What’s all the rave about Blockchain?
If you use a smartphone and you haven’t heard the word blockchain being used in the past year or so, then you, my friend must probably be living under a rock. Okay if you haven’t heard about the blockchain, then maybe you’ve heard of at least one of these: cryptocurrency, bitcoin, NFTs, or even everyone’s star coin at the moment, Dogecoin (come on, Elon Musk even tweeted about this). The existence of each of these things is tied to the use of blockchain technology. So if you’ve heard of them, or you probably even use them already, you’ve been enjoying the benefits of blockchain technology on a low.
If you still haven’t heard of any of those and you’re totally unaware of what this space is about, then no worries. That’s why I’m writing this article in the first place. Now, this article may sound like a broken record to those who already know what blockchain technology is but I’d like to believe learning is a process of iteration. So stick with me as we dive into history. The beginning is always the best place to start for these kinds of stuff.
History Time
Way back in 2008, when I was still young and oblivious of the world’s vices, on precisely October 31st, this faceless guy named Satoshi Nakamoto published a whitepaper on what he proposed would be a system through which two parties could send or receive money without any need to rely on a third party. He called this Bitcoin and described it as A Peer-to-Peer Electronic Cash System. Satoshi disappeared not long after and all efforts made to find him and thank him for ingenious invention failed. A certain Craig White sprung up claiming to be him though. You can read more about that here.
Back to base. As simple as this solution sounds, remember that humans have always had to rely on banks or other financial third parties to store, send, or receive money. Before the whole Bitcoin bandwagon came along, putting your money in a wooden box and burying it someplace in your house was the only way to truly own it. Bitcoin was the gamechanger for remittance and it birthed bitcoin, did you notice that?. It’s not a tautology. Bitcoin is the system and bitcoin (BTC) is the actual currency used to reward those who help run the system.
A lot more other blockchains sprung up after Bitcoin, the most notable being Ethereum. Ethereum established a platform for creating smart contracts and decentralized applications (dApps). The concept of smart contracts was introduced by Nick Szabo in a publication in 1997. Smart contracts are smart contracts. Think of a traditional contract just that this time, the contract once programmed executes the transaction in the agreement all by itself. No third party involved. Decentralized applications (dApps) on the other hand are no different from the everyday applications we use on our smart devices when it comes down to looks. However, unlike traditional applications, they are built on a decentralized server or blockchain.
In this article, we are not concerned about bitcoin but rather the technology powering the Bitcoin system. This is because Bitcoin was the first practical application of blockchain technology. I say practical application because the theoretical concept of the blockchain had already been proposed in a research project by Stuart Haber and W. Scott Stornetta in 1991.
The Blockchain is owned by none but owned by all
Anytime I’m asked by anyone to explain what the blockchain is, I usually use the example of an electronic record or database. That’s simply what the blockchain was made for — to keep records or store data. But the blockchain is not your ordinary database. It goes a step further and employs certain features that make it unique. The first is decentralization. No single entity owns or controls the database. It is duplicated and distributed amongst all participants of the system. Everyone sees everything and anything, down to the tiniest dot. New entries cannot also be made without approval from a significant number of participants.
The next feature is immutability. Once data is entered into the blockchain, it cannot be modified or changed. A whole new entry would have to be made. It’s like me rewriting this article all over again just to correct a word I misspelt. Why is this so though? It’s because of the underlying cryptographic nature of the blockchain. I’ll try to explain how this works in the simplest of terms.
Each data entry on the blockchain is referred to as a block. Every time a new block is made, its details are mixed with the details of the previous block and published on the database to the participants of the system in real-time. This mixing procedure is done using hashing algorithms. A hashing algorithm takes in chunks of data as its input and produces unique outputs of fixed length (a hash). One small change in the input data, even a letter, will change the hash totally. As the database grows, every block stays linked together through this invisible chain. That’s why it’s called blockchain; it’s a chain of blocks.
Changing the details of a block requires that the block be recreated (we’ll talk more about this). It’s quite a tedious process and the level of difficulty increases where the block was not recently mined and has other blocks following it. If the block was not recently mined, since every block contains the hashed details of the previous block, all blocks following it would have to be recreated as well. Add this feature to the fact that the database is decentralized and you have a real editing issue. On the blockchain, it’s forward ever, backward never. These features of the blockchain give it its most admirable quality: true transparency.
How is all this maintained?
Remember the participants mentioned earlier? In blockchain terminology, they are called nodes. Nodes are the blockchain keepers and they are classified according to their function on the blockchain. They are in charge of creating, broadcasting, verifying, and adding new blocks on the chain. They are also in charge of keeping copies of the blockchain. The mechanisms and terminologies involved in these processes vary from blockchain to blockchain.
On the Bitcoin blockchain, blocks are made up of data of initiated transactions and they are added to the chain using the Proof-of-Work (PoW) consensus algorithm. A consensus algorithm is just a really geeky way for a group of people to reach an agreement. The PoW consensus algorithm requires a complex mathematical problem to be solved by any node that wishes to create a new block to be added to the blockchain. These particular nodes are referred to as miner nodes. This process, called mining (we mentioned this earlier) involves a lot of computational power. The miner node has to try random values repeatedly to get a hash that starts with a specific number of zeros. The answer gotten from solving this problem is called a nonce (number only used once) and it serves as a kind of signature of the new block to be added.
Once a miner node gets what seems to be a correct nonce, he broadcasts the new block as well as this nonce to the other nodes. The nonce is the proof of his work to solve the problem. A majority of the other nodes must then verify the validity of his answer, peep the consensus theory here. If the nonce is correct, the new block gets added to the chain and if it is not, then the block becomes invalid. The first miner node to get the correct nonce is rewarded by the Bitcoin system with a fixed amount of bitcoin(BTC) for their effort. The value of this reward halves every four years and is currently at 6.25BTC.
Ever since Bitcoin was launched, other consensus algorithms have sprung up in different blockchains. We have the Proof-of-Stake (PoS) now used by the Ethereum blockchain, Proof-of-Authority (PoA), Delegated Proof of Stake (DPoS), Proof-of-Burn (PoB) and many others. Choosing the right consensus system for a blockchain is a very key step as it keeps the decentralized nature of the blockchain alive.
So what’s all the rave about blockchain?
Power for the people? Blockchain!
Blockchain is the real democracy. The elements of decentralization, consensus and the peer-to-peer relationship it introduced has come to disrupt the operations of numerous industries. First, through Bitcoin, it gave birth to cryptocurrency and digital wallets that ensure true ownership of money through cryptography. We finally get to own our own money, yay! And then, it gave birth to smart contracts and decentralized applications (dApps) through the Ethereum blockchain. A social media application built on the blockchain cannot be suspended or shut down by anyone because no single entity owns it, the users do. Above all, it provided an avenue to really own and authenticate data.
Although blockchain technology started its journey from the world of finance and remittances, according to the Oxford Blockchain Strategy Framework (OBSF), it can be applied in any industry that has the following in its operations:
- Automated processes
- Repeatable processes
- Multiple stakeholders
- Need to reconcile or verify data
- Transfer of value; not necessarily in monetary form. Data is also value
- Need for the immutability of data
Examples of such operations include supply chain management, local or international trade, database management, file storage, licensing contracts, buying and selling, voting, registration of tangible and intangible property, and many others. Giving a real case analogy with one of these examples, through the use of blockchain technology, smart contracts can be used to automate online voting and results would be immutable and transparent to all.
The End?
Not at all. There’s so much more to the blockchain than what was covered in this article but I hope that this inspires you to dive into the space and dig up more information for yourself on some of the terms I mentioned. Disruption is steadily taking place and the possibilities remain endless. Don’t miss the knowledge train!
References
- David L. Shrier; Basic Blockchain: What It Is and How It Will Transform the Way We Work and Live
- What is Blockchain Technology? A Step-by-Step Guide For Beginners