Blockchain Technology

What is blockchain?

Blockchain Technology

Blockchain technology is a particular kind of digital ledger technology (DLT) that is made up of an expanding collection of records, known as blocks, that are safely connected using cryptography.

Each block includes transaction information, a timestamp, and a cryptographic hash of the preceding block (generally represented as a Merkle tree, where leaves represent data nodes).

The timestamp demonstrates that the transaction data was present at the time the block was made. Each block links to the ones before it, forming an effective chain (compare the linked list data structure).

This is because each block contains information about the block before it. Therefore, once a transaction is recorded, it can not be undone without also undoing all subsequent blocks, which makes blockchain transactions irreversible.

A peer-to-what is blockchain? ever (P2) computer network typically oversees a blockchain for use as a public distributed ledger, where nodes cooperate to follow a consensus algorithm protocol to add and validate new transaction blocks.

Even though blockchain records are not unchangeable and blockchain forks are conceivable, they may be regarded as secure by design and serve as an example of a distributed computing system with high Byzantine fault tolerance.

The blockchain was created by a person (or group of people) using the name (or pseudonym) Satoshi Nakamoto in 2008 to serve as the publicly distributed ledger for bitcoin cryptocurrency transactions, based on previous work by Stuart Haber, W. Scott Stornetta, and Dave Bayer.

The identity of Satoshi Nakamoto remains unknown to date. The implementation of the blockchain within bitcoin made it the first digital currency to solve the double-spending problem without the need for a trusted authority or central server.

The bitcoin design has inspired other applications and blockchains that are readable by the public and are widely used by cryptocurrencies. The blockchain may be considered a type of payment rail.

Private blockchains have been proposed for business use. Computerworld called the marketing of such privatized blockchains without a proper security model “snake oil.”

However, others have argued that permission blockchains, if carefully designed, maybe more decentralized and therefore more secure in practice than permissionless ones.

See Also the importance of blockchain in gaming

History of Blockchain Technology

Cryptographer David Chaum first proposed a blockchain-like protocol in his 1982 dissertation, “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.”

Further work on a cryptographically secured chain of blocks was described in 1991 by Stuart Haber and W. Scott Stornetta.

They wanted to implement a system wherein document timestamps could not be tampered with. In 1992, Haber, Stornetta, and Dave Bayer incorporated Merkle trees into the design, which improved its efficiency by allowing several document certificates to be collected into one block.

Under their company Surety, their document certificate hashes have been published in The New York Times every week since 1995.

The first decentralized blockchain was conceptualized by a person (or group of people) known as Satoshi Nakamoto in 2008.

Nakamoto importantly improved the design by using a Hashcash-like method to timestamp blocks without requiring them to be signed by a trusted party and by introducing a difficulty parameter to stabilize the rate at which blocks are added to the chain.

The design was implemented the following year by Nakamoto as a core component of the cryptocurrency Bitcoin, which serves as the public ledger for all transactions on the network.

In August 2014, the bitcoin blockchain file size, containing records of all transactions that have occurred on the network, reached 20 GB (gigabytes). In January 2015, the size had grown to almost 30 GB, and from January 2016 to January 2017, the bitcoin blockchain grew from 50 GB to 100 GB in size. The ledger size had exceeded 200 GB by early 2020.

The words “block” and “chain” were used separately in Satoshi Nakamoto’s original paper but were eventually popularized as a single word, “blockchain,” by 2016.

According to Accenture, an application of the diffusion of innovation theory suggests that blockchains attained a 13.5% adoption rate within financial services in 2016, therefore reaching the early adopters’ phase.

Industry trade groups joined to create the Global Blockchain Forum in 2016, an initiative of the Chamber of Digital Commerce.

In May 2018, Gartner found that only 1% of CIOs indicated any kind of blockchain adoption within their organizations, and only 8% of CIOs were in the short-term “planning or [looking at] active experimentation with blockchain”. For the year 2019, Gartner reported 5% of CIOs believed blockchain technology was a “game-changer” for their business.

Structure and design for blockchain technology.

A blockchain is a decentralized, distributed, and often public, digital ledger consisting of records called blocks that are used to record transactions across many computers so that any involved block cannot be altered retroactively without the alteration of all subsequent blocks.

This allows the participants to verify and audit transactions independently and relatively inexpensively. A blockchain database is managed autonomously using a peer-to-peer network and a distributed timestamping server. They are authenticated by mass collaboration, powered by collective self-interests.

Such a design facilitates robust workflow where participants’ uncertainty regarding data security is marginal. The use of a blockchain removes the characteristic of infinite reproducibility from a digital asset. It confirms that each unit of value was transferred only once, solving the long-standing problem of double spending.

A blockchain has been described as a value-exchange protocol. A blockchain can maintain title rights because, when properly set up to detail the exchange agreement, it provides a record that compels offer and acceptance.[citation needed]

Logically, a blockchain can be seen as consisting of several layers:

Blocks

Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree. Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain.

This iterative process confirms the integrity of the previous block, all the way back to the initial block, which is known as the genesis block (Block 0). To assure the integrity of a block and the data contained in it, the block is usually digitally signed.

Sometimes separate blocks can be produced concurrently, creating a temporary fork. In addition to a secure hash-based history, any blockchain has a specified algorithm for scoring different versions of the history so that one with a higher score can be selected over others.

Orphan blocks:

blocks not selected for inclusion in the chain are called orphan blocks. Peers supporting the database have different versions of the history from time to time. They keep only the highest-scoring version of the database known to them. Whenever a peer receives a higher-scoring version (usually the old version with a single new block added), they extend or overwrite their database and retransmit the improvement to their peers.

There is never a guarantee that any particular entry will remain in the best version of history forever. Blockchains are typically built to add the scores of new blocks onto old blocks and are given incentives to extend with new blocks rather than overwrite old blocks.

Therefore, the probability of an entry becoming superseded decreases exponentially as more blocks are built on top of it, eventually becoming very low.: ch. 08 For example, bitcoin uses a proof-of-work system, where the chain with the most cumulative proof-of-work is considered the valid one by the network.

Some aseveralmethods can be used to demonstrate a sufficient level of computation. Within a blockchain, the computation is carried out redundantly rather than in the traditional segregated and parallel manner.

The block time is the average time it takes for the network to generate one extra block in the blockchain. Some blockchains create a new block as frequently as every five seconds. By the time of block completion, the included data becomes verifiable.

In cryptocurrency, this is practically when the transaction takes place, so a shorter block time means faster transactions. The block time for Ethereum is set to between 14 and 15 seconds, while for Bitcoin it is on average 10 minutes.

Hard forks

A hard fork is a rule change such that the software validating according to the old rules will see the blocks produced according to the new rules as invalid.

In the case of a hard fork, all nodes meant to work ibythe new rules need to upgrade their software. A permanent split can occur if one group of nodes continues to use the old software while the other nodes use the new software.

For example, Ethereum was hard-forked in 2016 to “make whole” the investors in The DAO, which had been hacked by exploiting a vulnerability in its code.

In this case, the fork resulted in a split, creating the Ethereum and Ethereum Classic chains. In 2014, the Nxt community was asked to consider a hard fork that would have led to a rollback of the blockchain records to mitigate the effects of a theft of 50 million NXT from a major cryptocurrency exchange.

The hard fork proposal was rejected, and some of the funds were recovered after negotiations and ransom payment. Alternatively, to prevent a permanent split, a majority of nodes using the new software may return to the old rules, as was the case with the Bitcoin split on March 12th, 2013.

Decentralization

By storing data across its peer-to-peer network, the blockchain eliminates aseveralrisks that come with data being held centrally.

The decentralized blockchain may use ad hoc message passing and distributed networking. One risk of a lack of decentralization is a so-called “51% attack,” where a central entity can gain control of more than half of a network and can manipulate that specific blockchain record at will, allowing double spending.

Peer-to-peer blockchain networks lack centralized points of vulnerability that computer crackers can exploit; likewise, they have no central point of failure.

Blockchain security methods include the use of public-key cryptography. : 5 A public key (a long, random-looking string of numbers) is an address on the blockchain.

Value tokens sent across the network are recorded as belonging to that address. A private key is like a password that gives its owner access to their digital assets or the means to otherwise interact with the various capabilities that blockchains now support.

Data stored on the blockchain is generally considered incorruptible.

Every node in a decentralized system has a copy of the blockchain. Data quality is maintained by massive database replication and computational trust.

No centralized “official” copy exists and no user is “trusted” more than any other. Transactions are broadcast to the network using the software. Messages are delivered on a best-effort basis.

Early blockchains rely on energy-intensive mining nodes to validate transactions, add them to the block they are building, and then broadcast the completed block to other nodes.

See ch. 8 for more information. Blockchains use various time-stamping schemes, such as proof-of-work, to serialize changes. Later consensus methods include proof of stake.

The growth of a decentralized blockchain is accompanied by the risk of centralization because the computer resources required to process larger amounts of data become more expensive.

Openness Of Blockchain Technology:

Open blockchains are more user-friendly than some traditional ownership records, which, while open to the public, still require physical access to view.

Because all early blockchains were permissionless, controversy has arisen over the blockchain definition.

An issue in this ongoing debate is whether a private system with verifiers tasked and authorized (permissioned) by a central authority should be considered a blockchain.

Proponents of permissioned or private blockchains argue that the term “blockchain” may be applied to any data structure that batches data into time-stamped blocks.

These blockchains serve as a distributed version of multiversion concurrency control (MVCC) in databases.

Just as MVCC prevents two transactions from concurrently modifying a single object in a database, blockchains prevent two transactions from spending the same single output in a blockchain: 30–31 Opponents say that permissioned systems resemble traditional corporate databases, do not support decentralized data verification, and that such systems are not hardened against operator tampering and revision.

Nikolai Hampton of Computerworld said that “many in-house blockchain solutions will be nothing more than cumbersome databases,” and “without a clear security model, proprietary blockchains should be eyed with suspicion.”

Permissionless(public) Blockchain Technology

An advantage of an open, permissionless, or public, blockchain network is that guarding against bad actors is not required and no access control is needed.

This means that applications can be added to the network without the approval or trust of others, using the blockchain as a transport layer.

Bitcoin and other cryptocurrencies currently secure their blockchains by requiring new entries to include proof of work. To prolong the blockchain, Bitcoin uses Hashcash puzzles.

While Hashcash was designed in 1997 by Adam Back, the original idea was first proposed by Cynthia Dwork and Moni Naor and Eli Poniatowski in their 1992 paper “Pricing via Processing or Combatting Junk Mail”.

In 2016, venture capital investment for blockchain-related projects was weakening in the US but increasing in China. Bitcoin and many other cryptocurrencies use open (public) blockchains. As of April 2018 [update], bitcoin has the highest market capitalization.

Permissioned(private) Blockchain Technology

Permissioned blockchains use an access control layer to govern who has access to the network. In contrast to public blockchain networks, validators on private blockchain networks are vetted by the network owner.

They do not rely on anonymous nodes to validate transactions, nor do they benefit from the network effect. Permissioned blockchains can also go by the name of “consortium” blockchains.

It has been argued that permission blockchains can guarantee a certain level of decentralization if carefully designed, as opposed to permissionless blockchains, which are often centralized in practice.

Disadvantages of permissioned blockchain

Nikolai Hampton pointed out in Computerworld that “There is also no need for a ’51 percent’ attack on a private blockchain, as the private blockchain (most likely) already controls 100 percent of all block creation resources.”

If you could attack or damage the blockchain creation tools on a private corporate server, you could effectively control 100 percent of their network and alter transactions however you wished. ”

This has a set of particularly profound adverse implications during a financial crisis or debt crisis like the financial crisis of 2007–08, where politically powerful actors may make decisions that favor some groups at the expense of others, and “the bitcoin blockchain is protected by the massive group mining effort.”

It’s unlikely that any private blockchain will try to protect records using gigawatts of comp”using power — it’s time-consuming and expensive.” He also said, “Within a private blockchain, there is also no ‘race’; there’s no incentive to use more power or discover blocks faster than competitors.”

This means that many in-house blockchain solutions will be nothing more than cumbersome databases.

Analysis of Blockchain Technology

The analysis of public blockchains has become increasingly important with the popularity of bitcoin, Ethereum, Litecoin, and other cryptocurrencies.

A blockchain, if it is public, provides anyone who wants access to observe and analyze the chain data, given one has the know-how. The process of understanding and accessing the flow of crypto has been an issue for many cryptocurrencies, crypto exchanges, and banks.

The reason for this is accusations of blockchain-enabled cryptocurrencies enabling illicit dark market trade of drugs, weapons, money laundering, etc.

A common belief has been that cryptocurrency is private and untraceable, thus leading many actors to use it for illegal purposes.

This is changing, and now specialized tech companies provide blockchain tracking services, making crypto exchanges, law enforcement, and banks more aware of what is happening with crypto funds and fiat-crypto exchanges.

Some argue that the development has led criminals to prioritize the use of new cryptos such as Monero. The question is about the public accessibility of blockchain data and the personal privacy of that very same data. It is a key debate in cryptocurrency and, ultimately, in the blockchain.

Standardization Of Blockchain Technology

In April 2016, Standards Australia submitted a proposal to the International Organization for Standardization to consider developing standards to support blockchain technology.

This proposal resulted in the creation of ISO Technical Committee 307, Blockchain and Distributed Ledger Technologies.

The technical committee has working groups relating to blockchain terminology, reference architecture, security and privacy, identity, smart contracts, governance, and interoperability for blockchain and DLT, as well as standards specific to industry sectors and generic government requirements.

[non-primary source needed] More than 50 countries are participating in the standardization process together with external liaisons such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the European Commission, the International Federation of Surveyors, the International Telecommunication Union (ITU) and the United Nations Economic Commission for Europe (UNECE).

Many other national standards bodies and open standards bodies are also working on blockchain standards.

These include the National Institute of Standards and Technology (NIST), the European Committee for Electrotechnical Standardization (CENELEC), the Institute of Electrical and Electronics Engineers (IEEE), the Organization for the Advancement of Structured Information Standards (OASIS), and some individual participants in the Internet Engineering Task Force (IETF).

Centralized Blockchain Technology

Although most blockchain implementations are decentralized and distributed, Oracle launched a centralized blockchain table feature in its Oracle 21c database.

The Blockchain Table in the Oracle 21c database is a centralized blockchain that provides immutable features. Compared to decentralized blockchains, centralized blockchains normally provide higher throughput and lower latency for transactions than consensus-based distributed blockchains.

Currently, there are at least four types of blockchain networks — public blockchains, private blockchains, consortium blockchains, and hybrid blockchains.

Public blockchains: A public blockchain has absolutely no access restrictions. Anyone with an Internet connection can send transactions to it as well as become a validator (i.e., participate in the execution of a consensus protocol).[self-published source?] Usually, such networks offer economic incentives for those who secure them and utilize some type of proof of stake or proof of work algorithm.

Some of the largest and best-known public blockchains are the Bitcoin blockchain and the Ethereum blockchain.

Private blockchains are permissible;. One cannot join it unless invited by the network administrators. Participant and validator access is restricted.

To distinguish between open blockchains and other peer-to-peer decentralized database applications that are not open ad-hoc compute clusters, the term “DLT” is normally used for private blockchains.

Hybrid blockchains

A hybrid blockchain has a combination of centralized and decentralized features. The exact workings of the chain can vary based on which portions of centralization and decentralization are used.

Sidechains: A sidechain is a designation for a blockchain ledger that runs in parallel to a primary blockchain. Entries from the primary blockchain (where said entries typically represent digital assets) can be linked to and from the sidechain; this allows the sidechain to otherwise operate independently of the primary blockchain (e.g., by using an alternate means of record keeping, an alternate consensus algorithm, etc.). (better source needed)

Application Area of Blockchain Technology

Blockchain technology can be integrated into multiple areas. The primary use of blockchains is as a distributed ledger for cryptocurrencies such as bitcoin; there were also a few other operational products that had matured from proof of concept by late 2016.

As of 2016, some businesses have been testing the technology and conducting low-level implementations to gauge blockchain’s effects on organizational efficiency in their back offices.

In 2019, it was estimated that around $2.9 billion was invested in blockchain technology, which represents an 89% increase from the year prior. Additionally, International Data Corp has estimated that corporate investment in blockchain technology will reach $12.4 billion by 2022.

Furthermore, according to PricewaterhouseCoopers (PwC), the second-largest professional services network in the world, blockchain technology has the potential to generate an annual business value of more than $3 trillion by 2030.

PwC’s estimate is further augmented by a 2018 study that they conducted, in which PwC surveyed 600 business executives and determined that 84% have at least some exposure to utilizing blockchain technology, which indicates a significant demand and interest in blockchain technology.

Individual use of blockchain technology has also greatly increased since 2016. According to statistics 2020, there were more than 40 million blockchain wallets in 2020, in comparison to around 10 million blockchain wallets in 2016.

Cryptocurrencies

Most cryptocurrencies use blockchain technology to record transactions. For example, the Bitcoin network and the Ethereum network are both based on blockchain.

On May 8, 2018, Facebook confirmed that it would open a new blockchain group which would be headed by David Marcus, who previously was in charge of Messenger. Facebook’s planned cryptocurrency platform, Libra (now known as Diem), was formally announced on June 18, 2019.

The criminal enterprise Silk Road, which operated on Tor, utilized cryptocurrency for payments, some of which the US federal government has seized through research on the blockchain and forfeiture.

Governments have mixed policies on the legality of their citizens or banks owning cryptocurrencies. China is implementing blockchain technology in several industries, including a national digital currency, which launched in 2020. To strengthen their respective currencies, Western governments, including the European Union and the United States, have initiated similar projects.

Smart contracts

Blockchain-based smart contracts are proposed contracts that can be partially or fully executed or enforced without human interaction. One of the main objectives of a smart contract is automated escrow.

A key feature of smart contracts is that they do not need a trusted third party (such as a trustee) to act as an intermediary between contracting entities—the blockchain network executes the contract on its own.

This may reduce friction between entities when transferring value and could subsequently open the door to a higher level of transaction automation. An IMF staff discussion from 2018 reported that smart contracts based on blockchain technology might reduce moral hazards and optimize the use of contracts in general.

But “no viable smart contract systems have yet emerged.” Due to the lack of widespread use, their legal status was unclear.

Financial services

According to Reason, many banks have expressed interest in implementing distributed ledgers for use in banking and are cooperating with companies creating private blockchains; according to a September 2016 IBM study, this is occurring faster than expected.

Banks are interested in this technology, not least because it has the potential to speed up back-office settlement systems. Moreover, as the blockchain industry has reached early maturity, institutional appreciation has grown that it is, practically speaking, the infrastructure of a whole new financial industry, with all the implications that entails.

Banks such as UBS are opening new research labs dedicated to blockchain technology to explore how blockchain can be used in financial services to increase efficiency and reduce costs.

Berenberg, a German bank, believes that blockchain is an “overhyped technology” that has had a large number of “proofs of concept”, but still has major challenges and very few success stories.

The blockchain has also given rise to initial coin offerings (ICOs) as well as a new category of digital assets called security token offerings (STOs), also sometimes referred to as digital security offerings (DSOs).

STOs or DSOs may be conducted privately or on a public, regulated stock exchange and are used to tokenize traditional assets such as company shares as well as more innovative ones like intellectual property, real estate, art, or individual products.

Several companies are active in this space, providing services for compliant tokenization, private STOs, and public STOs.

Games

Blockchain technology, such as cryptocurrencies and non-fungible tokens (NFTs), has been used in video games for monetization. Many live-service games offer in-game customization options, such as character skins or other in-game items, which the players can earn and trade with other players using in-game currency.

Some games also allow for the trading of virtual items using real-world currency, but this may be illegal in some countries where video games are seen as akin to gambling, which has led to gray market issues such as skin gambling, and thus publishers typically shy away from allowing players to earn real-world funds from games. Blockchain games typically allow players to trade these in-game items for cryptocurrency, which can then be exchanged for money.

The first known game to use blockchain technologies was Crypto Kitties, launched in November 2017, where the player would purchase NFTs with Ethereum cryptocurrency, each NFT consisting of a virtual pet that the player could breed with others to create offspring with combined traits as new NFTs.

The game made headlines in December 2017 when one virtual pet sold for more than US $100,000. Crypto Kitties also illustrated scalability problems for games on Ethereum when it created significant congestion on the Ethereum network in early 2018, with approximately 30% of all Ethereum transactions [clarification needed] being for the game.

By the early 2020s, there had not been a breakout success in video games using blockchain, as these games tend to focus on using blockchain for speculation instead of more traditional forms of gameplay, which offers limited appeal to most players.

Such games also represent a high risk to investors, as their revenues can be difficult to predict. However, limited successes of some games, such as Axie Infinity during the COVID-19 pandemic, and corporate plans towards metaverse content, refueled interest in the area of games, a term describing the intersection of video games and finance, typically backed by blockchain currency, in the second half of 2021.

Several major publishers, including Ubisoft, Electronic Arts, and Take-Two Interactive, have stated that blockchain and NFT-based games are under serious consideration for their companies in the future.

In October 2021, Valve Corporation banned blockchain games, including those using cryptocurrency and NFTs, from being hosted on its Steam digital storefront service, which is widely used for personal computer gaming, claiming that this was an extension of their policy banning games that offered in-game items with real-world value.

Valve’s prior history with gambling, specifically skin gambling, was speculated to be a factor in the decision to ban blockchain games. Journalists and players responded positively to Valve’s decision, as blockchain and NFT games have a reputation for scams and fraud among most PC gamers.

Epic Games, which runs the Epic Games Store in competition with Steam, said that they would be open to accepting blockchain games in the wake of Valve’s refusal of Supply chain.

Domain names

There are several different efforts to offer domain name services via the blockchain. These domain names can be controlled by the use of a private key, which purports to allow for uncensorable websites.

This would also bypass a registrar’s ability to suppress domains used for fraud, abuse, or illegal content.

Namecoin is a cryptocurrency that supports the “.bit” top-level domain (TLD). Namecoin was forked from Bitcoin in 2011. The. bit TLD is not sanctioned by ICANN, instead requiring an alternative DNS root. As of 2015, it was used by 28 websites, out of 120,000 registered names.

Namecoin was dropped by OpenNIC in 2019, due to malware and potentially other legal issues. Other blockchain alternatives to ICANN include The Handshake Network, Emmerdale Domains.S, and Unstoppable.