meaning multiple users (addresses) are required to sign the operation in order for it to become executed.
Hot wallet
/ Cold Wallet
A
hot wallet
is a wallet that is
online.
A cold wallet, on the contrary, is a wallet that is
offline
.
Satoshi
A Satoshi is the smallest granularity of a given cryptocurrency, aka the smallest decimal entity of a cryptocurrency. In example of Bitcoin, 0.00000001 BTC (8 decimals) is the smallest division of Bitcoin possible, and therefore reflects
one Satoshi
.
“Essentially, a blockchain is an incorruptible digital ledger of economic transactions that can be programmed to capture not just financial transactions but virtually anything of value.”KEVIN MOSERI