Blockchain technology is a specific type of digital ledger technology (DLT) that consists of an ever-expanding database of records called blocks that are securely connected by encryption.
Each block contains transactional data, a timestamp, and a cryptographic hash of the block before it (generally represented as a Merkle tree, where leaves represent data nodes).
The timestamp proves the transaction data existed when the block was created. Each block connects to the ones before it to form a strong chain (compare the linked list data structure).
This is due to the fact that every block holds details about the block preceding it. Blockchain transactions are therefore irreversible since, once they are recorded, they cannot be reversed without also erasing all subsequent blocks.
Blockchain is a peer-to-peer system. Every (P2) computer network typically manages a blockchain for use as a public distributed ledger. Nodes work together to adhere to a consensus algorithm protocol to add and validate new transaction blocks.
Blockchains may be considered secure by design and serve as an example of a distributed computing system with high Byzantine fault tolerance despite the fact that blockchain records are not irreversible and blockchain forks are theoretically possible.
Based on earlier work by Stuart Haber, W. Scott Stornetta, and Dave Bayer, a person (or group of individuals) going by the pseudonym Satoshi Nakamoto invented the blockchain in 2008 to act as the publicly distributed ledger for transactions involving the bitcoin cryptocurrency.
To this day, nobody knows who Satoshi Nakamoto is. Bitcoin was the first digital money to overcome the double-spending issue without the aid of a central server or trusted authority thanks to the blockchain technology that was integrated into it.
Other applications and blockchains that are accessible to the general public and are extensively used by cryptocurrencies were influenced by the bitcoin design. One sort of payment rail may be the blockchain.
For commercial application, private blockchains have been proposed. According to Computerworld, the promotion of such privatized blockchains without an adequate security architecture is “snake oil.”
Others, however, contend that if well structured, permission blockchains may be more decentralized and, hence, more secure in use than permission-less ones.
Blockchain Technology History
In his dissertation from 1982 titled “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups,” the cryptographer David Chaum originally suggested a blockchain-like protocol.
Stuart Haber and W. Scott Stornetta provided a description of additional work on a chain of blocks that was cryptographically secured in 1991.
They sought to put in place a mechanism that would prevent tampering with document timestamps. Merkle trees were included into the design in 1992 by Haber, Stornetta, and Dave Bayer, which increased its effectiveness by enabling several document certificates to be gathered into a single block.
Since 1995, The New York Times has published the document certificate hashes under their firm Surety each week.
The idea for the first decentralized blockchain was developed in 2008 by Satoshi Nakamoto, an individual (or group of individuals).
By timestamping blocks without requiring them to be signed by a third party and by adding a difficulty parameter to control the rate at which blocks are added to the chain, Nakamoto significantly enhanced the concept.
The next year, Nakamoto put the plan into effect as a fundamental part of the cryptocurrency Bitcoin, which acts as the network’s central public record for all transactions.
The size of the Bitcoin blockchain file, which contains a history of every transaction that has ever taken place on the network, hit 20 GB in August 2014. (gigabytes). The size of the bitcoin blockchain increased from roughly 30 GB in January 2015 to 50 GB and 100 GB in January 2016 to 2017. By the start of 2020, the ledger size had surpassed 200 GB.
In Satoshi Nakamoto’s initial paper, the phrases “block” and “chain” were used individually; but, by 2016, the two terms had become more commonly known as “blockchain.”
Blockchains reportedly reached the early adopters phase in 2016 with a 13.5% acceptance rate within the financial services sector, according to Accenture’s application of the diffusion of innovation theory.
In 2016, the Chamber of Digital Commerce launched the Global Blockchain Forum, an initiative of industry trade groups.
Only 8% of CIOs were in the immediate term “planning or [looking at] active experimentation with blockchain,” according to a May 2018 Gartner study. Only 1% of CIOs reported any type of blockchain implementation within their firms. According to Gartner, 5% of CIOs thought blockchain technology would “game-change” their industry in 2019.
Design and structure for blockchain technology.
A blockchain is a decentralized, distributed, and frequently public digital ledger made up of records called blocks that are used to log transactions across numerous computers in a way that prevents any associated block from being changed retrospectively without also changing all succeeding blocks.
This makes it possible for participants to independently and reasonably audit transactions. A distributed timestamping server and a peer-to-peer network are used to manage a blockchain database independently. They are verified by widespread cooperation, propelled by group self-interest.
A robust process is made possible by such a design where participants’ uncertainty about data security is minimal. A digital asset loses the property of unlimited replication when a blockchain is used. By proving that each unit of value was only ever transferred once, the long-standing issue of duplicate spending is resolved.
A mechanism for value exchange has been used to describe a blockchain. Because it produces a record that compelled offer and acceptance when it was correctly configured to specify the trade agreement, a blockchain can preserve title rights. [Reference needed]
Logically, a blockchain can be thought of as having multiple layers:
Blocks
Batches of legitimate transactions are hashed and encoded into a Merkle tree and stored in blocks. The cryptographic hash of the previous block in the blockchain is included in each block, connecting the two. A chain is created by the joined blocks.
All the way back to the first block, known as the genesis block, this iterative process ensures the consistency of the prior blocks (Block 0). A block is typically digitally signed to ensure the integrity of the block and the data it contains.
A temporary fork can occasionally be induced when different blocks are generated concurrently. Any blockchain contains a specific method for scoring many versions of the past so that one with a higher score can be chosen over others, in addition to a secure hash-based history.
Orphan blocks:
Orphan blocks are those not chosen to be a part of the chain. There are occasionally various copies of the history among the peers supporting the database. They only retain the database version with the best score that they are aware of. A peer extends or overwrites their database and retransmits the improvement to their peers whenever they receive a higher-scoring version (often the old version with one additional block added).
There is no assurance that any given entry will always be included in the most accurate account of the past. Blockchains are often designed such that dozens of new blocks can be added on top of existing ones, and they are given incentives to add new blocks rather than remove existing ones.
As more blocks are added on top of an entry, the likelihood that it will be replaced diminishes exponentially, eventually becoming very low.: ch. 08 For instance, the proof-of-work method used by bitcoin determines which chain is authentic by accumulating the most proofs of work.
A sufficient level of computation can be demonstrated using one or more ways. Instead of performing the calculation traditionally in a segregated and parallel fashion, a blockchain performs it redundantly.
The block time measures how long it typically takes for the network to create a new block for the blockchain. Some blockchains produce a new block every five seconds or less. The associated data becomes verified at block completion.
A shorter block time results in speedier transactions because in cryptocurrencies, this is essentially when the transaction happens. Ethereum’s block time is expected to be between 14 and 15 seconds, compared to Bitcoin’s typical block duration of 10 minutes.
Hard forks
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A hard fork occurs when the rules are altered in a way that the software validating blocks using the old rules considers the blocks created using the new rules to be invalid.
All nodes intended to operate under the new rules in the event of a hard fork must update their software. If one set of nodes sticks with the outdated software while the other nodes adopt the new one, a permanent split may result.
As an illustration, Ethereum had a hard fork in 2016 to “make whole” the investors in The DAO, which had been compromised by a flaw in its programming.
The fork in this instance caused a split, resulting in the development of the Ethereum and Ethereum Classic chains. A hard fork that would have resulted in a rollback of the blockchain records was proposed to the Nxt community in 2014 to lessen the effects of the loss of 50 million NXT from a significant cryptocurrency exchange.
After talks and a ransom payment, the hard fork proposal was rejected, and part of the funds were obtained. The old rules may also be reinstated by the majority of nodes running the new software, as happened with the Bitcoin split on March 12, 2013, to avert a permanent split.
Decentralization
The blockchain avoids various dangers associated with central data storage by storing data over its peer-to-peer network.
The decentralized blockchain may make advantage of distributed networking and ad hoc message passing. A so-called “51% assault,” in which a central organization gains control of more than half of a network and may alter that particular blockchain record at will, allowing double spending, is one risk of a lack of decentralization.
Peer-to-peer blockchain networks don’t have any centralized points of failure or weakness that hackers may take advantage of.
Public-key cryptography is a technique used in blockchain security. 5 An address on the blockchain is a public key, which is a long series of digits that appear random.
The address is noted as the owner of value tokens sent around the network. Similar to a password, a private key provides its owner with access to their digital assets or other means of interacting with the many features that blockchains today enable.
The blockchain is widely regarded as having incorruptible data.
A decentralized system has a copy of the blockchain on each node. Computational trust and large database replication ensure data quality.
No single user is “trusted” more than any other, and there is no centralized “official” copy. Using the software, transactions are broadcast to the network. All efforts are made to deliver messages.
The validation of transactions, addition of those transactions to the block being built, and broadcasting of the finished block to other nodes are all functions of early blockchains that rely on power-hungry mining nodes.
For more details, see Chapter 8. Blockchains serialize updates using a variety of time-stamping techniques, including proof-of-work. Proof of stake is a component of later consensus techniques.
Due to the rising cost of the computing resources needed to handle higher volumes of data, the risk of centralization increases as a decentralized blockchain expands.
Openness Of Blockchain Technology:
Compared to some traditional ownership records, which are accessible to the public but still require physical access to view, open blockchains are easier to use.
There is debate regarding the concept of a blockchain because all early blockchains were permissionless.
Whether a private system with verifiers assigned and permitted (permissioned) by a central authority should be regarded as a blockchain is a topic of continuing discussion.
The term “blockchain,” according to proponents of permissioned or private blockchains, can refer to any data structure that groups data into time-stamped blocks.
These blockchains function as a distributed adaptation of databases’ multiversion concurrency control (MVCC).
Blockchains prevent two transactions from using the same single output concurrently, just like MVCC prevents two transactions from concurrently changing the same single object in a database: 30–31 Opponents claim that permissioned systems are unhardened against operator tampering and change, resemble standard corporate databases, do not provide decentralized data verification, and are similar to traditional corporate databases.
According to Nikolai Hampton of Computerworld, “many in-house blockchain solutions will be nothing more than burdensome databases,” and “proprietary blockchains should be looked with mistrust without a clear security architecture.”
Permission less(public) Blockchain Technology
An advantage of an open, permission-less, or public blockchain network is that access management and protection against malicious actors are not necessary.
This means that by leveraging the blockchain as a transport layer, apps can be introduced to the network without needing the consent or confidence of others.
Currently, proof of work requirements are used to secure the blockchains of Bitcoin and other cryptocurrencies. Hashcash puzzles are a method used by Bitcoin to extend the blockchain.
Although Adam Back created hashcash in 1997, Cynthia Dwork, Moni Naor, and Eli Poniatowski originally put out the concept in their 1992 paper “Pricing through Processing or Combatting Junk Mail.”
2016 saw a decline in venture capital funding for blockchain-related startups in the US, but an increase in China. Blockchains that are open (public) are used by Bitcoin and many other cryptocurrencies. The market capitalization of bitcoin is the greatest as of April 2018 [update].
Permissioned(private) Blockchain Technology
Access control layers are used by permissioned blockchains to control who has access to the network. On private blockchain networks, in contrast to public blockchain networks, validators have undergone screening by the network owner.
Both the network effect and the reliance on anonymous nodes for transaction validation are not used by them. Blockchains with permissions can alternatively be referred to as “consortium” blockchains.
In contrast to permission-less blockchains, which are frequently centralized in practice, it has been proposed that permission blockchains, if carefully structured, can guarantee a certain level of decentralization.
Disadvantages of permissioned blockchain
There is also no need for a “51 percent” attack on a private blockchain, Nikolai Hampton noted in Computerworld, “since the private blockchain (most likely) currently controls 100 percent of all block generation resources.”
You could effectively control 100% of their network and change transactions anyway you wanted if you could hack or damage the blockchain creation tools on a private corporate server.
Due to the fact that “the bitcoin blockchain is protected by the massive group mining effort,” this has a number of particularly serious negative implications during financial crises or debt crises like the financial crisis of 2007–2008. During these times, politically influential actors may decide to support certain groups at the expense of others.
Given how time-consuming and expensive it is, it seems unlikely that any private blockchain will attempt to safeguard records using gigawatts of computing power. Additionally, he added, “In a private blockchain, there is also no ‘race’; there is no motivation to utilize more power or find blocks more quickly than rivals.”
This implies that many internal blockchain solutions will just be bulky databases.
Analysis of Blockchain Technology
With the rise in popularity of cryptocurrencies like bitcoin, Ethereum, Litecoin, and others, the study of public blockchains has gained more significance.
If a blockchain is public, anyone who wants access can view and analyze the chain data if they have the necessary skills. For many cryptocurrencies, crypto exchanges, and banks, it has been difficult to comprehend and access the flow of cryptocurrency.
The cause of this is allegations that cryptocurrencies powered by blockchains facilitate the illegal trade of drugs, firearms, and other goods as well as money laundering.
Given the widespread perception that cryptocurrencies are anonymous and untraceable, many users have turned to them for illicit activities.
This is changing, and now specialist tech firms offer blockchain tracking services, increasing awareness among banks, law enforcement, and crypto exchanges about the activities of crypto funds and fiat-crypto transactions.
The use of new cryptos like Monero has allegedly become more important to criminals as a result of the development, according to some. The issue is whether or not blockchain data is available to the general public while still maintaining individual privacy. It is a crucial topic for discussion in the blockchain and, ultimately, in cryptocurrencies.
Standardization Of Blockchain Technology
Standards Australia proposed to the International Organization for Standardization in April 2016 that they take into account creating standards to accommodate blockchain technology.
The ISO Technical Committee 307, Blockchain and Distributed Ledger Technologies, was established as a result of this proposal.
The technical committee is divided into working groups that focus on terms related to blockchain, reference architecture, security and privacy, identity, smart contracts, governance, and interoperability for blockchain and DLT, as well as industry-specific standards and general government requirements.
[needs non-primary source] Along with external liaisons like the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the European Commission, the International Federation of Surveyors, the International Telecommunication Union (ITU), and the United Nations Economic Commission for Europe, more than 50 countries are taking part in the standardization process (UNECE).
Working on blockchain standards are numerous other national and open standards organisations.
These organizations and individuals include the National Institute of Standards and Technology (NIST), the European Committee for Electrotechnical Standardization (CENELEC), the Institute of Electrical and Electronics Engineers (IEEE), the Organization for the Advancement of Structured Information Standards (OASIS), as well as some members of the Internet Engineering Task Force (IETF).
Centralized Blockchain Technology
Oracle introduced a controlled blockchain table functionality in its Oracle 21c database, despite the fact that the majority of blockchain implementations are distributed and decentralized.
A centralized blockchain with immutable features is the Blockchain Table in the Oracle 21c database. Centralized blockchains typically offer greater transaction throughput and lower transaction latency than consensus-based distributed blockchains, in comparison to decentralized blockchains.
There are currently at least four different types of blockchain networks: consortium blockchains, private blockchains, and hybrid blockchains.
Public blockchains: There are no access limitations on a public blockchain. Anyone with access to the Internet can use it to send transactions and sign up as a validator (i.e., participate in the execution of a consensus protocol). [Source: self-published] Such networks typically provide financial rewards to individuals that protect them using a proof of stake or proof of labor method.
The Bitcoin blockchain and the Ethereum blockchain are two of the biggest and most well-known public blockchains.
Permissioned blockchains are used privately. Unless the network administrators invite you, you cannot join. Access is only allowed for participants and validators.
The name “DLT” is typically used for private blockchains to distinguish them from other peer-to-peer decentralized database applications that are not open ad-hoc compute clusters.
Blockchain hybrids
A blockchain that is hybrid combines centralized and decentralized elements. Depending on whether aspects of centralization and decentralization are applied, the chain’s precise operation may change.
A sidechain is a name for a blockchain ledger that operates concurrently with a main blockchain. In order for the sidechain to function independently of the major blockchain, entries from the primary blockchain can be linked to and from the sidechain (where those entries typically represent digital assets) (e.g., by using an alternate means of record keeping, an alternate consensus algorithm, etc.). (Needs a better source)
Application Area of Blockchain Technology
The integration of blockchain technology is possible in many fields. The main function of blockchains is to serve as a distributed ledger for cryptocurrencies like bitcoin; by the end of 2016, a few other operational products have also advanced past the stage of proof of concept.
As of 2016, some companies have been experimenting with the technology and using it at a modest level to see how it affects organizational efficiency in their back offices.
According to estimates, $2.9 billion was spent in blockchain technology in 2019, an increase of 89% from the previous year. Furthermore, International Data Corp predicts that by 2022, corporate spending on blockchain technology would total $12.4 billion.
Furthermore, the second-largest professional services network in the world, PricewaterhouseCoopers (PwC), predicts that by 2030, blockchain technology would have the ability to produce an annual economic value of more than $3 trillion.
An further study by PwC from 2018 shows that there is a lot of interest in and demand for blockchain technology. In that study, PwC polled 600 business leaders and found that 84% of them had at least some exposure to using blockchain technology.
Since 2016, personal use of blockchain technology has also significantly increased. In contrast to the around 10 million blockchain wallets in 2016, statistics 2020 estimates that there will be over 40 million blockchain wallets in use in 2020.
Domain names
The blockchain-based provision of domain name services is the subject of numerous initiatives. A private key can be used to control these domain names, supposedly enabling uncensorable websites.
Additionally, this would go around registrars’ capacity to block domains with fraudulent, abusive, or unlawful content.
A cryptocurrency called Namecoin supports the top-level domain “.bit” (TLD). In 2011, Namecoin split off from Bitcoin. The bit TLD needs a different DNS root because it is not approved by ICANN. Out of the 120,000 registered names, 28 websites were using it as of 2015.
In 2019, OpenNIC discontinued support for Namecoin because of malware and maybe related legal difficulties. Emmerdale Domains.S, Unstoppable, and The Handshake Network are other blockchain alternatives to ICANN.
Financial services
Many banks have expressed interest in integrating distributed ledgers for use in banking and are working with businesses developing private blockchains, according to Reason; an IBM research from September 2016 found that this is happening more quickly than anticipated.
The potential for this technology to speed up back-office settlement systems is one reason why banks are interested in it. Additionally, as the blockchain business has expanded and matured, institutions have come to understand that technology serves as the foundation for a completely new financial sector, with all the consequences that implies.
Banks like UBS are creating brand-new blockchain research labs to investigate how blockchain technology might be applied to financial services to boost productivity and cut costs.
German bank Berenberg thinks blockchain is a “overhyped technology” with numerous “proofs of concept” but few real-world applications and many more obstacles to overcome.
Initial coin offers (ICOs) and security token offerings (STOs), a new class of digital assets commonly referred to as digital security offerings, have also been made possible by the blockchain (DSOs).
STOs or DSOs are used to tokenize both conventional assets like business shares and more novel ones like intellectual property, real estate, art, or specific products. They can be carried out privately or on a public, regulated stock market.
In this area, a number of businesses are operating, offering services for compliant tokenization, private STOs, and public STOs.
Games
Video games have monetized using blockchain technology, including cryptocurrencies and non-fungible tokens (NFTs). Many online games allow players to customize their characters in-game using skins or other in-game goods, which they can earn and exchange with other players for in-game currency.
Publishers typically avoid allowing players to make real-world money from games because some games also allow for the trading of virtual goods for real-world money, but this may be against the law in some nations where gambling laws apply to video games. This has led to gray market problems like skin gambling. Players can generally trade these in-game objects in blockchain games for cryptocurrency, which can then be converted into real money.
The first game to integrate blockchain technology was Crypto Kitties, which was released in November 2017. In this game, players used Ethereum money to buy NFTs, which were virtual pets they could breed to produce new NFTs with a combination of their characteristics.
In December 2017, a virtual pet in the game sold for more than US $100,000, garnering media attention. When Crypto Kitties caused substantial network congestion in the beginning of 2018 and accounted for almost 30% of all Ethereum transactions, it also served as an example of the scalability issues for games on Ethereum.
Since these games tend to focus on using blockchain for speculation rather than more conventional kinds of gameplay, which gives little appeal to most players, there had not been a breakthrough success in video games using blockchain by the early 2020s.
Due to the difficulty in forecasting their income, such games also pose a significant risk to investors. The second half of 2021 saw a resurgence in interest in the field of games, which is a word characterizing the convergence of video games and finance, often supported by blockchain currency. Some games, like Axie Infinity during the COVID-19 epidemic, had limited success.
Major game publishers including Ubisoft, Electronic Arts, and Take-Two Interactive have said that their companies are seriously considering developing blockchain- and NFT-based games in the future.
Using the justification that this was an expansion of their policy prohibiting games that offered in-game items with real-world value, Valve Corporation forbade blockchain games, including those using cryptocurrency and NFTs, from being hosted on its Steam digital storefront service, which is widely used for personal computer gaming, in October 2021.
It was said that the decision to outlaw blockchain games was influenced by Valve’s past involvement with gambling, particularly skin gambling. Since most PC gamers have a negative perception of blockchain and NFT games as being fraudulent and shady, journalists and players welcomed Valve’s move.
In response to Valve’s rejection of Supply chain, Epic Games, which operates the Epic Games Store in rivalry with Steam, declared that they would be willing to accept blockchain games.
Cryptocurrencies
The majority of cryptocurrencies record transactions using blockchain technology. For instance, blockchain technology underpins both the Bitcoin network and the Ethereum network.
Facebook said on May 8th, 2018 that it would create a new blockchain group, which would be led by David Marcus, who was formerly in charge of Messenger. On June 18, 2019, Facebook publicly unveiled Libra (now called as Diem), their upcoming cryptocurrency platform.
Through blockchain research and forfeiture, the US federal authorities was able to seize part of the cryptocurrency used by the criminal operation Silk Road, which ran on Tor.
Governments’ positions on whether it is acceptable for their citizens or banks to acquire cryptocurrencies vary. Blockchain technology is being used by China in a number of sectors, including the development of a national digital currency in 2020. Western nations, like the European Union and the United States, have started related programs to support their respective currencies.
Smart contracts
Smart contracts on the blockchain are suggested contracts that can be enforced or partially implemented without the involvement of a human. Automated escrow is one of the primary goals of a smart contract.
Smart contracts have the advantage that the blockchain network executes the contract on its own, eliminating the need for a trusted third party (such as a trustee) to act as an intermediary between the contractual parties.
As a result, a higher degree of transaction automation may be possible by reducing the friction that exists between entities while transferring value. According to a staff debate at the IMF from 2018, smart contracts built on blockchain technology may lessen moral hazard and improve the use of contracts in general.
“However, no commercially viable smart contract systems have yet evolved.” Their legal standing was ambiguous because they weren’t commonly used.