blockchain

You may be wondering how exactly does blockchain work. Well, in this article we examine just that!

Blockchain in seven quick steps:

  1. Someone requests a transaction or exchange of data or currency.
  2. The request is shared on the decentralized, peer-to-peer network. The network is made up of independent computers which are called nodes.
  3. The network of participating nodes validates the transaction using the required computing algorithms.
  4. Transactions include any of the following: cryptocurrencies, smart-contracts, records, among others.
  5. To make new blocks cryptographic algorithms are applied. The block of data includes the original transaction. Once it is added to the blockchain the block cannot be altered.
  6. After the network verifies the transaction, the miner adds a new block to the digital ledger. The new block is combined with the other blocks of data.
  7. The transaction is complete. This means the data is successfully transferred to its new owner, (in the case of a cryptocurrency). Otherwise, there is just a new block of data on the chain.

If that’s not enough detail for you, then read on!

Blockchain Technology in Brief

Cryptocurrencies and financial industries are not the only ones that understand the value and applicability of blockchain. Blockchain technology includes the application of smart contacts and immutable cryptographic public ledgers, which makes the technology appealing to medical and healthcare records management, and business logistics such as IoT and supply chain management.

Because of all of the potential applications, blockchain is a burgeoning technology which will likely disrupt the way that all traditional industries operate. Bitcoin and Ethereum are two of the most well-known blockchain applications. Bitcoin has changed the way we understand currency and peer-to-peer transaction, while Ethereum is making smart contracts a part of our everyday lives. But that is not all.

IBM, Google, and X-Road, to name a few, are working to find their own niche for blockchain applications. It is not an overstatement to say that blockchain applications have something to offer all existing infrastructures. Here’s why.

There is one major difference between the design of the Internet and blockchain technology. The Internet was designed to move information; but it was not build to maintain value. The internet also moves copies of things and not original information. Moreover, until recently, information and data access have been controlled by central servers alone. Blockchain relies on many decentralized networks, which has many advantages over centralized networks. On a blockchain, the value is the transactions recorded on a shared ledger. The transactions alone are valuable. This is because the data is secured and verified with a time-stamped record.

Read about how to audit a smart contract here on the blog.

Transactions on a blockchain occur only through the verification process that is consistent with network consensus rules. When the new record is verified and added to the blockchain, multiple copies are shared on decentralized networks. The copies shared amongst the nodes build a legitimate chain. To safely and accurately store and share data, blockchain applications typically use asymmetric private/public key and hash cryptography mechanism. Asymmetric cryptography is what maintains the authenticity of transactions. Therefore, every transaction requires a private key to sign every transaction made. Once the transaction is signed with the private key, the transaction gets broadcasted to all the cooperating nodes. How do transactions make it onto a blockchain without a centralized authority? The answer is with the help of miners.

The mining nodes (or the miners) of the network respond to new transactions and work to find a resolution based on the consensus protocol of a given blockchain application. With the network’s approval, the transaction becomes a “block.” However, the other nodes will validate the block only if all transactions presented are valid. The addition of a block is based on the overall consensus of all the nodes. The first node to successfully mine the block based on the consensus protocol receives a reward of the cryptocurrency. Presently, reward tokens and transaction fees incentivize mining. So, there is a small charge for a user to employ a blockchain application.

Learn more about Bitcoin nodes here on the blog.

With the successful addition of a block, the transaction’s data contained in the block is immutable. Verified blocks are recorded by synchronized time stamps, and they are linked using cryptography within the chain. Because of these measures, each block is a secure transaction.

Now that we have a broad sense of what blockchain technology is, and how it is used, let’s get a little more in depth.

In this section we will look at the following:

  • Decentralized networks
  • Smart contracts
  • Public Ledgers of Cryptographic Blocks
  • Adding to the Blockchain

So, blockchains are just digital collections of cryptographic blocks that are linked together and form a chain of data blocks. The core function of a blockchain is a public ledger of data that it maintains digitally. Blockchain applications rely on decentralized networks while applying cryptographic blocks to build immutable public ledgers.

The credited creator of Bitcoin, Satoshi Nakamoto did not invent blockchain technology. Satoshi is responsible for conceptualizing the cryptographically secured chain of blocks. Blockchain was originally defined in 1991 by Stuart Haber and W. Scott Stornetta in 2008. A driving idea behind Satoshi Nakamoto’s creation of the cryptocurrency bitcoin was a technology that could support safe peer-to-peer transactions and eliminate the need for a third party.

Here is the process of networks and nodes as described by Satoshi Nakamoto in his White Paper:

Nodes and Networks

The steps to run the network are as follows:

1) New transactions are broadcast to all nodes.

2) Each node collects new transactions into a block.  

3) Each node works on finding a difficult proof-of-work for its block.

4) When a node finds a proof-of-work, it broadcasts the block to all nodes.

5) Nodes accept the block only if all transactions in it are valid and not already spent.

6) Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

Let’s unpack what all of these steps actually mean.

A blockchain is composed of a time-stamped series of immutable records of data. These blocks are cryptographically stored. These records or lists of digital transactions are managed by a collaboration of independent networks. The information within the block includes a hash pointer. The hash pointer contains the address from where the transaction was initially sent, as well as the hash of the data from the previous block. The hashes are essentially the glue the holds the links of the chain togther.

Each block is unique. However, each is also bound to the previous block via the cryptographic algorithms of the chain. The ‘chain’ is, therefore, a composite of cryptographic transactions, or “blocks”.

Although Blockchain technology was first successfully applied to the cryptocurrency Bitcoin, it is not limited to cryptocurrency applications.

By combining cryptography and decentralized networks, blockchain has the potential to improve a great many processes that rely on record keeping and information sharing.

One of the main advantages and advancements of blockchain technology is the functional application of a decentralized network that maintains data immutability using cryptographic functions.

So, the reason that blockchain can be used for currency transactions, IoT and supply chain implementations, bureaucratic records and processes, is because it offers accurate and secure access to valuable information.

Decentralized Networks

It is helpful to think about how most networks we rely on for everyday needs operate. In a typical client-server network, the client (or user) needs permission from the owner of the network to access its database. This is because most networks operate with a central authority and a unified network that administers all of the activity that can occur on the network.

It is fairly intuitive why centralized networks function as they do, and they have many times proved their value. However, there are also some obvious limitations to this kind of system.

Typically, information is siloed because it is the intellectual property of the central authority. So, although the traditional network is offering a useful and valuable server, they also have a lot of power over information.

Moreover, centralized networks run the very real risk of being attacked, altered or held for ransom. This is because centralized networks store all of their data in one place. By keeping all of your information in one place, it increases its vulnerability to malicious behavior.

So, decentralized networks are more secure. This is not just because they use cryptography, but because the information is not all in one place. When information is in one place, the system is at a much greater threat to malicious attacks, server failure, and even upgrades will temporarily shut down a centralized server.

Enter blockchain.

What is a decentralized network?

A decentralized network is a network that does not have a central authority. Instead, there are many many nodes, or individuals participating in the network. But because the network does not have to rely on one server, the rules of the game have changed. Rather than rely on the server and need to conform to their rules and costs, decentralized networks set their own rules democratically via a consensus protocol. The cooperative of networks then maintains the validity of the information on a blockchain.

The process is by design very democratic, not only because it relies on multiple participants, but because there are few benefits to undermining the system. If a proposed block does not meet the parameters of the consensus, it will not be approved and added to the chain. Consequently, there are many advantages to using a decentralized network as opposed to a centralized server.

You can think of decentralized networks like a spider web. A spider’s web is built out of interconnected pieces that support one another, with no one part being the linch-pin or central axis point. If you tear part of a spider’s web, the whole structure will not fall apart. Instead, only a piece of the web is temporarily damaged until it can be repaired, with the overall web remaining intact and functional.

The same goes for decentralized networks. The information in centralized servers is siloed and sent from one location. While decentralized networks are widely dispersed and have a mutually supportive, brad reaching structure. Not only does this mean that there is more power potential for moving information is it also means that the information on the network is more secure.  

However, not all blockchain applications are completely decentralized. X-Road is an example of a blockchain that is can be used for centralized controlled or partially private blockchains.

X-Road was first developed and launched by Estonia’s Information System Authority (RIA) in 2001. Estonia has since become a completely digital society. Citizens can manage their personal and medical records, and even vote using this blockchain based technology. Rather than a blockchain that relies on a decentralized network, Estonia has a centrally governed distributed integration layer between information systems. In this case, X-Road is designed as an open source data exchange layer solution. This makes it possible for permitted networks and nodes to exchange information with the Internet.

To read more about Estonia’s E-Bureaucracy and other real-life blockchain applications read here on the blog.

Smart Contracts

Another valuable feature of blockchain tech is the deployment of smart-contracts. Ethereum is to smart-contracts what Bitcoin is to cryptocurrency.

A smart contract is a software program that stores rules and policies for negotiating terms and actions between parties. Smart contracts are designed to automatically verify that the terms of a contract are met. Therefore, once the terms of the contract are met, the transaction is executed. The logic of a smart contract program is executed by the network of players, that come to a consensus on the outcome of the contract.

A smart contract executes its code when it receives a message. The message is from either a network or another contract. The contract executes its code and updates the ledgers accordingly.

Public Ledgers of Cryptographic Blocks

As mentioned, the information on a blockchain is stored as a public ledger. Anyone can with access to that network is able to see the data stored on it. Blockchain applications store digital transactions cryptographically as individual blocks in a decentralized network.

Blockchain also relies on cryptographic algorithms and digital signatures. This means that while information on many blockchains, like Bitcoin, for example, are accessible to anyone with a computer, you will not be able to see personal details of the person who owns the accounts. Moreover, you will be able to see the data on a blockchain, but only the individual who can produce the correct digital signature will be able to unlock the data and maintain ownership over the data.

Because of the use of cryptographic blocks of data, as well as the network of decentralized nodes maintaining the blockchain, this technology works as an effective and nearly infallible mediator and recordkeeper. This is because of the way that the blocks of data are linked. So if someone wanted to change the block header of one block, the previous block would also be altered; which is not possible. So, it is nearly impossible to tamper with the existing data on a given blockchain.

Given that blockchain technology can effectively and accurately share data, it is no wonder that traditional industries have as started to incorporate blockchain applications into their business practices. At this point, it should be pretty clear why blockchain applications in the financial industry are becoming more appealing. Not only does the design offer accuracy and reliability, but the essence of blockchain tech offers a new level of security that centralized networks and error-prone paperwork are not capable of.

Adding to the Blockchain

How does cryptography work with adding new blocks to a blockchain? In order to add to the blockchain, miners must solve for what the target hash. Meeting or solving for a hash requires an algorithm that uses the data from the blockheader.

Again, each block in the chain contains the following:

  • a blockheader with the number of the block
  • a timestamp of when the transaction is approved
  • andblo the hash of the previous block which contains the “nonce”.

The nonce is a string of variables that is randomly generated. These numbers have a high min-entropy because there is a large variable distribution to choose from.

Miners adjust the value of the nonce so that the hash of the block is less than or equal to the current target of the network (but not greater). This maintains the uniqueness of each interdependent block. Once the target-hash has been solved for, and before the new blocks can be accepted to an extent blockchain, a proof-of-work is needed

The block with the correct nonce value constitutes the proof-of-work. The proof-of-work is a fixed alphanumeric sequence that meets the requirements of the target hash and demonstrates that a specific miner is responsible for the computational work of mining.

Read more about the difference between proof-of-work and proof-of-stake on the blog.

For a miner to solve the target-hash, the calculation is repeated continuously until the target hash is met. As such, mining requires time and resources.

Learn more about Bitcoin mining here.

Once the target hash has been obtained, then the block is accepted into the public ledger by the consensus of other participating networks.

A crucial function of the blockchain is that it relies on hash pointers which contain the address of the previous block, as well as the hash of the new data. A pointer does not store the actual hash value, but “points” to an address of variables. Data from the previous blocks are hashed (or encrypted) into a new unique series of letters and numbers of a fixed length.

The hash pointer and address of the previous block are constituent parts of the block and therefore result in the interdependent model of the blockchain, of which its immutability is the consequence. Each block has a number. A blockchain can essentially grow to infinite size. The Genesis Block is how we refer to the first block in a chain. It is the first transaction in the block that starts a new cryptographic string of electronic transactions (or cryptocurrency in the case of Bitcoin).

This is how cryptocurrencies like Bitcoin can depend on the features of blockchain technology. Using a block of hashes in an interdependent sequence replaces other measures to secure the accuracy of monetary transactions.

As I mentioned from the start, blockchain is not limited to cryptocurrencies. Blockchain technology is used to store and share essentially any kind of data or record.

In this next section, we will continue to work through the concepts involved in blockchain technology with”

  • Cryptography and Hashing algorithms
  • Merkle Trees

Cryptography

As mentioned earlier, blockchain is essentially a ledger that stores and tracks the transactions on a specific platform. Blockchain has been hailed for its security and immutability, and here is why; cryptography. Digital ledgers are unlike paper ledgers, which are error-prone and can be changed. With blockchain applications, transactions are collected and stored permanently. After a block gets added to the chain it cannot be changed. Each block or transaction record is cryptography connected, and therefore to alter the data in one would alter all of the others; this is computationally infeasible.

Using cryptography means two things:

  • First, encryption is used to hide the contents of the data that is stored on the blockchain.
  • And second, the records cannot be changed because that would change the information in the previous block.

Cryptography Review

Moreover, cryptography is designed so that intelligible information can only be viewed by the intended recipients. To do so, the recipient must possess the corresponding unlocking key or private key which decrypts the encrypted message.

So, cryptography is simply taking unencrypted data or a message, such as a piece of text, and encrypting it using a mathematical algorithm, known as a cipher. For Bitcoin this is SHA-256. In applying this algorithm plain text becomes unreadable without the correct unlocking script.

Asymmetric cryptography is the most secure form of cryptography, which is the form of cryptography that Bitcoin uses. For asymmetric cryptography verification, it needs two keys to do so. This is not the case for symmetrical cryptography. Asymmetric cryptography therefore needs a public key and a private key.

Asymmetric cryptography is also called “Public-key cryptography.” Once a public key is matched to the private key the information, it is made intelligible for its owner. Matching the keys is executed with the programmed script. Unlike symmetric key algorithms that rely on one key to both encrypt and decrypt, asymmetric algorithms require a specific key, to perform specific functions. Basically, the public key is used to encrypt and the private key is used to decrypt.

The ciphertext

Two keys produce a ciphertext. The ciphertext is a piece of information that is completely useless and nonsensical until it is decrypted with the corresponding private key. For Bitcoin, it is a 65-hexadecimal alphanumeric sequence.

As a result, when a cryptocurrency relies on a strong hash function or encryption formula like Bitcoin does, it is computationally infeasible to compute the private key based on the public key. What this means is, theoretically, given an unlimited amount of computational power, the private key could be reverse engineered from the output data. This requires a method of guessing called “brute force”.

This is because an algorithm like SHA-256 makes working backward completely infeasible. SHA-256 is a double hash function, which basically uses an infinite amount of variables to encrypt the original message. Because of the design of SHA-256, it is just too computationally expensive to try to solve for a private key using the data of the public key, to then forge a digital signature. Therefore, it is nearly impossible to forge a digital signature that relies on asymmetric cryptography. Because of the high level of security acquired through this encryption process, public keys can be freely shared.

Private keys must always be kept a secret. The secrecy ensures that only the owner of the private key can decrypt the content of a message intended for them. Private keys are necessary to create digital signatures. Digital signatures are another layer of confirming the ownership or the correct transfer of any digital commodity.

SHA-256 and the Essence of Hash Functions

Basically, a secure cryptographic function relies on the hash algorithms. Hash algorithms are computational functions which process and condense input data into a fixed size. The result is an output called a hash or a hash value.

Hashes are used to identify, compare or run calculations against files and strings of data. As mentioned earlier, to add to an extent blockchain, the program must solve for the target-hash to create a new block.

Bitcoin’s hash SHA-256 is an ideal hash function for several reasons.

For starters SHA-256  is deterministic. A hash function is deterministic when the outcome of a particular set of data input always has the same result or output. A deterministic quality also meant that it is possible to continually create unique hashes from the same original data set. Finally, it also means that it is nearly impossible to work backward to recreate the input from the output data because this is just too cumbersome a computational task.  

Check out the following illustration of inputs and hash digests:

Note how both the dramatic and subtle changes to the input result in a unique output. This is a function of a strong hash and a crucial part of the cryptography of a blockchain such as Bitcoin.

To read more about how hashing works, keep reading here on the blog.

Merkle Tree

One of the real issues with blockchain platforms is that they require a lot of space, as a consequence of such heavy cryptography and large data transactions. Merkle Trees provide a solution to issues of the time it takes to check proof-of-work and space savings for nodes on the network.

A disadvantage of using a data-heavy hash is that it requires a lot of space. The solution is using a Merkle Tree, which stores only the root of the block’s hash, as opposed to the whole hash. That means that when checking the proof-of-work, all one need do is check the proof-of-work of the block header, rather than run a full inventory of all of the blocks in the blockchain. When the data of a blockchain is audited only the root from the block header is used to check on its validity. Therefore the entire sequence of hashes in the blockchain does not need to be checked.

Therefore, a Merkle Tree is an easy way to audit a blockchain. This is because transactions can be audited in logarithmic time, and so access to all of the variables of the blocks it not necessary.

If one were to audit a blockchain in linear time, referring to all of the data elements, depending on the length of the chain, this could quite literally take forever. A Merkle Tree is one of the core data structures used to manage the amount of data within a blockchain. Part of the original design of Bitcoin’s blockchain includes the implementation of a Merkle Tree in order to verify the existence of a transaction as well as conserves space and time.

The Merkle Tree was not invented by Satoshi Nakamoto. It is a concept whose namesake is from its creator, Ralph Merkle, and was patented in 1979.

Cryptocurrencies like Bitcoin and Ethereum use Merkle Trees to make data checking more manageable. This way any node on the network can be easily verified just by checking the block header, rather than running all of the data.

How does a Merkle Tree work?

Most Merkle Trees are binary, however, there are non-binary Merkle Trees employed by other blockchain platforms. Ethereum is an example of a blockchain that uses non-binary a Merkle Tree.

Hash trees are a generalization of hash lists and hash chains. They are therefore a part of the security structure of the blockchain. Hash trees ensure that data blocks received from other peers in a network are undamaged and remain unaltered. Merkle Trees also check that the other peers do not alter or forge fake blocks.

A Merkle tree is, basically a storage process, or tree, where every leaf node is labeled with the hash of a data block. Every non-leaf node is labeled with the cryptographic hash of the labels of its child nodes. Each node in the tree is created by hashing the concatenation
of its “parents” in the tree. Concatenation is the combining of two variables or sentences.

A hash tree is then simply a tree of hashes in which the leaves are hashes of data blocks. Nodes further up in the tree are the hashes of their respective children.

For example, in the image below hash 0 is the result of hashing the concatenation of hash 0-0 and hash 0-1. As the blockchain grows, the pattern will continue. And so to audit a block you only need the “leaves” and not the full hash.

blockchain

This section takes a closer look at what transparency in terms of blockchain applications means. As well as a brief look at some of the non-monetary applications of the technology

Public Ledgers and Transparency

By relying on shared or public ledgers, transactions that use blockchain application have to potential to offer complete transparency. Blockchain ledgers are transparent because they use of a decentralized system that publicly stores information. You cannot see the original message when it is encrypted; all that is available is a cryptographic hash. However, anyone can gain access to the record of transactions from a specific address. Having access to an address allows one to check on the activity and consensus of the account.

To be assured that the address of the person you are dealing with is reputable before you send them your money, you need to check out the history of their digital transactions. Following their transaction, you will see the other transactions on the network. This was you can be sure that they are a reputable recipient.

How a shared ledger improves efficiency

Relying on a shared ledger not only increases the accuracy and maintenance of transactions records. It also makes peer-to-peer transactions a functional reality increasing the diversity of exchanges and transactions while dramatically decreasing the risk. Until Bitcoin, peer-to-peer transactions relied fairly exclusively on the exchange of physical cash, that meant that making long distance transactions were difficult and risky. Blockchain applications are steadily mitigating and eliminate these obstacles and risks. Because blockchain applications rely on public or semi-public ledgers, the risks of being a fully decentralized systems are mitigated.

For instance, when you want to make an exchange using Bitcoin, you can first see what their transaction history is.

Here is a Bitcoin address that I pulled from Blockchain:

1Gf4QbkYMNqYYbK8ZBL9e3nnU3ZuWUj8LA

If you want to see what kind of activity takes place using this address you can simply drop the address into a blockchain explorere.

Although this is yet to be the standard for financial institutions or companies, transparency is becoming an expectation from consumers. As blockchain public ledgers become a more commonplace practice, consumers will be able to follow supply chain processes or view all of the financial records of any business or financial institution.

Transparency leads to accountability. Obviously, not many traditional financial institutions are going to readily adopt this exact open model. However, given the continued influence that the world of cryptocurrency is having on traditional financial institutions, it would not be surprising if the use of public ledgers became a necessity due to public demand.

If a company wants clients and investors, they will have to show us what’s under the carpet and not simply expect consumers to accept a bill of goods and a confident smile. This kind of transparency is steadily becoming a part of the supply chain processes of Walmart.

Consumers and citizens alike deserve the basic principles of transparency and accountability. In an ever-expanding global economy, trust needs to be earned, not just freely given.

Supply Chain

Supply chain processes and records are other areas that can gain from blockchain applications and a shared ledger. IBM is currently working on blockchain solutions to supply chain problems. Because blockchain relies on a shared immutable ledger, record management and traceability can be significantly improved. Food distributors are one of the main industries that are invested in blockchain and supply chain.

In the short-term, food distribution might have the most to gain from blockchain applications. Currently records keeping and tracing product is error-prone and time-consuming because many processes have yet to be digitized. That means that keeping track of the movement of a product, for instance, food is very difficult. Not only does this pose concerns for efficiency, but it creates a serious issue for health concerns. The distributor must work quickly to isolate the spoiled food as well as alert the public once a food item is recalled. This is a particular problem with salmonella outbreaks.

However, if all levels and handlers of a product are recorded on a shared network, it is very easy to isolate where the tainted food came from. They will also be able to isolate where and when the product was purchased.

Problems with food supply chains

At present, many in the food industry do not even keep digital records of their inventory. So isolating and managing issues such as salmonella is to date a difficult, if not impossible process. Moreover, given our growing desire for transparency, spoiled food aside, consumers want to know where their products are coming from. Currently, we must trust food labels alone. However, if blockchain were incorporated into supply chain processes, consumers could learn all about the processes of their products.

This kind of information has the potential side effect of encouraging more ethical consumption. Once you’ve had a look at what’s hiding under the carpet, it is hard to look away.

To learn more about blockchain applications read on the blog: Blockchain Applications Transforming the World.

Applications and Limitations

Blockchain technology definitely has the potential to be a positive and disrupt force. Asymmetric cryptography works very well. Cryptography aside, there are still kinks in the system that must be sorted out before the technology can be more broadly applied.

In this final section, we will get into some of the challenges that applications will need to overcome for blockchain to reach its full potential.

A few of the limitations the technology presently faces are as follows:

  • Scalability
  • Lost or misplaced keys
  • Sustainability
  • noperability

Scalability:

In order to adequately serve the current scale of payments currently made, transaction platforms need to be able to deal with millions of transactions per second. Santander is the first UK bank to use blockchain technology.

Presently they are using Ripple blockchain with ApplePay. Currently, only transactions between £10 and £10000 are possible. And the only currencies you can are GBP, EUR, and USD between 21 countries.

So, if blockchain applications are too expand into the same ubiquitous role as fiat currency, platforms and currencies must be able to process a much higher rate of transactions. For example, Bitcoin can handle approximately 60 transactions per second, as compared to Visa’s rate of 47,000 per second.

That means that for Bitcoin to rival Visa’s capacity to process transactions, it would be equivalent to trading four terabytes of data per year. Ethereum’s Ether, comparatively, takes approximately 14 seconds to generate a block and is considerably cheaper than Bitcoin, with transaction fees less than 2% of Bitcoin’s.

Lost or Misplaced Keys:

Asymmetric cryptography is used to ensure that only the rightful recipient of an asset can unlock the encryption. To unlock an encryption a private key is required. The worry is that keys may be lost or misplaced which makes theft of the assets a potential issue.

Sustainability:

While this is increasingly becoming less of an issue, as transactions are becoming more efficient, hash mining and blockchain transactions consume energy at an incredibly high rate. For instance, at present, the majority of cryptocurrencies are mined in pools. Pools frequently try to find places that have low energy costs in order to deal with the overhead of mining.

However, to handle the increased traffic caused by more users and more transactions, more nodes are needed to process them. Again, running nodes and mining is a costly process.

Unsurprisingly, miners typically prefer transactions with higher fees. This means that during peak times, to have a transaction verified efficiently can escalate from the fraction of a cent to a number of dollars. The fees for verification are therefore highly susceptible to supply and demand.

Interoperability:

Although blockchain technology is incredibly adaptive, there is no one blockchain for all purposes and requirements. For broad adoption, interoperability is an issue that needs to be seriously considered. There are different kinds of blockchains. Some allow for independent networks to run the entire ledger, while private blockchains are used for the internal processes of governments and businesses. Depending on the application, different consensus parameters must be put in place.

Blockchain Technology Summary

It was indeed Satoshi Nakamoto’s brilliant application of blockchain to Bitcoin that opened our eyes to the potential the decentralized network holds for the future.

Currently, blockchain is actively improving a multitude of issues, including: maintaining and developing cryptocurrencies, eliminating middle-men, increasing data protection through cryptographic processes, decreasing error-prone records, and developing self-executing smart-contracts.

Blockchain technology is definitely appealing to those prefer to live outside of the system. However, everyday blockchain applications are becoming more and more mainstream. However, blockchains do not necessarily need to be fully decentralized. Moreover, consensus protocols can be negotiated by the users. When there are disagreements amongst the users, a fork with new consensus rules can form.

JP Morgan recently launched a token; Estonia runs its bureaucracy entirely electronically using X-road; IBM and Walmart are ambitiously revolutionizing supply chain processes; the internet of things and smart appliances are becoming more and more a reality using smart-contracts.

In the near future, we are likely to see a decrease in centralized servers and an increase in decentralized networks. That means that we will have more access to better information.

Rather than kowtow to the gatekeepers of personal and medical records, music, books, and currencies, blockchain applications are making way for better peer-to-peer transactions and setting a higher standard for all of our embedded infrastructures.

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