Please provide a high level overview of blockchain
Blockchain is a protocol that allows for anonymous, secure transactions through a decentralized, tamperproof, shared ledger. It can store and move data without that data becoming corrupted or altered because the information is held and validated simultaneously across millions of computers. While it is often considered a financial tool, it has many other applications from music to intellectual property to fraud detection. Its societal implications range from disrupting our political and economic frameworks to liberating the unbanked and promoting the social good.
Don Tapscott, author of The Blockchain Revolution, describes blockchain as "an ingeniously simple, revolutionary protocol that allows transactions to be simultaneously anonymous and secure by maintaining a tamperproof public ledger."
Blockchain is typically thought of as the technology through which bitcoin is traded. However, blockchain technology is not exclusive to cryptocurrencies. Blockchain is a distributed or shared database or ledger filled with blocks of data. This ledger lives on thousands, if not millions, of computers (nodes) all over the world. No entity owns the blockchain, which is instead maintained by all the computers on which it lives. In other words, it is a decentralized network.
When someone initiates a transaction, it is recorded like a line item in a general ledger. And those line items can never be changed; they are permanently recorded. Then that transaction is sent to all the computers housing the ledger so that they can all authorize the transaction, essentially confirming the transaction is legitimate. Every ten minutes, "time-stamped block gets created that captures all of the transactions that took place within that previous span of time." Once the block is created, it is validated by the network. Miners work to confirm the transactions within a block by applying a mathematical formula that creates a series of numbers and letters, known as a hash. That hash is stored with the block in the blockchain, making them a permanent part of the ledger. The person who creates the hash first is rewarded with extra bitcoins, or whatever the blockchain's value item is. Each blockchain has a protocol, a set of rules, that govern the shared database and allow for validation of its contents. Bitcoin uses "proof-of-work," while Ethereum's technique is called "proof-of-stake." Ripple's method is "Distributed Consensus." When the block has been validated, it is added, or "chained," to the blockchain, updating the entire network of the new ledger status.
Because of the cross-checking done by all these computers simultaneously to record transaction blocks, the risk for alterations or corruption is eliminated. Only the owner of that block can add transactions related to that block, but even the owner cannot remove a transaction.
Basically, it's as if one person handed money or apples or marbles to another person, and other people were standing there watching the transaction and could then attest to the fact that the exchange actually happened. The transaction cannot be erased from history (i.e. removed from the ledger) because all those people saw it happen. If the second person wants to return the money, apples, or marbles to the first person, that same group of people need to witness it as a new transaction, which can in turn never be undone.
Also, since it is a decentralized process, there is no middleman handling the transaction. It moves directly between the two entities involved. Having no third-party involved creates additional safeguards that the transaction will not become corrupted. Another safeguard often implemented within blockchains are smart contracts, which are software programs that automatically execute and store contract information related to a transaction, instead of the contract being handled by a third party. Again, this smart contract is recorded in the blockchain so it is accessible by all parties and cannot be altered without everyone in the blockchain finding out.
IMPLICATIONS OF BLOCKCHAIN
A Harvard Business Review article notes that records of transactions and contracts define our legal, political, and economic structures, but these systems have fallen behind in terms of digital transformation. It asserts that blockchain may be the solution, as it provides a way to permanently document these records in a transparent and tamperproof way. It would eliminate the need for intermediaries such as lawyers or bankers. However, it also faces barriers and potential problems, such as security issues, noting the collapse of a bitcoin exchange in 2014. Calling blockchain a foundational technology, rather than a disruptive one, the article suggests that "it will take decades for blockchain to seep into our economic and social infrastructure."
In an interview with McKinsey, author Don Tapscott suggests that blockchain has the potential to disrupt diverse industries, such as finance and music. However, he also discusses the barriers, such as the massive amount of energy required for blockchain and the elimination of jobs that blockchain will potentially replace. He refers to blockchain as the "Wild West," filled with recklessness and calamity, and he notes the need for governance, such as the organizations that govern the internet. Ultimately, Tapscott is very optimistic regarding the future of blockchain and the good it can do for the world. He suggests possibilities such as crowdsourcing that can include millions of investors, opportunities for the unbanked to enter the global economy, or foreign aid that goes directly to those in need instead of to bureaucracies.
Organizations such as the World Bank and Unicef are using blockchain "to improve the transparency of aid, the protection of property, secure voting and environmental protection, among other areas." Due to the open, shared networks of blockchain, the platform is transparent, accountable, and secure, all of which will benefit the social good. One example of blockchain being used for social good is the World Food Programme's (WFP) aid campaign at Azraq, a Syrian refugee camp in Jordan. An iris scanner was used to identify refugees and confirm the aid they were to receive. No third party or bank was involved; the aid went directly from WFP to the refugees.
APPLICATIONS OF BLOCKCHAIN
While many think of blockchain technology in terms of its financial applications, the technology can be used to validate any type of value point, including music, deeds, art, or votes. Jamie Skella, co-founder of Horizon State, discusses how his company is using blockchain technology to validate votes. So, instead of money, the ledger holds data on votes that can be validated and never changed. He further discusses how blockchain is being implemented in music, file storage, and energy. He mentions several companies working on blockchain in these areas, including Ujo Music, VOISE, Storj, and Sia.Tech.
Some other potential uses of blockchain technology include distributed cloud storage, digital identity security, smart contracts, and decentralized notary. Digital tokens can authorize physical items, which can be used in supply chain management, fraud detection, and intellectual property protection.
Business Insider notes the following industry-specific applications of blockchain technology:
• International payments
• Capital markets
• Trade finance
• Regulatory compliance and audits
• Money laundering protection
• Peer-to-peer transactions
• Supply chain management
• Real estate
• Record management
• Identity management
• Non-profit agencies
• Legislation, compliance, and regulatory oversight
Cryptocurrencies are digital representations of a value, whether money or goods, that are accepted by at least two parties as a means of payment or exchange that takes place electronically. Bitcoin was the first example of a cryptocurrency, and it remains the most valuable, followed by Ethereum and Ripple. While cryptocurrencies established blockchain with the introduction of bitcoin, the technology has many applications.
In conclusion, blockchain is a protocol that allows for anonymous, secure transactions through a decentralized, tamperproof, distributed or shared ledger. While it is primarily thought of as a technology for the finance sector, it has many potential applications, including music, cloud storage, intellectual property, fraud detection, digital identity protection, and smart contracts.