¶ What is this blockchain I keep hearing about?
The blockchain is a cryptography-focused architecture based on the internet protocol, powered by networked computer servers that do not need to be set up by developers.
That is, however, just one of its many attractive features. In addition, blockchain is a software approach designed to bind this hardware together and dedicate it to the consensus, a universal validity check system that, among others, uses the Proof of Work (PoW) and Proof of Stake (PoS) methods for validation, and is the primary layer of any decentralized verification architecture.
- The Bitcoin Core developers sign all of their releases using the “Pretty Good Privacy” (PGP) encryption program that provides cryptographic privacy and authentication for data communication. PGP is used for signing, encrypting, and decrypting texts, e-mails, files, directories, and whole disk partitions and to increase the security of e-mail communications. End-users can download the software and signatures and verify the releases using PGP software running on their own machines. In this particular verification, blockchain is not necessary.
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In many respects, blockchain can be considered a meta-technology, since it utilizes, enhances, challenges, and potentially supersedes other pre-existing software technologies. As such, it allows us to create versatile technological solutions that aim to minimize the agency of third-party providers and, in a way, returns power back to the users. This can be achieved by the blockchain providing an environment where users can interact freely in a trustless ecosystem for very low to almost-zero fees, at speeds that make everybody in the world reachable in a matter of minutes. To make this possible, the blockchain is used as a transaction platform and distributed accounting ledger that uses cryptocurrency tokens (digital money) as a representation of a specific value at the current time (much like traditional fiat currencies). Nevertheless, for trustless technology to work on a global scale, it needs to implement trust in a different manner. This is where ISO standards come into the picture, as they ensure that the blockchain interactions follow globally applicable rules, norms, and procedures. This is also why starting in 2016, the blockchain technology obtained its own set of ISO standards, called ISO/TC307.
From the perspective of a technician, the blockchain is:
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From the evangelist perspective, the blockchain provides:
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To finish on a poetic note, blockchain sounds like a song of the future and can be described as an innovative digital splendor with a strong narrative, with the ability to influence the global direction of finance, data integrity, and the way people control their credentials.
¶ What is needed to run a blockchain?
- Internet
- Electricity
- Software algorithms
- Hardware (miners)
¶ Blockchain as a helping hand
Some economies are still catching up, but accepting innovative technologies that are easy to adapt and can supply those regions with proper financial substitutions, which can foster real and fast progress.
In some regions, people are trying to improve their situation and develop their businesses while struggling with a lack of government support and FinTech adoption. Overcoming those problems is one of the main hallmarks of blockchain technology and cryptocurrencies, as people can use them to bypass obstacles posed by the overbearing authorities to achieve their goals, such as having a money account or credit score.
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In some countries, this potential for financial self-sufficiency of individuals is looked down upon by the government, and cryptocurrencies are thus considered illegal. However, there are also countries, such as Estonia, where the government accepted and endorsed the use of blockchain and cryptocurrencies as a medium in green energy procurement and trading platforms. Inevitably, their economies have benefited as a result. After all, this technology has not been invented to make people rich, but to make what we do more fluent, secure, and in some parts of the world, actually possible.
- Estonia: Tokenized energy from natural resources (WePower)
Blockchains allow people to be their own banks in systems where they cannot have a bank account, it makes it impossible to provide fraudulent proof of authenticity of goods, and it prevents the issue of double-spending in digital transactions. The proprietary technology this solution could utilize are, for example, NFC compatible chips, which could be discretely incorporated with any physically manufactured product. Upon integration of the chip, the product is paired with the digital counterpart on the blockchain. Verification of authenticity is instantaneous with a simple tap or scan with any smart device. This way, any goods would have a record about their purchase on the blockchain and protect the ownership, which could be updated with every secondary market action that could happen to the goods and transfer that ownership to a new owner. This bears striking similarity with the use of NFT tokens and art. This method would protect the "non-fake" background of the chipped goods, the same way as proving the buyers' ownership.
Still, there are many other aces this technology can pull out of its sleeves.
- Everywhere it is needed: Decentralized Finance (DeFi) as the alternative to standard centralized financial products backed by banks. In this system, you can be the loaner and the borrower, without adhering to the wishes of central banks. At the same time, the users are in full control of their assets and are responsible for managing and safekeeping their own private keys.
For some, blockchain is still nothing more than an idea, which accidentally made some people rich. On the other hand, if we free ourselves from this bubble perspective, we will realize that blockchain is helping millions of users around the world to access previously unattainable possibilities, forbidden by their countries.
Additional example
- Afghanistan: The cooperation of three companies resulted in a system for a land registry secured by blockchain technology.
¶ Why does the world need blockchains?
Consider the following:
- Roads need traffic lights.
- Modern states would fail without the rule of law.
- Every important technological field, such as economy, health care, and medicine, needs ISO standards.
These standards declare the correct limits, values, procedures and quality evaluation methods. The same way a technology world needs ISO to keep things auditable and safe, a homegrown economy based on scarcity and a decentralized, permissionless, borderless financial-economic system needs blockchains.
“Trusted standards mean that industry doesn’t need to reinvent the wheel, that innovations will be compatible and work with existing technology, and that products and services will be trusted, too. Governments use standards as trusted solutions to complement regulation, and they give peace of mind to consumers who know they are not putting themselves or their families at risk.” - Acting ISO Secretary-General Kevin McKinleyother facilities
To extend the above wheel analogy further, the use of the wheel as an instrument was initially very limited, but eventually permeated through every aspect of the industrial revolution and the world it created. In many ways, the internet is the new wheel, and the blockchain, its pneumatic tire - an enhancement to make the wheel even more useful and ubiquitous. Nevertheless, there is still some uncertainty about how innovative an aspect this technology can prove for the IT infrastructure of the future. A lot will depend on what can be built on or around the blockchain technology. Implementing blockchain-based solutions to systems that deliver ISO standards globally is a great step towards adopting blockchain technology thoroughly. Some may still not believe that the blockchain could ever escape the pitfalls of being "just another technological buzzword". However, since this technology is starting to permeate areas like the ISO, banking, and identity protection, many have already begun to pay closer attention. Still, the most important phenomenon born from the blockchain to date has been Decentralized Finance (DeFi) and the freedom of finance for self-sovereign identities it brings. Thanks to DeFi, even the erstwhile blockchain sceptics are now wondering “What is this blockchain I keep hearing about??!” and “How do I buy it?!”.
¶ The massive adoption of the blockchain technology during the DeFi season of 2020-2021
Decentralized finance, or DeFi, is a cryptocurrency use case that has recently been attracting significant attention. DeFi refers to financial services using smart contracts, which are executed by miners with a transaction when certain conditions are met. Smart contracts are automated agreements that do not need intermediaries, such as banks or lawyers, and instead use online blockchain timestamping as proof of authority. With cryptocurrencies, there are no restrictions related to wealth, social status, religion etc. Almost everyone can permissionlessly and pseudonymously access and use DeFi applications. This is an advantage for those who cannot access traditional financial services because of the lack of formal documentation or the absence of such services in their country. Also, the current conditions and captivating rate of Annual Percentage Yield (APY) attract various investors to DeFi ecosystems every day.
Between September 2017 and September 2020, the total value locked up in DeFi contracts has grown significantly, from $2.1 million to $6.9 billion (£1.6 million to £5.3 billion). Since the beginning of August 2020 alone, its rise has grown even faster and, as of April 2021, it stands above $45 billion (£32 billion).
¶ DeFi from the regulatory perspective
An important question from a regulatory standpoint is “Are cryptosystems money transmitters or money service businesses?”. This is because money transmitters are regulated in a different fashion than other finance systems.
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Money transmitters - FINCEN’s definition
An entity that receives money from one person and transmits that money to another person or location. This entity needs to be registered with FINCEN and is required to have an anti-money laundering compliance program, including the “Know Your Customer” procedure, KYC.
DeFi - A money-service business that is not a money transmitter Non-custodial DeFi systems - like Sovryn - do not take possession of your funds. They are not controlled by a single entity and do not hold transactional control over users’ funds. Using smart contracts to distance DeFi platforms from the ownership of the funds being used causes a regulatory grey-area in most jurisdictions. Therefore, the system is not currently classed as a regulated financial institution, but its users can be regulated in other ways such as being taxed on profits, or having limits on fiat on/off-ramps. |
¶ Why are blockchains a good solution?
Traditionally, electronic security focuses on authorization, authentication, and access control. These mechanics are intended to keep unauthorized users from accessing or modifying data. However, when it comes to authorized access, either on the application or system level, it does not provide any protection. Blockchains enable tamper resistance for data through distribution over many systems that are run and managed by independent parties. This is ensured by the architecture of the blockchain, where every piece of data has thousands of globally distributed copies. A potential attacker intent on breaching the certificate would have to compromise the majority of the data distribution at the same time, which is extremely hard, expensive, and with a well-designed blockchain almost impossible.
To reiterate, a blockchain is a versatile solution for a variety of real-world use cases, and it is up to innovative minds how soon and how extensively this “pneumatic tire” of the internet will be used for the betterment of many walks of modern life.
¶ Interesting facts
¶ Data integrity
Blockchains can be the solution to improve data integrity to the highest possible standard. By design, blockchains are inherently resistant to the modification of data. Blockchain ledgers are designed to be immutable, meaning that if data addition or transaction has been made, it cannot be edited or deleted without great difficulty (e.g. the cost to re-organize the bitcoin blockchain). This means that what is put on the blockchain stays on the blockchain as long as the data owner is in a need to update them. Then, this updated information is distributed between thousands of computers that created a blockchain network.
Blockchain blocks are:
- structures for data keeping
- the timestamping mechanism for these data structures
Blockchains provide:
- a proof of the history of any data recorded on a blockchain
- data integrity that can be used for audits, regulatory compliance requirements, or legal challenges
- decentralized data distribution with a transparent transaction history
¶ Trusted Timestamping
In the context of blockchain, you can specifically encounter a term called Trusted Timestamping. This is a process of securely keeping track of the creation and modification time of a document, and it is an indispensable tool in the business world. It allows interested parties to know, without a doubt, that a document in question existed at a particular date and time. By design, a Bitcoin transaction includes a date and time held on the blockchain. By including a cryptographic digest of a file, you can later certify that the data existed at that time.
¶ Important Blockchain and Bitcoin milestones
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Congratulations. You made the ninth step in becoming a blockchain expert.
¶ Navigation
- Part 1: Determinism
- Part 2 : Mining, Miners, and the Proof of Work algorithm
- Part 3: Hashing Functions
- Part 4: The 51% Attack
- Part 5: Forks
- Part 6: Blockchain Transactions
- Part 7: Inside a Bitcoin Block
- Part 8: Smart Contracts
- Part 9: Blockchain's impact on the world
- Back to Sovryn Dojo