Less than a year ago, I was introduced to words like blockchain and cryptocurrencies. In May 2017 a blockchain conference was hosted in New Zealand and almost everyone I met was talking about Ethereum blockchain app. It was all confusing to me at that time as I couldn’t tell these technologies apart.  A newspaper article in the Financial Times highlighted the fact that blockchain had already become a part of university education there. Furkan Kamaci believes that blockchain is a part of open-source revolution.

In the following months, I have been closely watching news about blockchain and its associated technologies. In the next section I am going to put blockchain and the like into a simple narrative, the way I understood all these buzzwords.

Understanding it all

Blockchain is a distributed and decentralised ledger which sources all its data such as transactions between individuals and/or companies and is publicly shared across all the nodes of its network.

Blockchains are also used to store information. The storage itself consists of multiple blocks of data chained together like the links of a physical chain. This leads to a question of how the chain is linked?

Every block is given a unique value that looks like a random string of characters. We call this value a hash since its generated from a hash function that creates the unique output for every unique input that it receives. The hash is generated based on the unique data that we want the block to store within the block. This unique data could be anything like a string for example, an array of numbers or more relevantly a list of transactions from one individual to another one.

Here onwards, I am going to focus on Satoshi Nakamoto’s paper which is available as a PDF for download. A unique hash for the block is generated not only from the data we want to store but also from the metadata about the block right from the moment when it was created, and it was pushed into the chain. There is also one more very crucial data point used to generate the hash of a new block. The unique hash of the last block is also used as part of the input that the new block uses to generate its hash. This means that the last block is an integral part of creating the new blocks hash value. Since bitcoin paved the way for using blockchain technology, both the terms sometimes are used interchangeably.

The block itself will now have a reference to the last block hash value as part of its public data. Links from block to block are created because each new block makes a reference to the last block’s value. This reference to the last box value links the last block to the new one and as more blocks are created eventually we have this chain of blocks creating the blockchain.

Ledger in a blockchain

As explained earlier the ledger is a record keeping system that records all the transactions of an organisation so that it can track all its history. The ledger itself is shared with everyone using the blockchain network. In this network, multiple nodes or rather multiple individuals through computers connect to the core blockchain network. By connecting to the blockchain network each node gets a copy of the complete blockchain letter that has recorded the entire history of data that is stored in the blockchain.

Now that everyone has a copy of the block chain letter they will get updates every time someone changes their individual blockchain as it is sent through the network. This model of the blockchain ledger being distributed builds on the idea of the blockchain also being decentralised. Since everyone has a copy of the updating ledger there is not one central organization with the responsibility of updating and maintaining that ledger.

Contrary to a decentralised model, in the centralized model a bank holds the ledger itself and records of transactions of everyone’s financial accounts. It holds all the data for the organisation. The bank as the central organisation has all the responsibility as well as all the power that could lead to manipulation of commission and fees. On a positive note, the bank gives you a single window service.

On the other hand, the decentralised model of blockchain is promoted as trustfulness which means everyone having equal power, responsibility and access to the history of transactions. This also means blockchain eliminates the necessity for third party intermediaries as two nodes can trade with each other directly without having to rely on a bank or an accountant to officially document the transaction.

Blockchain user case

The first user case in this regard is crypto currencies especially the bitcoin in the past few years. Practically, crypto currencies do leverage blockchain, but a cryptocurrency has its own technology that uses Blockchain as one piece in its model.

Cryptocurrency itself is a digital medium of exchange. It has three main aspects:

1. Blockchain
2. Wallets
3. Mining

For the first aspect, cryptocurrency leverages the blockchain. It does so to keep a public database of transactions that everyone has access to. With the help of cryptography, a further layer of security is added to the blockchain with the help of algorithms generating digital signatures for individuals in the network. These digital signatures are like unique handwritten signatures but with far more inherent security as it is aimed at solving the problem of impersonation and tampering.

In practice, everyone who wants to record a transaction in the blockchain must stamp the transactional data with unique digital signature. Each individual signature is based on two keys; a private key and a public key. These keys are a string of numbers. The individual creates a signature that is an encrypted hash value. The hash value is generated by a combination of data and the private key of the individual. The public key is used to decrypt that signature and then read the original data behind.

This system with the private key and public key pair to generate signatures on data adds a highly secure system of integrity as well as authentication to blockchain based cryptocurrency.

Next, wallets are objects that store the private key and the public key of an individual in the network like a physical wallet. They can also help you track how much cryptocurrency is entitled to you. Your public key is used as an address for your wallet. And that is what other individuals use to send cryptocurrency to you.

Next comes mining. Miners do the work of adding transactions to the blockchain. When people submit transactions to the cryptocurrency blockchain network it takes a little time for those transactions to be confirmed and added to the blockchain. When transactions are sent to the network but not included in the blockchain, we call those transactions as unconfirmed. Miners then take a group of these unconfirmed transactions and include them within a block in the chain.

The actual act of mining is done through solving a computational puzzle called the proof of work algorithm. This proof of work algorithm is difficult to solve. There is a low probability of randomly solving this puzzle. A lot of trial and error is required to find this answer to the proof of work algorithm which is time consuming and expensive which is why it’s called mining. Once a miner solves the proof of work algorithm they gain the right to submit a valid block containing the transactions to the blockchain.

Once a miner submits a solution to the proof of work other miners can see that solution. For more details about proof of work, see page 3 of Nakamoto’s paper. In return for this computationally expensive proof of work, the miners receive a fraction of cryptocurrency. This intense computational work also gives the cryptocurrency control over the rate of which new blocks are added to the chain and how many transactions come in at once.

By making this proof of work more difficult they can slow down the capability of miners to add new blocks to the chain. Likewise, if blocks are not coming in fast enough they can make the proof of work algorithm easier speeding everyone’s mining ability up.

Bitcoin is the face of cryptocurrency today and was the first decentralised cryptocurrency created back in 2009. As more and more people around the world are starting to gain awareness of these revolutionary blockchain technologies more and more people have started coming up with their own cryptocurrencies.

Currently, a single bitcoin is worth around eleven thousand NZ dollars. This value has fluctuated a lot in the past. Beyond bitcoin there are many other crypto currencies that are taking the world by storm. Notably there is the Ethereum blockchain and cryptocurrency which has the second highest value for a cryptocurrency right behind the bitcoin. There are chances of many other cryptocurrencies and blockchain projects coming up in China and Russia. Meanwhile IOTA and Ripple are trying to gain a serious foothold for blockchain the enterprise world including the banks.

The applications for the technology are truly far reaching and are almost endless. According to The Future is Decentralised whitepaper as mentioned before, blockchains can also be leveraged to support fair and transparent voting system as well as establishing a unique identification system of the citizens. Kodak CEO is ready to seize the blockchain moment.

Sceptics of blockchain technology say the system is too complex for widespread adoption and perhaps that humans are too attached to existing systems of transaction such as modern banking. It is widely known that years ago, the same was said for the Internet and it was met with the same amount of scepticism as people predicted its total failure in the early 90s and now it is impossible to imagine the world without internet. In my opinion, in about a decade or so it will be impossible to imagine the world without blockchain or a similar and improved technology.

Current trends

Overall Blockchain technology is poised to continue revolutionising the ways we interact with systems based on trust especially economic systems. The whitepaper mentioned before provides a lot of user cases where ordinary people around the globe are poised to gain immensely from the Blockchain technology.

The user cases include NGOs, refugees, migrants, money remittance, supply chain management, improving tuna fishing, better value chain for energy and property rights. The whitepaper adds that Blockchain brings the capacity of better risk management rather than maintaining the status quo of risk avoidance. The whitepaper goes to the extent of making the United Nations Development Programme a strategic partner in utilising Blockchain technology.

Conclusion

In conclusion, blockchain technology has rapidly become consistent and Ethereum isn’t the only other candidate not to mention the increasing number of cryptocurrencies around the globe. In the corporate world a growing number of people think this technology shows the most promise. Blockchain technology can be utilised to solve business issues as well as improving the way public sector and NGOs work. This technology has the potential to add quality to public life, to bringing transparency and creating new opportunities.