There’s constantly news coming out about blockchain technology, and tech enthusiasts rave about its capabilities. But what really is blockchain? Blockchain is an incredibly powerful and secure way of making transactions with decentralized databases.
Trust is incredibly important for any transaction. Trust is one of the greatest advantages to blockchain, and it’s ultimately the reason why blockchain is a revolutionary technology. There are two questions I want to answer in this article. Why has blockchain not completely revolutionized the way that people make transactions, and what are some ways that blockchain technology could be applied?
Warning: This is a more serious academic article based on brief research I’ve done on blockchain. Hopefully some of these insights can be of use to you.
First, A Brief Acknowledgement
Just before getting into the answers to these questions, I want to acknowledge two authors that I’ll reference in this article. James Steele published a course called Blockchain Applications and Smart Contracts: Developing with Ethereum and Solidity which focuses specifically on smart contract technology. Also, Robert van Molken is the author of an eBook called Blockchain across Oracle that provides an extensive introduction to how blockchain works. I included citations in the text just to give full credit where it’s due.
Speed Is The Downside To Blockchain
One of the fundamental issues with cryptocurrencies right now is the speed of transactions.
The general blockchain transaction process involves handling the input data, validating the transaction by a consensus among every node (computer) on the network, and inserting collections of transactions as “blocks” into the chain. All of these processes cost time, so optimization is crucial.
While Litecoin can perform about 25 transactions per second, credit cards like the Visa card are performing tens of thousands of transactions per second, so it shows the point that we need to move to more scalable transactions (Steele, 5).
So, How Could We Speed Up The Transaction?
Speeding up transactions might require more computing power to be able to process larger chunks of information. The issue with processing larger chunks of data is that all of the nodes, or computers, need to be powerful enough to handle the processing. Otherwise, the whole principle of decentralization no longer applies.
James Steele also claims that “the founder of Ethereum, Vitalik Buterin, has mentioned that he’s planning to make changes to the system. A large community of people are working on it to get to millions of transactions per second (5).”
A crucial area for development with blockchain is tools to build decentralized apps. Decentralized apps (Dapps) are similar to web applications that provide user interfaces to databases on a server, but instead, Dapps go to the actual cryptocurrency, not a server.
Only some of the major blockchain platforms have Software Development Kits (SDKs) for developers to build apps with.
The cryptocurrency, Ethereum, is similar to a decentralized computer, and is at the forefront of utilizing ‘smart contracts’ which I’ll get to later. But they essentially replace the need for a web server.
On each node there is the Ethereum Virtual Machine which executes the program for each smart contract transaction using hashing and the interplanetary file system (IPFS) through the decentralized app which then goes straight into the Ethereum blockchain (Steele, 5).
Dealing With Files: The Interplanetary File System (IPFS)
The IPFS is needed for dealing with files. Having to update every single node on the network every time a file is transferred is too costly, so files are stored in the IPFS and all of the information about the transaction gets hashed down, encrypted, and stored on the blockchain. More tools for web-browser front ends to interface these applications are needed in order to use this type of smart contract blockchain technology.
How Is Blockchain Used?
So, two important questions are: what are some applications of blockchain technology, and how is it really used?
Commonly, a key/value data structure is used to record transactions and assets transferred between parties via digital ledgers, or databases (van Molken). With smart contracts, distributed ledgers can be used to execute specific functions when certain conditions are met. A smart contract not only defines the terms and conditions (rules and penalties) of an agreement, but it is also capable of automatically facilitating, executing, and enforcing the negotiation or performance of an agreement (van Molken).
Cutting Out The Middleman
Businesses that have lengthy terms and conditions, and secure paywalls to handle transactions and accept payments online could benefit from moving over to using smart contracts. A big application of blockchain is peer-to-peer payments. Direct interaction between parties during a transaction essentially cuts out the middle man of many kinds of businesses, like banks, stock brokerages, and drive sharing apps like Uber and Lyft.
Again, trust is an essential part of direct interaction between parties. But all the information about the transaction allows anyone to verify the ownership throughout the blockchain.
Crowdfunding With Blockchain
Crowdfunding is becoming increasingly popular, and blockchain could provide innovative opportunities for funding projects with the use of peer-to-peer payments as well.
For example, a crowdsourced project could have code for a smart contract where if the funded project meets a certain milestone, more funds are applied to the project from the funders automatically, and any additional terms and conditions of the contract are executed. Everyone can trust that the transaction will be accurate and secure.
Blockchain technology could also make voting for elections or any other decision-making situations like managing assets or governing large businesses, a group decision that is completely public.
Sustainability Ethics With Blockchain
Over the years, product suppliers from all over the world have been heavily criticized for ethical reasons like sustainability, over-producing, and genetically modified organisms (GMOs). Blockchain could be used in finding a solution to ensuring that ethical criteria are met, and consumers are getting what they expect. This could be done by simple blockchain transactions that contain all the information needed for an interaction between suppliers and consumers.
Decentralizing File Storage & Digital Authenticity
Another problem that people often face is losing files or being hacked by malware like the notorious ‘Ransomware’ that holds the user’s files for ransom as the name suggests. Decentralizing file storage offers a solution to these security problems along with the added benefit of potentially speeding up file transfer speeds and streaming times.
“Wisdom of the crowd” technologies are where predictions are made based upon crowd decisions similar to crowdsourcing but instead this could simply be people predicting certain outcomes and receiving shares based upon a correct prediction.
Again, this is another situation where people interact directly with other people in a secure way that can’t necessarily be secure without blockchain technology.
Steele explains that “It’s [blockchain] more than an electronic signature that you may find, it’s a mathematical way to demonstrate authenticity of digital content (3).”
Blockchain Is Good News For Original Content Creators
Because of this, blockchain technology could provide a new way for copyright holders to protect their intellectual property by automating the distribution of products and services while preventing redistribution of their protected content. This could make way for another financial boom of creative content on the market and could provide individuals and businesses a lot of opportunity.
Large content platforms like YouTube could benefit immensely from being able to ensure creators that their original content is protected under copyright. While YouTube already has algorithms to detect copyright infringements for music, any uncertainty in the effectiveness of the algorithms would be eliminated with a blockchain approach.
Every node in the network must come to a consensus on the transaction, then the transaction is written to the ledger and they become immutable unless a consensus is met to make a change. This consensus approach along with using reliable cryptography algorithms like SHA256 saves costs and reduces risks for businesses. Any fraudulence in a transaction or changes in the hashing algorithm would show up on all nodes on the network.
Blockchain clearly has the potential to be a disruptive technology, and everyone from individual consumers, small businesses, corporations, and governments can benefit from using it.
The ability for parties to interact directly with one another without a trusted intermediary offers an endless range of possibilities across all industries. Secure peer-to-peer transactions between non-trusting parties over the blockchain network could replace the need for businesses like Amazon, eBay, and even banks.
Smart contracts could be incredibly useful for crowdfunding projects, and financial agreements by automating terms and conditions, and guaranteeing authenticity. Also, with the ability to ensure digital authenticity, original content can truly be protected under copyright.
Once the speed of blockchain transactions increases, and the technology itself becomes more widely adopted, there could be a significant shift in the way that people and businesses make transactions with one another. Also, over time as more tools are created for developers to build blockchain applications, interest in shifting operations towards a blockchain approach will increase.
Originally published at austinhoward.tech on December 4, 2018.