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What is Blockchain Technology and Smart Contract?

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The first mention of Blockchain technology dates back to the end of 2008 when the unknown individual Satoshi Nakamoto published the paper ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. A few months later, in January 2009, he released the Bitcoin software to the public. But what is this chain of blocks, how does Bitcoin fit in and what are smart contracts?

What is Blockchain?

There are a number of definitions of Blockchain, depending on who you’re talking to. But at its core, it’s a digital file that lists accounts and transactions like a ledger. Copies of this file are replicated on every computer in the Blockchain network. Every time a transaction takes place, it is added to a new block together with other transactions. That new block is then added to the chain that continuously grows in size. A block cannot be altered once added, making the record of transactions permanent.

All confirmed transactions are embedded in the bitcoin blockchain. Use of SHA-256 cryptography ensures the integrity of the blockchain applications – all transactions must be signed using a private key or seed, which prevents third parties from tampering with it. Transactions are confirmed by the network within 10 minutes or so and this process is handled by bitcoin miners. Mining is used to confirm transactions through a shared consensus system, and usually requires several independent confirmations for the transaction to go through. This process guarantees random distribution and makes tampering very difficult.

This diagram explains bitcoin blockchain and how it works.
Source: https://www.toptal.com/bitcoin/blockchain-technology-powering-bitcoin

While it is theoretically possible to compromise or hijack the network through a so-called 51% attack the sheer size of the network and resources needed to pull off such an attack make it practically infeasible. Unlike many bitcoin-based businesses, the blockchain network has proven very resilient. This is the result of a number of factors, mainly including a large investment in the bitcoin mining industry.

Smart contracts

Some Blockchain-based platforms, such as Ethereum, go far beyond the monetary aspect of Blockchain software. They include the so-called ‘smart contracts’ which are programmed agreements that are formalized without the need for a third-party intervention (notary). Smart contracts are programmed to execute autonomously and cannot be tempered with. Deal = deal, without any exceptions.

Smart contracts can be programmed to contain crypto-equity, which are digital assets such as stock options and shares, coupons and licenses. Examples of smart contracts are testaments, inheritances, but also no-risk transactions (e.g. international trade deals) as the parties will receive the digital assets at the same time. Or think about donations to a humanitarian cause that can only be spent on what you want: electricity, housing or education.

Blockchain Technology

Blockchain technology works, plainly and simply, even in its bitcoin incarnation. A cryptographic blockchain could be used to digitally sign sensitive information, and decentralize trust; along with being used to develop smart contracts and escrow services, tokenization, authentication, and much more. Blockchain technology has countless potential applications

Potential Uses And Implications Of Blockchain Technology

There are already thousands of developers and dozens of companies experimenting with blockchain applications, but we have yet to see large scale projects built around blockchain technology that are not bitcoin or “altcoin” related. IoT could bring blockchain technology to the masses.

The technology is out there, it works, it’s free, and a lot of smart people are tinkering with it. However, so far these alternate blockchain applications have ranged from practical jokes to small experimental projects. The fledgling technology is still in its infancy, and this is to be expected.

The potential is more or less obvious. Decentralizing trust is a big thing, allowing the creation of vast, secure networks without a single point of failure. You can think of them as an additional layer of the internet, a layer that can be used for authentication, signage, secure communications and content distribution, financial transactions and much more.

Blockchain technology could allow developers a simple way of outsourcing security. For example, instead of creating secure IoT devices and networks, much of the heavy lifting could be effectively offloaded to the blockchain, freeing up resources on the client’s side and speeding up development.

The elusive goal for all blockchain developers is to make the technology just as seamless and unobtrusive as internet protocols. For example, how many people realize they are using TCP/IP every time they start browsing the net? This is the ultimate goal – to make the use of blockchain technology invisible to the end user. Blockchain technology can become yet another layer added to various products and services in order to provide more functionality and security, while saving resources and developer man-hours.

Applications of Blockchain technology

There are many cool things that can be done with Blockchain technology, some disrupting the whole industry, some just really interesting concepts:

  • Blockchain can give refugees — without homes, birth certificates and bank accounts — an online identity
  • Blockchain can result in transparent donations to a good cause: a sponsor will be able to track what his money is spent on
  • Blockchain can be used to donate in other items than money. Just donate in whatever’s needed: gas, water, shovels, seeds, etc.

 


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