When Bitcoin first emerged, the cryptography community was instantly enthusiastic about it. Created by an anonymous figure known as Satoshi Nakamoto, it represented the culmination of years of research and work carried out within the field. The aim was to create a digital currency that would be beyond the reach and control of a central authority. To power Bitcoin, Nakamoto used a fully functional blockchain and over the years, as more cryptocurrencies have emerged under the same open source principles, the world is looking to their underlying technology to solve its most pressing problems. As all this is going on, understanding what the technology actually does and how it aims to solve these issues can be confusing.
A blockchain is a unique data structure made up of records known as blocks. Each block is linked in a chain, using advanced cryptography and is considered one of the most secure data storage structures. Every block on a blockchain is considered tamper-proof because it contains a unique number known as a cryptographic hash, as well as a timestamp. Any attempt to manipulate the data will cause the hash to change.
Blockchains are mostly distributed peer-based structures, allowing various computers to interact and verify transactions within its network. Because there is a wide distribution of peers on the network, it is difficult to become biased towards any other user. This makes the system almost completely trustless. Most blockchains are designed to be open to anyone, transparent, efficient, and verifiable. In fact, blockchains have been adopted in many different industries due to these benefits.
Due to how innovative it is, as well as the amount of buzz it is generating among people and corporations in different industries, blockchain has been compared to the internet. When the internet first emerged, there were many problematic aspects of it, such as how to secure it from malicious actors. Although these problems were apparent, the internet has proven to be one of the most useful and permanent technological innovations. Read More
HOW IT WORKS
Although blockchain is usually discussed in its most common form, it’s important to note that there isn’t only one type of blockchain. So when factors such as decentralization, security, transparency, and privacy are discussed, they apply differently to every type. The different types of blockchains are public, private, and consortium blockchains.
As its name suggests, a public blockchain is meant for public use. It can be accessed by anyone and is meant to hold anyone’s transactions. It is fully decentralized and does not have any special conditions that users must meet before accessing it. Public blockchains emerged as the default form of the technology and are present in most cryptocurrency networks to date.
This type of blockchain is not owned by a central authority and can be read and even audited by any member of the public. As a result, mining, which secures the network, can be carried out by anyone. It is less restrictive than other blockchain types and since it isn’t controlled by any single person, it can be accessed from any location around the world.
Public blockchains embody the qualities of transparency, decentralization, privacy, security, and scalability, which are often advertised as the main benefits of any blockchain. But if a blockchain is open to just about anyone, then how can anyone trust that it’s truly secure? The answer is that these networks are trustless and count on a special mechanism known as consensus to keep them functioning.
Simply put, a consensus mechanism is a protocol that ensures that all devices connected within a blockchain system (also called nodes) jointly agree on the validity of transactions.
As a quick example, if there are ten strangers in a room, and one of them gives $5 to another person in that room, the only people who can validate that small transaction, are the remaining 8 people there. If all eight of them are in sync and jointly agree that person A did indeed give person B $5, then that transaction can be recorded as a valid one.
However, when dealing with thousands to millions of people, and none of them are in the same room, there have to be unique principles set up to create a truly trustless system in which transactions are easily validated. That’s where consensus mechanisms come in. These mechanisms exist to make sure that everyone has the same version of the blockchain: the accurate and comprehensive one. This, in turn, ensures that the single accurate blockchain cannot be manipulated secretly and can be audited easily.
There are many different types of consensus mechanisms, and the most popular ones are:
- Proof of Work (PoW): This is the first consensus mechanism to exist for blockchain applications and is still used by the Bitcoin network. It involves a group of nodes known as miners, continuously vying for the chance to add new blocks to a blockchain. To do this, they solve complex puzzles and are rewarded by the network. Unfortunately, this mechanism leads to centralization, since it is expensive to carry out.
- Proof of Stake (PoS): This consensus mechanism requires nodes to stake a certain amount of the given currency to be able to validate transactions. Validating nodes are discouraged from trying to manipulate the network since they are at risk of losing their stake.
- Delegated Proof of Stake (DPoS): Unlike a regular PoS system, DPoS delegates the duty of transaction validation to certain nodes, usually based on a vote carried out by network users. The selected nodes are required to either perform well or give up their positions as delegates. This mechanism is currently used by EOS and Steemit.
- Proof of Activity (PoA): this is a combination of Proof of Work and Proof of Stake consensus mechanisms.
- Byzantine fault-tolerant (BFT): Stemming from the centuries-old tale of the Byzantine generals, BFT involves selecting nodes to be in charge of specific chains. Each of these nodes is responsible for validating the chain they are responsible for and coordinating with other chains. Hyperledger fabric uses a similar system.
- Proof of Elapsed Time (PoET): First described by Intel in 2016, the PoET mechanism assigns “rest” periods to nodes on the network. The first node to finish its rest period wins the right to validate a block. It is still used on the Hyperledger Sawtooth platform.
- Proof of Authority: This aims to secure the network and keep it decentralized by staking the authority and reputation of the nodes on a network.
A private blockchain is usually created by a single user or organization for personal use. Unlike a public blockchain, it is fully centralized and all operations are controlled by a single authority (the same one that owns it). The owner can also restrict access to certain parties and no transactions here are anonymous. Security and transaction validation nodes are selected by the central authority, and there is no transparency since it cannot be accessed without permission. The point of having a blockchain like this is that people or organizations can store and transfer data secured with cryptographic functions. However, there is still widespread debate on whether a private blockchain is really a “blockchain” since it goes against everything that the original creation of the technology stands for. One example of a private blockchain is Bankchain.
Similar to private blockchains, consortium or federation blockchains are centralized. The difference is that they are shared by a group of individuals or organizations that control the flow of transactions on the network. Consortium blockchains are mainly used in enterprise networks or supply chains that involve several organizations. They are not open to external users and all transactions are private to some extent.
Like public blockchains, consortium blockchains require consensus among its users, in order to validate events on the network. This means that all consortium members must agree on various decisions that affect the network. For example, if the Big 10 tech companies or a group of tech startups decide to form a consortium, they can privately vote and have a fair and trustworthy way to store and validate voting data. Since there isn’t a single authority in charge, there are multiple points of failure, making it almost impossible to infiltrate the network. An example of a consortium blockchain is the Energy Web foundation (EWF).
To deduce what the future of blockchain technology and its potential effects on the world could be like, it’s important to look at how it is currently being applied, and just how useful those applications are.
By default, the first major use case for blockchain technology was solely financial. Bitcoin was created as a fast, easy, and secure way to store assets and transfer them from one point to another. Later, other platforms refined this financial application, focusing on specific issues within the sector such as remittance.
According to the World Bank, “annual remittance flows to low- and middle-income countries reached $529 billion in 2018.” This is a 9.6% increase from remittance flows of $483 billion in 2017. Total global remittances, including flows to high-income countries, was approximately $689 billion in 2018, an increase from $633 billion in 2017. This shows that remittances are growing every year, despite the issues that people face while trying to send money to other countries.
One major issue is the time taken for cross-border bank transactions to go through. Another issue is the number of third parties involved in the process, which play a role in the significant amount of bank charges that senders and recipients incur. Platforms like Ripple (XRP) and Stellar (XLM) are tackling these issues directly. For Ripple, the main focus is aiding banks to simplify the remittance process using xCurrent and xRapid, their main products. Stellar, on the other hand, is focusing more on low-income problems with worse banking issues.
Other applications include:
- Supply chain management in the food industry and the shipping industry.
- Real Estate
Blockchain technology has quickly become more significant than it was when the world first heard of Bitcoin. Development within the space is progressing quickly, as new projects and applications emerge. Smaller niches around blockchain are also developing quickly, such as blockchain education. Research centers such as the one built in Turkey, university bursaries such as the one set up in Malta, and blockchain courses such as the one taught at Stanford are no longer anything new.
The job market is also exploding, signaling the need for the acquisition of blockchain-related skills in software development, management, design, and marketing.
This in turn is motivating more education providers to create a more comprehensive courses. People are diversifying their skill sets to prepare for changes in their industries. For example, real estate agents may have to diversify to meet the needs of investors who would rather carry out their transactions using smart contracts. This pressing need to diversify gives a glimpse into just how much of a world power blockchain could be in the future.
The internet as we know it today was formed from the ideas and contributions of great minds, such as Nikola Tesla who played around with the idea of a “world wireless system” in the 1900s, Paul Otlet and Vannevar Bush, who created media storage systems in the 1930s, and MIT’s J.C.R. Licklider, who toyed with the idea of an “Intergalactic Network” of connected computers in the 1960s. Until Tim Berners-Lee invented the World Wide Web, these notions didn’t seem feasible to the average person. When the internet finally emerged in full force, Silicon Valley witnessed one of the worst bubble bursts ever. Read More
From an economic viewpoint, blockchain has shown significant growth over the years due to the number of investments flowing into the field. Evidently, from the number of patents they’ve filed so far, large corporations such as Facebook, Amazon, IBM, Walmart, and Mastercard have been searching for ways to integrate blockchain technology with their regular operations. IBM alone has applied for more than 100 patents in the past 6 months and has invested hundreds of staff and more than $200 million in Blockchain.
According to a World Economic Forum survey, up to 10% of the global GDP could be stored on a blockchain by 2027. Governments around the world have also published research and invested in staff training as well as blockchain infrastructure.
Cryptocurrency and blockchain have gone from something abstractly spoken of to a powerful investment engine that is constantly rising in valuation. At press time Bitcoin, the largest digital currency, has a market capitalization of approximately $137 billion, priced at more than $7,000 per unit.
Other digital currencies are following closely behind, and with more than 1,600 to analyze, it can be difficult deducing what prices may be like in the future. Fortunately, some experts have come up with their own predictions which may show a clearer picture of what the future holds. Some of these predictions are:
- According to David Drake, founder of LDJ Capital, Bitcoin could be worth $30,000 per unit. His statement to Bloomberg:
“I’d say this year is a cryptocurrency Wall Street time and … we think cryptocurrency on the Bitcoin will be worth $30,000 at the year-end—it is limited.”
- Bobby Lee, head of The Bitcoin Foundation, tweeted that Bitcoin could surpass $60,000. The tweet reads:
“When #Bitcoin passes the USD $60,000 price level in the coming years, it’ll reach a total circulation value of $1 Trillion. That will be a huge #milestone for $BTC, and it’ll lead to more price stability, higher global liquidity, and even faster adoption worldwide. #VirtuousCycle”
- Apparently, Tim Draper sees Bitcoin skyrocketing to $250,000 by 2022. His statement to TheStreet:
“This is going to be so big so if you see a dip, jump in. Maybe it will dip further but boy, I made that prediction and I’m sticking to it. $250,000 by 2022 for Bitcoin.”
- According to Cameron Winklevoss, one half of the Winklevoss twins, founders of the Gemini exchange, Bitcoin could hit $320,000 in about 10 – 20 years. His statement for CNBC:
“So, if you look at a $100 billion market cap today, now last week it might have been more like 200, so it’s actually a buying opportunity, we think that there’s a potential appreciation of 30 to 40 times because you look at the gold market today, it’s a $7 trillion market. And so, a lot of people are starting to see that, they recognize the store of value properties. So, we think regardless of the price moves in the last few weeks, it’s still a very underappreciated asset.”
- Unlike the Bitcoin bulls, Bill Gates doesn’t see Bitcoin going up. He made this clear in the following statement for CNBC:
“As an asset class, you’re not producing anything and so you shouldn’t expect it to go up. It’s kind of a pure ‘greater fool theory’ type of investment… I agree I would short it if there was an easy way to do it.” – Bill Gates
- Joe Davis, head of Vanguard’s Investment Strategy Group, predicts that BTC will fall to Zero.
“As for Bitcoin the currency? I see a decent probability that its price goes to zero.”
Since most major digital currencies move with the price of Bitcoin, it’s safe to say that many blockchain projects will be affected by its price movement. Any of these predictions could be correct, yet all of them could be wrong. If the experts have taken the time to put out these predictions, then there just might be some atom of truth to them. If anything, these predictions show that by looking at price alone, the future of blockchain technology is uncertain.
Several reports showing the expected growth rate of blockchain technology have been published by different government and private research teams.
- A report published by Research and Markets, a data research organization on the 25th of March shows that by 2025, blockchain spending in the United States would have risen from $3.1 million to $41.1 million. The report called the “United States Blockchain Business Opportunities and Outlook Databook Series (2016-2025)” also shows a compound annual growth rate (CAGR) of 44.5%. According to the research data collected from 11 industries, blockchain spending in the U.S. saw a 110% increase to $1.6 billion.
- During the same month, another report, dubbed “Worldwide Semiannual Blockchain Spending Guide” and released by market research firm International Data Corporation (IDC) predicts that global blockchain spending will see a five-year CAGR of 76%, reaching to $12.4 billion in 2022. In the past, IDC has predicted that global blockchain spending would reach $9.7 in 2021 and $11.7 billion in 2022. However, the United States will take the largest share, with blockchain spending reaching $1.1 billion. Western Europe and China, will record blockchain spending figures of $674 million and $319 million respectively.
Blockchain has been shaped by many different events that not only show a rich past but hint at a better-developed future. This is a brief timeline of blockchain events, culled from Hobbes’ version of events.
- 1997– Nick Szabo released the first plan for smart contracts, titled “Smart Contracts: Building Blocks for Digital Markets.”
- 26 November 1999 – Nick Szabo introduced plans for Bit Gold, a conceptual virtual currency, titled “Secure Property Titles with Owner Authority, the first use of “bit gold.”
- Wei Dai introduced b-money, a protocol for financial exchange between anonymous parties.
- 20 September 1999 – Markus Jakobsson and Ari Juels introduced the concepts of Proof of Work and Bread Pudding.
- 15 August 2004 – Hal Finney introduced the concept of Reusable Proofs of Work (RPOW) on the cypherpunks mailing list.
- 23 September 2004 – Ryann Fugger registered and founded RipplePay.
- August 18th – The bitcoin.org domain name was registered for the first time.
- October 31st – The concept of Bitcoin, a virtual currency that runs on blockchain was first introduced by anonymous figure, Satoshi Nakamoto. The whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was sent to the Silk Road, a Cryptography mailing list.
- January 3rd – Bitcoin Market established itself as the first bitcoin exchange in an era when Bitcoin and blockchain technology remained unpopular.
- January 12th – Hal Finney and Satoshi Nakamoto initiated the first bitcoin transaction, marking the beginning of cryptocurrency use.
- May 22nd – The famous pizza day on which 10,000 Bitcoins were used to purchase two pizzas. Today, those Bitcoins worth $25 at the time, are worth approximately $80 million.
- January 28th – 1/4 of all bitcoins that will ever be in existence had been generated. After this date, mining became more popular. This was a major event in the evolution of blockchain technology.
- February 9th – The price of Bitcoin caught up with that of the US dollar for the first time.
- April 23rd – The price of Bitcoin caught up with that of the Euro and pound for the first time.
- June 8th – BTCChina, China’s first bitcoin exchange was established.
- June 19th – MtGox accounts were compromised.
- June 24th – The mining difficulty of the Bitcoin blockchain exceeded 1,000,000.
- October 7th – Charlie Lee established Litecoin.
- May – The first issue of Bitcoin Magazine was published under founders Vitalik Buterin and Mihai Alisie and published the first issue.
- September 27th – The Bitcoin Foundation was established.
- November 2nd – The First Bitcoin blockchain reward halving from 50BTC to 25BTC per block occurred.
- March 12th – Miners encountered their first major blockchain problem when they mined a block running on version 0.8 of the Bitcoin software, using version 0.7 of the software. This resulted in a forked rollback.
- March 28th – The value of Bitcoin in circulation hit $1 billion.
- July 29th – Thailand banned all cryptocurrencies including Bitcoin.
- August 6th – U.S. Federal Court acknowledged Bitcoin and blockchain-backed currencies as a form of money.
- October 1st – The FBI cracked down on notorious illegal marketplace, Silk Road, and seized 26,000 BTC.
- The first Bitcoin ATM was commissioned in Canada.
- Vitalik Buterin released the white paper for a different type of blockchain platform titled “A Next-Generation Smart Contract and Decentralized Application Platform”. This formed the basis of Ethereum and created a new use case for blockchain technology in many industries.
- January 25th – The prospective launch of Ethereum was announced at the North American Bitcoin Conference.
- March 25th – The IRS released a guide for cryptocurrencies, stating that they would be treated as property for tax purposes.
- Gavin Wood released a second Ethereum Paper titled “Ethereum: A Secure Decentralized Generalised Transaction Ledger.”
- June 27th – US venture capitalist Tim Draper adopted Bitcoin by purchasing the 30,000 BTC confiscated during the Silk Road crackdown and auctioned by the US Marshals Service.
- Overstock.com, Expedia, Microsoft, Dell, TigerDirect, and Newegg started accepting Cryptocurrency as a means of payment. This showed that mainstream adoption was progressing.
- January 4th – Bitstamp was hacked and several wallets were compromised. The loss totaled over $5 million (19,000 BTC) at the time.
- January 26th – Coinbase, the first US-based cryptocurrency exchange was established.
- September 15th – Nine financial institutions formed the R3 consortium.
- September 17tth – The U.S. Commodity Futures Trading Commission recognized digital currencies as commodities in a ruling against trading platform Coinflip, in a case of unregistered bitcoin options.
- September 22nd – The first Bitlicense was issued by NYDFS to Circle Internet Financial.
- February 9th – The Linux Foundation announced the HyperLedger project with a total of 30 founding organizations
- March 14th – Homestead, the first Ethereum product, was released.
- April 30th – The launch and beginning of a 28-day crowdsale of The DAO(decentralized autonomous organization) which rose in valuation to $150 million in just one month, occurred.
- May 31st – The Chinese Financial Blockchain Shenzhen Consortium comprised of 31 members was established.
- June 17th – The attack on The DAO occurred due to an attacker recognizing and taking advantage of a bug in the system. This led to the loss of 3.6 million of the 11.5 million ETH in The DAO.
- July 20th – The Ethereum network was forked to reverse the DAO transaction and recover the funds. The original network was renamed Ethereum Classic.
- August 2nd – The Bitfinex exchange was hacked and 119,756 bitcoins worth approximately $70 million were lost.
- January 2nd – Bitcoin surpassed $1,000 in value for the first time since 2014.
- January 16th – Seven European banks joined the Digital Trade Chain platform.
- February 28th – Enterprise Ethereum Alliance was established with 30 founding members.
- March 10th – U.S. Department of the Treasury established its FinTech Working Group.
- April 1st – Japan officially recognized and declared Bitcoin a currency.
- April 25th – Tencent released its TrustSQL blockchain platform.
- June 20th – The Bitcoin sign was added to Unicode at the U+20BF code point.
- August 1st – The Bitcoin network underwent a hard fork to allow for more than 1MB of space in each block. The new branch was called Bitcoin Cash.
- October 19th – Dell stopped accepting BTC as payment for its products, signifying a possible regression in mainstream adoption.
- December 6th – The Lightning Network Protocol 1.0 was released.
- December 16th – Bitcoin broke the price point of $20,000. This led to widespread adoption of cryptocurrencies as investors began to recognize the potential of Bitcoin. Soon, blockchain was the main focus of several industries as more researchers looked into its many applications.
- December 21st – Long Island Iced Tea Corp. rebranded and was renamed Long Island Blockchain Corp. this led to a stock price increase of 200%.
- January 9th – KODAK adopted blockchain technology for use on its content rights management platform, KODAKONE and its stock price increased by 60%.
- January 12th – Baidu launched Blockchain-as-a-Service (BaaS) platform.
- J.P. Morgan Chase, Capital One, Citigroup, and Bank of America stopped accepting Bitcoin purchases on their credit cards.
ELIMINATING TRUSTED THIRD PARTIES
The way industries are currently set up, most processes cannot happen without trusted third parties. Blockchain could potentially change this eliminating the need for a trust-based system. By default, blockchain consensus mechanisms allow transactions to be validated without the huge fees that accompany third-party involvement.
Blockchains are secured using more reliable methods than many other systems currently use. As a result, blockchain technology could be the key to internet security. It could potentially protect users from malware and phishing scams and even offer passwordless login systems. Because it is distributed, it is difficult to dismantle so user data probably will not disappear.
Digital advertising on the internet comes with its own set of issues, such as the presence of malicious bots, domain fraud, slow payment, and a general lack of transparency, especially when influencers deal with large companies. Blockchain will create transparency and facilitate agreements between parties through the use of smart contracts which self-execute. So instead of waiting for companies to wade through the accounting paperwork, smart contracts payout whoever needs to be paid as long as they fulfill the specified conditions.
There is also a lack of transparency in existing voting systems., leading to controversy. Blockchain prevents manipulation, the use of fake identities to cast votes, and external influence on the election results. Using a blockchain, votes can be put into blocks with their own unique numbers so that if votes have been manipulated, it will show. This could be the future of elections all over the world in a couple of years. There are already blockchain-based voting platforms in operation, such as SecureVote, Polys, and Agora but this form of voting may take some time to adopt.
The current and future applications of blockchain technology are boundless. The projected figures, coming from blockchain investment show that corporations and individuals have a firm belief in these applications and are ready to build them. The community of researchers, developers, scientists, and investors who stand behind the technology as they stood behind the internet in its early stages, also makes it difficult to envision anything other than growth.
The conception of blockchain has been compared to the creation of the internet and to some extent, there are similarities. But there are some who may argue that blockchain may hold even greater implications for the world. On the other hand, there’s something that no one wants to consider: the possibility that blockchain won’t reach its full potential. While there is overwhelming evidence that it could explode into a vast billion-dollar industry, there may also be a point when the bubble bursts.
It happened with the internet, and it tends to happen whenever an emerging technology is causing a buzz around the world. But the thing with bubbles is that when they burst, people find a way to rebuild without all the previous noise. So there may yet be hope for blockchain in that scenario. However, there may also be no bubble and all that occurs is continuous growth until the world gets it right. Either way, the world’s industries need a radical change and time will tell whether blockchain will bring about that change in the future
This article was originally published by Mintdice.