Blockchain Technology

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What is Blockchain Technology

Understanding the Blockchain in Two Minutes
Blockchain is an incorruptible, decentralized electronic-based ledger that can be programmed to record any transaction of economic value, not just cryptocurrencies. Blockchain works by frequently updating the ledger recording every transaction that has occurred since the last update. As more and more updates, or “blocks”, are added to the blockchain, the ledger becomes increasing more secure. Since all the transaction information is on public record online while using this technology, it would be near impossible for one person to attempt to alter the records with plenty of other people overseeing these transactions. Blockchain networks are operated through a large number of terminals across the globe therefore there is no single point of failure and cannot be controlled by a single person. This makes blockchain a reliable system that can be used to securely records any transaction involving an object of value, such as currencies, real estate, and intellectual property.[1]


History of Blockchain

Initial uses of blockchain in the silk road

Bitcoins and Cryptocurrency are different from one another despite that their shared similarities. Bitcoins were first introduced through a whitepaper in 2008 by “Satoshi Nakamoto”. To this day, the Satoshi’s name remains a mystery since this alias could either be a group of developers or a single programmer. Within this whitepaper, details of the Bitcoin currency and its potential to solve the problem were outlined, mainly to address the issue of double spending, spoofed credit card transactions and overall security. The blockchain technology was introduced as a technology to support Bitcoins. Similar technologies such as P2P (peer-2-peer) were used over the past couple decades for purposes included file-sharing, decentralized file hosting and secure communication.

With Blockchain technology in place, the same P2P transfer protocols were used in order to decentralize the currency from being stored in one location. This enabled the creation of nodes and mining computers to come into play in order to help process transactions and host the entire database of the blockchain ledger on multiple computers rather than relying on one main server.

Upon Bitcoin’s initial release, it was first used to process transactions for illegal goods on the dark web, also known or TOR (the onion router). Many used TOR (and still do until today) to access websites which were illegal due to the products or services being sold on hidden public domains. Over the years, the daily volume of bitcoin transactions grew as more people began purchasing bitcoins for securing and currency without a legal trace. Bitcoin ATMs also became prevalent within many cities worldwide which encouraged many to buy/sell in a easy and convenient manner. The result, the demand for bitcoins grew as more people began finding a use for them.[2]


Bitcoin Value Changes over Time

How does Blockchain work?

Similar to the real world, a blockchain transaction is made when two parties make an exchange of currencies or goods. However on the blockchain, nodes are used to help process the transaction by solving a complex computational puzzle. When the node solve the puzzle, the transaction is processed and the nodes receive a reward for its work. For examples, when two parties are exchanging Bitcoin, a small amount of bitcoin will be added by the sender that will be used to motivate the nodes to process their transaction. This is called “mining”. In addition, the more value the sender gives to the node (such as Bitcoin in the previous example), the faster the transaction will be processed. People can set up intricate computer system to mine for cryptocurrencies and receive actual income for their efforts, similar to how banks process transactions. This motivates people to join blockchain networks and further increase the security of the overall blockchain network as it becomes even more decentralized.

As nodes process transactions, those transactions are recorded are added to the current block and verified by other nodes. Blocks are added to the blockchain periodically, usually every 10 minutes, and the records from the new block are merged with records from previous blocks building the integrity of the blockchain network. This process is similar to knitting a scarf. As more yarn is added to the scarf, the scarf gets stronger and will keep the person wearing the scarf warmer. The more blocks are added to the blockchain network, the more difficult it will become for a someone to alter the ledger. Once the network has been operating for a while, it becomes virtually impossible to alter.

With nodes across the globe exchanging transaction information between them, it validates the idea of decentralization behind the blockchain technology. Without having the need to process information through many different points compared to a centralized point, it ensures that this transaction data can remain secure because there is not one single point of failure.

File:P2p.jpg

Smart Contracts

Smart contracts are also known as blockchain contracts, digital contracts as well as self-executing contracts. They are stored on the blockchain (also known as the ledger) within the network of nodes running the same blockchain. Smart contracts are usually developed for the purpose of receiving and sending currency in an automated matter. This usually translates to crowdfund contracts, for example when the crowdfund address receives a certain amount of Bitcoin or Ethereum (usually the case with ICO crowdfunding), the crowdfund contract will automatically send back a certain amount of the ICOs own currency back to the sender.

Advantages of Blockchain

Blockchain technology can be used as an incorruptible digital ledger for transactions that involves anything of value. As nodes verify every transaction that takes place on blockchain networks, people can be confident that their assets will be recorded accurately and kept safely in their possession as it is virtually impossible to rewrite the ledger. Another big advantage for blockchain technology is that it is a decentralized system. With many different nodes all over the world, the is no one single point of failure. If a hacker tries to override the ledger from their point of access, and changes they try to make will be overridden by all the other nodes who will verify the true transaction. Blockchain also lowers transaction costs and speeds up transaction time when exchanging currencies. Banks are known to charge high fees for transferring funds and can take days to process one single transaction. When transferring funds on a blockchain network, the transaction costs are much less and transaction can be process at best in seconds and at worst in a few minutes. Transaction data is also transparent as it can be viewed publicly. This allows for accurate audits as every transaction on the blockchain network can be easily verified.[3]

Disadvantages and concerns of Blockchain

Price history of the RX580 Video Card

One disadvantage of blockchain technology is that it can take a lot of effort for nodes to reach consensus on a transaction. A consensus must be reached between nodes in order to verify a transaction. It is possible for nodes to “argue” for a period of time before reaching consensus. Numerous nodes must reach a consensus in order for the transaction data to be added to a block whereas in a centralized system only one point needs to be satisfied with the transaction data.

Blockchain technology requires much more computing power than centralized system. For example, a centralized system will process a computational puzzle one time for one transaction whereas in a blockchain network many different nodes with perform the same puzzles. In both cases the same result is reached but in blockchain it required much more computing power.

Another disadvantage for blockchain technology is that if a person wants to become a node, it requires significant capital to set up a mining system and requires large amounts of electricity. Mining computer systems need to have a significant amount of computing power in order to solve the amount of puzzles needed in a short period of time to process a transaction. In turn, this forces the mining system to consume copious amount of electricity in order to function.[4] Furthermore, the increased awareness and popularity of cryptocurrencies such as Bitcoin and Ethereum has driven up the prices of computer components such as graphics cards. For example, the Radeon RX580 had seen more than a 10% increase in prices between June and the end of November 2017.[5]

Applications of Blockchain Technology

Blockchain technology was first developed by Bitcoin’s founder as it was the coin’s main infrastructure. Since the release of Bitcoin, many programmers used blockchain technology to serve purposes other than cryptocurrency. Mainly due to blockchain’s encrypted nodes and their secure P2P protocol, many discovered that a variety of processes that were once prone to manipulation or vulnerability were now fully secured by the decentralized blockchain ledger.

One important fact to consider is that a ledger is hosted and transmitted with encryption through hundreds of thousands of P2P nodes around the globe. Many new innovators using blockchain technology generally use it for the transmission of highly secured data while ensuring that their data isn’t hosted in a centralized location.


Cryptocurrency

A cryptocurrency is a medium of exchange similar to fiat currencies such as USD. However it is designed to be encrypted to safely exchange digital transactions without tampering or intervention from third parties such as hackers or eavesdroppers. Bitcoin was the first decentralized cryptocurrency that was introduced by Satoshi Nakamoto. Ever since its introduction in 2009, there has been numerous cryptocurrencies that have been created that are known as Altcoins.[6]

Initial Coin Offering (ICO)

An Initial Coin Offering (ICO) is used by start-ups to fund development costs. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender, or other cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies.

The creation of the white papers are to show potential investors the underlying purpose of the project. Given the volatile cryptocurrency environment, it is imperative to prove credibility for a healthy ICO to occur. As a result, our team has spent months planning for the long-term potential of BetCrypt. In addition, the whitepaper will contain a needs analysis where we will show the potential of our product and how it can sufficiently meet consumer demands. As well ask, the development costs and the duration of the ICO campaign.

Similar to an Initial Public Offering (IPO), a company may choose to sell a stake in their firm in order to raise funds for the venture. Although, ICO’s differ from crowdfunding in that the backers are motivated by a prospective return in their investments, while the funds raised in the latter campaign are basically donations.

Monitoring the Cryptocurrency Market

Snapshot of Coinmarketcap

Coinmarketcap is a prime example of a service used by many cryptocurrency speculators. Coinmarketcap.com provides capitalization tracking for over 1300 cryptocurrencies in over 7000 markets (as of December 1st, 2017). Data ranging from current price, trade volume (24hr), market capitalization (in USD) and available supply. The current price of every coin is determined by the average price at major exchanges.

For a coin to be listed on Coinmarketcap.com, it must meet the following criteria:

• It must be a cryptocurrency
• It must be traded on a public exchange that is older than 30 days
• It must have a public URL that displays the total supply (total coins mined so far).[7]


Considering that most of the cryptocurrencies listed are ICOs, Coinmarketcap.com makes it easy for investors and speculators to track ICOs real-time. Keep in mind that the cryptocurrency markets is active 24 hours, 7 days a week and 365 days a year.

Example of a Successful ICO: Ethereum

Historical Price of Ethereum

The Ethereum project was announced and it's ICO raised $18 million in Bitcoins or $0.40 per Ether (their trading token). The project went live in 2015 and in 2016 had an ether value that went up as high as $14 with a market capitalization of over $1 billion. Its current market price as of December 3, 2017 is $465.20 per coin. As of today, there are thousands of different cryptocurrencies which are Ethereum based coins (based on Ethereum coin contracts while running on shared Ethereum nodes). Many ICOs use Ethereum to make their own altcoin due to the ICO's user friendly node software which can be used to deploy coin, crowdfunding, and a variety of different customizable contracts. [8]

Future of Blockchain Technology

Replacing Fiat Currency

The government of the United Arab Emirates recently launched their own cryptocurrency which can be used to pay government and non-governmental services. The new 'encrypted digital currency' is a product of partnerships Dubai has cultivated through its Accelerators Initiative. Merchant service providers across the country will be allowed to take emCash tokens as a method of payment along with conventional credit and debit cards. UAE plans to be the leader of fintech by being the first country to adapt fully into this new technology.[9]

Web 3.0

Web3.0

Web 3.0, also better known as the decentralized web, is a new and much more improved approach towards handling data and information between online users and platforms without any third party interference. Unlike Web 2.0, information and data are not transmitted through centralized servers and databases therefore the need to worry about data farms and internet service providers transmitting unsecure data is no longer an issue. Currently with the majority of web users and online services still using Web 2.0, many worry that their important data can be compromised through methods such as DDoS or offered to agencies such as third party advertisers or authorities such as the NSA. Ethereum is called Web 3.0 purely because online services which are HTML and JavaScript based are hosted through SWARM gateways which is a decentralized method of distributing and hosting data, thus making it nearly impossible for attackers to compromise data or shut down online services from the public. Transactions done on Web 3.0 are dealt through users who transmit in P2P (Peer2Peer) protocols with encrypted blockchains through anonymous decentralized nodes. Centralized servers and hosted databases are therefore no longer an issue for services or users who worry about the security of their sensitive data or server uptime. The P2P (peer-to-peer) protocol is the mechanism responsible for eliminating the need of a centralized server and database, along with encrypted blockchains.

Decentralized Apps (Dapps)

An Example of a Vevue Video
With Web 3.0 explained, it would now make sense to mention DApps (better known as a decentralized application). DApps consist of a front-end web based platform as well as back-end smart contracts which runs on a decentralized peer-to-peer network. Since DApps are still in the infancy phase, many are now taking advantage of this new technology and implement a betting platform where users can have full knowledge and transparency behind the mechanism involving currency distribution and policies. As mentioned earlier, public smart contracts clearly state how varieties of different cryptocurrency are distributed in different scenarios without the need of having to trust a central authority. By taking a more transparent approach, both our investors and our users can be assured that our smart contracts dictate every transaction which occurs on the Web 3.0 Dapps. The security and stability of Dapp platforms are also maximized due to our services being hosted on SWARM gateways rather than on hosted dedicated servers.

As of December 3, 2017, there are 854 Dapps in the market for Ethereum. These apps could serve a wide range of services such as a betting platform or blogging platform.[1]

Some of the more interesting Dapps include Etheria, EtherTweet and Vevue project.

Etheria is the first decentralized virtual world in which users can own tiles, farm them for blocks and create things, much like the game Minecraft. Unlike Minecraft, Etheria takes advantage of decentralization to ensure that there is no central authority that controls the virtual worlds. This means that Etheria cannot be taken down by the government, its owner-players nor the developer. In addition, Etheria cannot be censored or altered against the wishes of the owner-players as long as Ethereum exists.[2]

Ethertweet serves to act as a decentralized Twitter for the Ethereum blockchain. Similar to that of Etheria, there will not be a central authority in control of what is being published. In addition the system is resistant to censorship in that once a message has been published, only the publisher will be able to remove it.[3]

The Vevue project serves as a platform for sharing user-generated videos. Users can post thirty-second video clips of places like restaurants, events etc. The incentive is that users can earn Vevue tokens by fulfilling requests that are pinned in their neighbourhood.[4]

Self-Driving Cars

Toyota's Concept Car

The Toyota Research Institute (TRI) has announced that it is exploring blockchain and distributed ledger technology.The TRI has teamed with MIT Media lab and five other companies to accelerate their development of autonomous driving technology.

Through this project, Toyota seeks to enable businesses and consumers to securely share and monetize their driving information and access data contributed by others in a secure marketplace.

Blockchain technology can also be utilized to lower car insurance rates. By allowing a vehicle’s sensors to collect driving data and store in a blockchain, car owners may be eligible for lower insurance costs by giving their insurance companies increased transparency to reduce fraud. Data transmission for vehicle components are also being done under blockchain technology to prevent hackers from compromising the vehicle or its components.[5]

Instant Global Bank Transactions

Ripple provides one frictionless experience to send money globally using the power of blockchain. By joining Ripple’s growing, global network, financial institutions can process their customers’ payments anywhere in the world instantly, reliably and cost-effectively. Banks and payment providers can use the digital asset XRP to further reduce their costs and access new markets. With offices in San Francisco, New York, London, Sydney, India, Singapore and Luxembourg, Ripple has more than 90 customers around the world.[6]

Secured Voting

With controversy surrounding the 2016 U.S. Presidential Election about possible vote tampering, blockchain technology can be used to ensure proper vote count and ensure that the integrity of every vote is kept intact and not tampered. How this would work is when a citizen casts a ballot a node would process the vote and update the vote count for the candidate the citizen voted for. This transaction would be verified by other nodes. Furthermore, since the blockchain technology is incorruptible, election officials can be sure that every citizen gets one and only one vote and that a citizen’s vote has not been tampered with. Once polls close an accurate tally would be delivered as every vote would be counted by the network and anyone could verify the count as it would be on online public record.[7]

Authors

Reza Dehghani Mike Bitzer Terry Wong
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
Beedie School of Business
Simon Fraser University
Burnaby, BC, Canada
ralrubai@sfu.ca mbitzer@sfu.ca tcw19@sfu.ca

References

  1. https://www.stateofthedapps.com/
  2. http://etheria.world/whatis.html/
  3. http://ethertweet.net/
  4. https://www.vevue.com/
  5. https://www.toyota.ca/toyota/en/about/news/toyota-research-institute-explores-blockchain-technology-for-development-of-new-mobility-ecosystem
  6. https://ripple.com/
  7. https://followmyvote.com/online-voting-technology/blockchain-technology//

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