What is Blockchain? | What is Bitcoin?
Define Blockchain & Bitcoin & Cryptocurrency
Blockchain, the underlying technology that powers Bitcoin, is one of the buzzwords of the past year. Practically everyone is talking about Blockchain and for good reason. Distributed ledgers, the term of art for Blockchain’s underlying technology, offer an exciting new way to transact business without a central authority. Here’s a nontechnical, simplified description of the component parts.
A blockchain, or distributed ledger, is a continuously growing list (digital file) of encrypted transactions called “blocks” that are distributed (copied) to a peer-to-peer (P2P) network of computers.
As described above, a blockchain is an immutable, sequential chain of records known as blocks. A block may contain any type of data, such as unique digital identifiers of physical products. Blocks are “chained” together using hashes. A hash is a function that takes an input value and from that input creates an output value deterministic of the input value.
In addition to user data, each block will contain an index, a timestamp, a list of transactions, a proof, and the hash of the previous block.
The hash plays a critical role. Because each new block will contain a hash of the previous block, blockchains are immutable. If a hacker were to corrupt an earlier block in the blockchain, all subsequent blocks would contain incorrect hashes.
Encrypted transactions (using conventional public/private key cryptography) are also key to Blockchain’s value. The user’s “public key” is stored in a block and becomes an “address” on the blockchain. Files such as cryptocurrencies or other digital assets are recorded as belonging to a specific block. A corresponding “private key” is required to access the associated digital assets. Keeping your private key private is so important that to protect their digital assets from hackers, many people do not keep digital copies of their private keys. They write the number on a piece of paper and keep the paper in a secure location (like a wall safe.)
Proof of Work (PoW)
Once a blockchain is instantiated, a Proof of Work algorithm (PoW) is used to create or “mine” new blocks.
The current Bitcoin mining technique provides a good example of PoW usage. This technique is described in Wikipedia as follows: “A Bitcoin miner runs a computer program that collects unconfirmed transactions from coin dealers in the network. With other data these can form a block and earn a payment to the miner, but a block is accepted by the network only when the miner discovers by trial and error a ‘nonce’ number that when included in the block yields a hash with a sufficient number of leading zero bits to meet the network’s difficulty target. Blocks accepted from miners form the bitcoin blockchain that is a growing ledger of every bitcoin transaction since the coin’s first creation.”
The API (Application Programming Interface)
The next step in the development of a distributed ledger is to set up an API (application programming interface) so that organizations that wish to transact may do so by using the internet. Transaction endpoints allow permission-based access to the data on the blockchain.
The API will also feature a “mining endpoint,” which will do three things: (1) calculate the PoW, (2) add the transaction and grant the miner a reward (in bitcoin mining, the rewards are bitcoins), and (3) create a new block and add it to the blockchain.
Peer-to-Peer (Mesh) Networks
Lastly, distributed ledgers derive their power from being distributed and decentralized. To accomplish this, a distributed ledger needs a method of accepting new nodes and a way to implement a consensus algorithm to resolve conflicts and to ensure the veracity of the blockchain.
This is done over a P2P or mesh network, a decentralized computer network where each computer (node) acts as both a client (a computer that accesses information on a server) and a server (a computer that serves information to clients). At scale, P2P networks are self-healing and very stable because the information is replicated in thousands, and in some cases millions, of places.
Public or Private
There are two general types of blockchain networks: anonymous networks, where each user has a copy of the entire blockchain and helps process and confirm transactions; and permission-based (non-anonymous) networks, where permission is required to possess a copy of the blockchain and to help process and confirm transactions.
Other Than Cryptocurrencies, What Can You Do with Blockchain?
Blockchain offers a way to verify transactions without the need for a central authority. This means you can create smart contracts using distributed ledgers. For example, a landlord might put an IoT door lock in your rental apartment. The door lock might check the blockchain to see if your rent is paid. If it isn’t, the door lock (that is, the smart contract) would not let you into the apartment. In a more complex case, a corporation could issue its own bonds and buyers could monitor payments via a distributed ledger. An even more complex use case would be the creation of self-enforcing trade agreements. The list of uses for blockchain is practically endless. From title searches to delivery verification, distributed ledgers offer a completely new, secure way to do business.
Your key question is: “For this project, is a blockchain a better choice than a well-crafted, secure database?” After that, you’re on your way!
Author’s Note: This article contains some material from a previous article titled “Nuber – The End of Uber and Central Authority,” which describes how blockchain technology might be used to create an Uber-like ridesharing service without the need for a company like Uber to run it. This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it.
About Shelly Palmer
Named LinkedIn’s #1 Voice in Technology for 2017, Shelly Palmer is CEO of The Palmer Group, a strategic advisory, technology solutions and business development practice focused at the nexus of media and marketing with a special emphasis on machine learning and data-driven decision-making. He is Fox 5 New York’s on-air tech and digital media expert, writes a weekly column for AdAge, and is a regular commentator on CNBC and CNN. Follow @shellypalmer or visit shellypalmer.com or subscribe to our daily email http://ow.ly/WsHcb
Blockchain is about to change everything
Say hello to the decentralized economy — the blockchain is about to change everything. In this lucid explainer of the complex (and confusing) technology, Bettina Warburg describes how the blockchain will eliminate the need for centralized institutions like banks or governments to facilitate trade, evolving age-old models of commerce and finance into something far more interesting: a distributed, transparent, autonomous system for exchanging value. TEDTalks is a daily video podcast of the best talks and performances from the TED Conference, where the world’s leading thinkers and doers give the talk of their lives in 18 minutes (or less). Look for talks on Technology, Entertainment and Design — plus science, business, global issues, the arts and much more. Find closed captions and translated subtitles in many languages at http://www.ted.com/translate Follow TED news on Twitter: http://www.twitter.com/tednews
What is Bitcoin Cash?
Since its launch, Bitcoin faced pressure from community members on the topic of scalability. Specifically, that the size of blocks – set at 1 megabyte (MB), or a million bytes, in 2010 – would slow down transaction processing times, thus limiting the currency’s potential, just as it was gaining in popularity. The block size limit was added to the Bitcoin code in order to prevent spam attacks on the network at a time when the value of a Bitcoins was low. By 2015, the value of Bitcoins had increased substantially and average block size had reached 600 bytes, creating a scenario in which transaction times could run into delays as more blocks reached maximum capacity.
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A number of proposals have been made to deal with transaction processing over the years, often focusing on increasing block size. Because the Bitcoin code is not managed by a central authority, changes to the code require buy-in from developers and miners. This consensus-driven approach can lead to proposals taking a long time to finalize. This has resulted in groups creating separate blockchain ledgers using new standards, called a fork. Several forks, such as Bitcoin XT and Bitcoin Unlimited, failed to be adopted by a wide audience. Bitcoin Cash, launched in August 2017, is another fork from Bitcoin Classic.
Bitcoin Cash differs from Bitcoin Classic in that it increases the block size from 1 MB to 8 MB. It also removes Segregated Witness (SegWit), a proposed code adjustment designed to free up block space by removing certain parts of the transaction. The goal of Bitcoin Cash is to increase the number of transactions that can be processed, and supporters hope that this change will allow Bitcoin Cash to compete with the volume of transactions that PayPal and Visa can handle by increasing the size of blocks.
Because the computer power required to process larger blocks could price out some smaller miners, critics worry that adopting Bitcoin Cash’s approach will lead to power being concentrated in the hands of companies that can afford more and better equipment. Opponents to the fork worry that this will threaten the consensus-driven approach to Bitcoin, as a small number of companies could control Bitcoin and more readily force changes on the community in the future.
A successful hard fork for Bitcoin Cash entails surviving long enough to entice individuals and companies to use and mine the new digital currency if it is able to build substantial interest and reach critical mass. Once this point is reached, however, Bitcoin Cash may find that its success has prompted others to develop their own alternative coins, which would put the same pressure on Bitcoin Cash that it had placed on Bitcoin Classic. Since the issue of scalability tends to be at the forefront of cryptocurrency debates, developers have made increasing block size and improving transaction processing speeds their top focus areas.
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Amazon Web Services announced Blockchain Templates late last week
Amazon a “blockchain-as-a-service” offering that competes with similar products from Oracle and IBM. The launch shows how eager the biggest enterprise players are to get ahead in the Blockchain game, even if their customers are still trying to pinpoint exactly what Blockchain can do for them (and some investors are starting to temper their initial excitement).
In a blog post about how to use Blockchain Templates, AWS vice president, and chief evangelist Jeff Barr acknowledged the lack of clarity by referencing a 1970s “Saturday Night Live” sketch about Shimmer Floor Wax, a floor polish that is also a non-dairy dessert topping.
“Some of the people that I talk to see blockchains as the foundation of a new monetary system and a way to facilitate international payments. Others see blockchains as a distributed ledger and immutable data source that can be applied to logistics, supply chain, land registration, crowdfunding and other use cases,” he wrote. “Either way, it’s clear that there are a lot of intriguing possibilities and we are working to help our customers use this technology more effectively.
AWS Blockchain Templates give AWS users working on blockchain apps a faster way to set up Ethereum or Hyperledger Fabric networks. Its launch comes six months after Oracle unveiled its cloud service built on the open-source Hyperledger Fabric project during Oracle OpenWorld and about a year after IBM announced its own Hyperledger-based blockchain-as-a-service offering.
Another new competitor in the BaaS market is Huawei, which announced its Blockchain Service, also built on Hyperledger, last week during its analyst conference in Shenzhen. It joins other Chinese tech companies, including Baidu and Tencent, that already had blockchain platforms.