Overview[1]#

Blockchain is a peer-to-peer Distributed Ledger Technology for a new generation of transactional applications that establishes trust, accountability and transparency while streamlining business processes.

Blockchain technology forms the heart of the Cryptocurrency, Bitcoin.

Think of Blockchain as an Operating System for interactions. Distributed Ledger Technology has the potential to vastly reduce the cost and complexity of getting things done.

The Distributed Ledger Technology is a permanent, secure tool that makes it easier to create cost-efficient business networks without requiring a centralized point of control. With Distributed Ledger Technology, virtually anything of value can be tracked and traded. The application of this emerging technology is showing great promise in the enterprise.

For example, Distributed Ledger Technology allows securities to be settled in minutes instead of days. can be used to help companies manage the flow of goods and related payments or enable manufacturers to share production logs with OEMs and regulators to reduce product recalls.

Blockchain may also be refereed to as Distributed Ledger Technology (DLT).

Blockchain is database technology that works on a network such as the Internet.

Users install the application locally and the "nodes" all hold a copy of the database.

No central server holds control over the database.

The database is structured as a ledger or a registry of entries into the Blockchain.

These entries are aggregated into data structure blocks. The blockchain consists of blocks that hold "time-stamped" batches of valid entries.

Each block includes the "hash" of the prior block, linking the blocks together.

The linked blocks form a chain, with each additional block re-inforcing those before it. From this process comes the name blockchain.

Entries - or transactions - are passed from user to user, or node to node, on a best-effort basis. The specific blockchain application defines a valid transaction. In cryptocurrency applications such as Bitcoin, a valid transaction must be digitally signed, spend one or more unspent outputs of previous transactions, and the sum of transaction outputs must not exceed the sum of inputs. Other applications may use a different method of validation, such as third party certification, or none at all.

Blocks record and confirm when, and in what sequence, transactions enter and are logged in the Blockchain.

Blocks are created by users, in Bitcoin known as "miners", who use specialized software or equipment designed specifically to create blocks.

Block creation - or mining - is costly in terms of equipment and processing power (electricity). To create Bitcoin blocks, miners are incentivised to create blocks by two types of rewards: a pre-defined per-block award and fees offered within the transactions themselves, payable to any miner who successfully confirms the transaction.

Other applications may incentivise block creators differently. If the Blockchain application is run for internal use within a bank or a group of banks these may simply pay third parties or employees to perform this task.

Transparency#

The original Bitcoin code has been released under an Open Source licence and all Blockchain 2.0 applications have also been Open Source.

Open Source code provides the blockchain with important transparency, which adds to the trust in the system and its ledger that comes with the consensus-driven distributed database structure. All users of Blockchain can verify if the underlying code has any security flaws or contains any back doors to allow tampering.

Bitcoin is an is an Unpermissioned Blockchain which implies the information about all transactions on the Blockchain is accessible to all users.

This transparency allows all users to check their copy of the Blockchain for consistency with other users’ copies.

In addition, any well-connected node is able to determine, with reasonable certainty, whether a transaction does or does not exist in the Blockchain.

Any node that creates a transaction can, after a confirmation period, determine with a reasonable level of certainty whether the transaction is valid, able to take place and become final (i.e. that no conflicting transactions were confirmed into the Blockchain elsewhere that would invalidate the transaction, such as the same cryptocurrency units "double-spent" somewhere else).

Blockchain Privacy#

Blockchain transparency may be a challenge for the privacy of its user.

The Bitcoin network strives to preserve the privacy of its users by allowing nodes to access the ledger under a pseudonym. As mentioned before, to transfer a Bitcoin the node does not have to reveal the physical identity of the person or organisation operating the node. All that is needed is that the node makes the transaction with a digital Signature with a valid private cryptographic key.

However, some Organizational Entities are proposing Permissioned Blockchains which demands a link to a user’s identity, and this personal information will be accessible for all who use the blockchain. This creates challenges in respect of Regulatory compliance even though some of the people demanding the Permissioned Blockchains are Government Entities

Beyond Cryptocurrency#

Blockchain technology has already grown beyond just Bitcoin, and is now being used, by ShoCard and others, for systems other than currency transactions. If you are technically inclined, you can find the original paper describing Bitcoin and the Blockchain here. For a simpler explanation

More Information#

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« This page (revision-19) was last changed on 30-Apr-2017 09:52 by jim