Blockchain: What’s all the hype?
By this time I’m sure most of you all must have heard of the buzzword “Blockchain” and “Cryptos” and some random advice on how someone’s friend of a friend made like thousands or millions of dollars. “Crypto” or “Cryptocurrency” deserves another blog and hence I’ll leave it out of this one and introduce you to all the might and glory being brought by Blockchain.
I’m very excited about this subject only because I am currently (as of Oct 2021) pursuing a Masters program in Blockchain strategy at RMIT University in Melbourne. Its a relatively new and developing field (although been around for more than a decade) and as it touches technology, finance, economics, law and broadly several other areas, it leads me to believe that this is a technology is worth learning and applying based on viability in areas of interest.
Let me caution you – there are several articles out there that might be much more worthy for your time and I might not do justice to this subject however I shall try and keep this topic as plain and simple as possible and hopefully by the end of it you will be able to have a conversation about it.
I will help explore this topic not by answering “what” but “why”.
In today’s world we have data all around us. As I have captured in my earlier blog post “The Data Age” where today we live in an era where there is a lot of data being captured on every action – let that be human actions, animals, weather, financial, interplanetary, etc. That data resides somewhere on some physical form (databases) or in “Ledgers“. With important pieces of data comes the question and authenticity and reliability of that data and corresponding interactions.
- Who owns it?
- Who has access to write to it?
- Who can see it?
- Is there an audit trail for change?
- Can we manipulate older records?
- Are there multiple copies incase we loose the original source?
Ideally ledger(s) should be secure, have a clear audit trail and there should be NO and I mean a BIG NO way to manipulate past records (immutable). If you would like to change the past then you have to make a new change and the entire chronological order should be maintained. In addition ensuring there are multiple copies incase records to get destroyed due to some catastrophe (available)
In today’s digital world we are surrounded by such ledgers – our banking financial ledgers, citizen registers, organisation employee records, medical records, land titles, COVID-19 vaccine records, etc. Most of these are opaque (not transparent) ledgers are not accessible by the owners of their data – thats us. Your bank account details is owned by you, your health record is owned by you, your land title is owned (literally) by you. The central authorities just help to store and use that data.
What makes us believe in that central authority – let it be the government, hospital, insurance company, a private firm, etc – “Trust“. We trust these central institutions and assume that their systems meet our need of secure, immutable, audited, highly available and reliable systems. As the trust is the highest it comes at a “Cost” which is our second factor; with every central authority having to maintain these records for us, there is a cost for maintenance, audit, dispute resolution, etc. That cost is eventually paid by us.
What if we could replace that trust with science and math? What if we could simply ensure we do not have to trust anyone but trust a system to do its job? What if we do not need a middleman with little or no cost to us? What if we could all have a million dollars?
Here comes “BLOCKCHAIN” to the rescue (except for the part where it can’t assure those million dollars).
What is Blockchain?
Blockchain is nothing but a decentralised ledger that is distributed, secure, immutable, reliable, available and transparent. Blockchains help to replace trust with mathematical evidence; basically Blockchain is based on a “Trustless Architecture“. Before I start to explain the internals of a blockchain here are a few notable citations:
Blockchain helps provide a publicly verifiable information distributed ledger that is a crucial first mechanism that leads to the creation of trust.Nair, M & Stutter, D (2018, p534-536)
Blockchain uses mathematical cryptography, open source software, computer networks and incentive mechanisms to replace trust. A blockchain is nothing but a decentralised and distributed database that is secured using cryptography and incentivised using crypto-economic means.Berg, C, Davidson & S, Potts, J (2018, p643)
As the fundamental qualities of a ledger is to possess the 3 C’s as noted by Davidson, S, Filippi, P.D., Potts, J. (2018, p642) –
and the above qualities help us to record identity, property, contract and value of any set of any record; this is the base theory on which Blockchain is based.
I will not cover the implementation of Blockchain as every implementation is unique and different however I shall attempt at giving you enough to go back and read further.
Under the Blockchain Engine
As blockchain is a decentralised ledger, in simple words, it is a mesh of machines unknown to one another, each containing a replicated database that is (supposedly) secure. Lets break that down further –
Blockchain broadly consists of –
- A full node that maintains a full copy of all the transactions and has the ability to validate, accept or reject incoming transactions.
- A partial node that is also known as lightweight nodes as it doesn’t maintain a full copy of the ledger but only the hash value of the transactions. The whole transaction is usually accessed using the hash value. These light weight nodes usually are light machines saving cost on storage and processing power.
- Ledger – A digital database containing specific type of information of value such as financial records, citizenship records, voting records, medical records, etc. Usually public or permissionless blockchains contain a transparent ledger open to all. A semi-private or permissioned blockchain would have read available to all or certain geographies however write will be restricted to a few authenticated individuals or groups. A private blockchain is a decentralised ledger that is viewed and controlled by a central authority or authorised individuals only.
- Consensus Algorithm – Due to the nature of a blockchain, a consensus between the nodes needs to take place and an agreement needs to happen so a block can be added to the blockchain. There are several types of consensus algorithm however the most famous ones are –
- Proof-of-work (PoW) – requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system. At scale, PoW requires huge amounts of energy, which only increases as more miners join the network thereby increasing latency and reducing the ability to scale linearly (source: Investopedia).
- Proof-of-stake (PoS) – is a consensus algorithm that was used to address the issues with PoW and works by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency thereby reducing the amount of work done to a few selected nodes. This consensus algorithm is a more environment-friendly approach as compared to PoW and helps address the issues of scalability as well as reducing latency from a few minutes down to a few seconds. In addition the complexity does not increase with more miners joining the network.
- There are several other consensus algorithms such as Proof-of-Elapsed-Time (PoET), Practical Byzantine Fault Tolerance (PBFT), Proof-of-Activity (POA), Proof-of-Importance (PoI), Proof-of-Capacity (PoC), Proof-of-Burn (PoB), Proof-of-Weight (PoWeight), and more. See 101blockchains.com.
- Nonce – or also known as “Number only used once” – is a hashed or encrypted block in a blockchain. Its a 32-bit number generated randomly only one time that assists to create a new block or validate a transaction (source geeksforgeeks.org) and make a transaction more secure.
- Hash – is a value to help map transactions. In a blockchain network hash value of one transaction is the input of another transaction. It possess properties such as collision restraint, hiding and puzzle friendliness.
Transaction Management in a Blockchain
When a transaction is performed in a blockchain, it is first initiated by an end user or system with a need to create, update or delete a record. That transaction is added to a block and distributed to all nodes (depends on the consensus algorithm). If and when all nodes have consensus and is approved, the block is added to the existing chain and is distributed and updated in their local ledger copies.
See figure below – Steps 1 to Step 6.
Just the beginning
This technology is in its infancy and there is a long way to go before it reaches the masses. The applications are endless and the use cases would need to be truly viable. There is yet a lot more exploration however with every passing day a lot of small startups and technologists are contributing and growing this space.
In later blog posts I will cover certain economical and philosophical aspects of a blockchain as well as technical tidbits that are important from an implementation perspective.
I hope you liked this above introduction. Leave me a note on what you think and do share this post.