You have probably heard a lot of times the name “blockchain”, but do you know what hides behind it? It is said that blockchain is one of the most forward-looking technologies, which is resistant to cyber attacks and can make life a lot easier. What is this technology, how does it work and what are the benefits from using it? And finally, what are the development prospects?
WHAT IS BLOCKCHAIN ALL ABOUT?
Blockchain is a decentralized network, which tracks history of transactions and keeps records in blocks. Blockchain is based on peer-to-peer architecture. All saved transactions are coded with cryptographic algorithms and saved on blocks of data. Literally blockchain is just a chain of blocks. Information about new transactions are saved on the last block in the chain. World Economic Forum says that by 2025 10% of Global GDP will be stored on blockchains or blockchain related technology. There are many industries, which already saw how much potential this technology has. That is banking, cybersecurity, financial industries and even governments and their involvement in this technology shows how forward-looking it is.
ALGORITHMS OF DECENTRALIZED CONSENSUS
There is also a whole group called decentralized consensus – set of techniques and principles, which allow participants of a network to agree on a transaction. There are some of the examples of consensus algorithms:
- Proof of Work– it is used to confirm different transactions and to create new blocks in chain, through solving difficult cryptographic puzzles. Because of its difficulty level, huge computing power is needed.
- Proof of Stake – in contrast to Proof of Work, it does not need as much computing power. Next block in the chain is created based on various connections (like the amount of coins you have – amount of stake), which are chosen randomly.
- AWS (Amazon Web Service) IoT gives easy and fast start with their service, as there are many tutorials to help you with it. It helps not only with connecting devices to the cloud, but also interacting with other devices and cloud applications.
- Practical Byzantine Fault Tolerance (PBFT) – this is a specific case of the Byzantine Fault Tolerance network ability, which is extremely important for the distributed networks, to prevent spread of incorrect information and mistakes.
BITCOIN & SMART CONTRACT
There are two more names that are worth knowing. The first one is Bitcoin – it is the most known cryptocurrency, which was introduced in 2009 and it is the first blockchain application. Bitcoin is also open source software which could be used to deploy a new blockchain network.
The other one is smart contract – that is software running on a ledger, which encodes assets and instructions from transactions for modifying the assets.
BENEFITS OF BLOCKCHAIN TECHNOLOGY
We will focus on four different: decentralization, transparency, immutability and reducing costs.
- What is the value of decentralization?
In blockchain technology the same information is stored in many places at the same time. Thanks to it, when something crashes, we do have backup. It is also very hard to manipulate this data, as we can only add new transactions to a chain, we cannot update nor change transactions. Decentralization gives us the possibility not to depend on one entity, but on the whole network. - What is a value of transparency?
In blockchain everything is traceable and every block is not changeable, what reduces the chances for discrepancy. Whether every transaction is visible depends on software which is used and privacy approach: you can either see everything or only transactions, where you do participate in. Here you can see an all time updated list of unconfirmed bitcoin transactions. - What is the value of data immutability?
Immutability makes the whole transaction process more efficient, quick and cost-effective. Why? Because once created data cannot be removed or changed. We only can create new data, leaving the previous one as it was. - Reducing costs
Within a blockchain network number of entities needed for transactions validation and verification could be minimalized. Many middlemen and 3rd parties could be eliminated if current business processes would be deployed on a blockchain network. It will impact the cost of transaction.
BLOCKCHAIN MARKET OVERVIEW
Blockchain market is one of the fastest growing in the world. any advisory companies predict a bright future for this technology. International Data Corporation (IDC) predicts that in 2023 the worldwide spending on blockchain solutions will be nearly $15.9 billion and five-year compound annual growth rate will be 60.2% (years 2018-2023).
On this enormous blockchain market, there are a lot of different companies, but some of them are bigger and more recognizable. We can divide them into two groups: P2P Blockchain software and companies, who provide Blockchain as a Service.
P2P Blockchain:
- Bitcoin Core – software programmed to decide which block in the chain contains valid transactions.
- Ethereum – one of the leading global open source platforms. The private version of public Ethereum codebase is Enterprise Ethereum Alliance, which is suited for business between multiple enterprises.
- Corda R3– also open-source protocol, but mostly used to financial services.
- Hyperledger – used to advance cross-industry blockchain technologies for business. There are many created by them tools like: Hyperledger Fabric, Hyperledger Indy, Hyperledger Cello and Hyperledger Sawtooth. Last but not least is Quorum – an open source blockchain platform based on Ethereum protocol, built by J.P. Morgan.
BLOCKCHAIN AS A SERVICE
It helps with automation and improves speed and security of processes. However, there is also a weakness of this solution – there is no decentralization, because blockchain networks even co-owned by different organizations are based on one cloud provider infrastructure:
- IBM Blockchain Platform – is based on Hyperledger Fabric protocol, which allows building and developing of solutions, written in any computing environment.
- Microsoft also provides solutions connected with blockchain, but they are using three different protocols – Corda, Hyperledger Fabric and Ethereum. Their Azure Blockchain Services offer 61 services.
- Amazon Web Servicesis based on Hyperledger Fabric or Corda protocol and offers 58 Blockchain services. Their solutions use for example BMW Group or Sony Music.
To summarize, blockchain is comparatively new technology, which allows any two parties to make a transaction in a secure, immutable and transparent manner. Although its adoption requires patience and time, it’s worth it.