Evolution of Blockchain and transformations that the world will see using the Blockchain
What is Blockchain?
The Blockchain is a technology that enables transact two people across the globe without any trusted third-party.
Disadvantages of a trusted third party-
Bitcoin was invented in 2009 and the world saw the global financial crisis in 2008. The world had faced the great depression in the year 1929. As necessity is a mother of invention, centralised systems historically failed to deliver the expected results.
The blockchain is not owned by anybody. No single authority can control it. People no more need to trust any trusted third party to transact with each other. Bitcoin or any other cryptocurrency for that matter has been built using a combination of three disciplines –
1. Economics :
The value of any utility is calculated based on demand-supply equilibrium.
2. Directory Structure :
Game theory is used to encourage an intended behaviour of participants and to discourage an unintended behaviour.
3. Cryptography :
One of the most important cryptographical tools that are used in cryptocurrency is the concept of signatures. Cryptography gives us a solution to this by means of “digital signatures” which is done via the use of “keys”. The private key is a proof of ownership of an account just like your fingerprint or signature and the public key is known to all the participants in the network so that anyone in the network can transact with you. If one loses private key then one loses ownership of an account. As the person who has your private key can transfer all the funds in your account to another account. Therefore it is very important to store the private keys of an account securely.
Types of blockchain –
1. Permissionless / public blockchain :
In public blockchain, anyone can participate, anyone can send transactions, anyone can participate in the consensus process and anyone can see transactions if they are valid. The public blockchain is “fully decentralised”.
2. Consortium / federated blockchain :
In Consortium blockchain the consensus process is controlled by pre-selected nodes. The right to read may be public or restricted to participants. In Bitcoin or for any public blockchain privacy is maintained by not exposing which public key is associated to which user. So users can participate in the blockchain network without disclosing their identity. In consortium blockchain networks all the authorities need to disclose their identities while participating in the network. The Consortium blockchain is “partially decentralised”.
3. Private blockchain :
In Private blockchain write permissions are kept centralised to one organisation and read permission may be public or restricted to an arbitrary extent. In the case of private blockchain network, all the participants need to disclose their respective identities.
Core conceptual idea behind the blockchain is decentralization. There are three types of decentralization.
1) Architectural decentralization –
Most of the conventional database management systems are centralized database management systems. They are susceptible to the single point of failure. If the database server goes down then an entire system will become down. Centralized systems are not able to scale horizontally. They can scale vertically. To overcome disadvantages of centralized systems people came up with distributed computing which is generally referred to as master-slave architecture. Distributed databases are able to scale horizontally. The master-slave architecture also has a limitation as if the master is down
then the system won’t able to function. In decentralized architecture every participating node is master. If some node is down we can still able to retrieve data from some another node.
2) Political decentralization –
If decision making is completely centralized and decision making person is corrupt then the entire system will become corrupt. The world had seen many scams because of centralized decision-making system. Every participant in the blockchain network shall have an equal right to make a decision. Modern democracy is an evolving form of political decentralization.
3) Logical decentralization –
If you divide one logical system into two parts and both the parts are able to function independently then the system is a logically decentralized system. Let us say we divide English language vocabulary into two parts. As one will be able to make meaningful conversation just by using one of the parts of vocabulary, language is logically decentralized.
The blockchain is architecturally decentralized (not prone to single point of failure), politically decentralized (no one own’s it) and logically centralized (every participant must agree on single commonly accepted state). Any language that we use for communication is architecturally decentralized, politically decentralized and logically decentralized.
Evolution of web –
Evolution of the web can be broadly categorized into three parts. Namely web1, web 2 and web 3.
In web 1 nobody was able to save the state. As we were not able to store data in databases there was no question of ownership of data. In web 1 there were just static web pages. Because of the invention of the databases state can be saved in the databases. As data can be stored in databases people started looking for “how they can monetize the data they have collected”. Because of a blessing of modern machine learning and artificial learning algorithms, people started monetizing data collected by them. Based on the data points of the user using modern algorithms one is able to show relevant ads to
relevant people. Advertising based business models are the most successful business models in the world. Because of that world is seeing data monopoly of google and facebook. Although they are offering their products for free they are gathering data of users and using it to show relevant ads. Because of huge data collected from the users, machine learning algorithms are giving intended results. Scams like Cambridge Analytica has proved that how data can be misused by organizations. In web3, with the help of decentralized application, the user will be an owner of data and user will be able to control the access of their data. That day is not very far when users will not give their data for free. Without sufficient data, machine learning algorithms won’t give intended results. Privacy of the user is the most important concern for them. In
web3 users can even sell their data. If we say web2 is the era in which one should not be evil then web3 is the era in which
one cannot be evil.
Domain wise use cases with the current scenario and how blockchain will transform it
Amazon is an e-commerce platform for buying and selling the goods. Amazon does charge to retailers for selling the goods. Amazon does collect data of customers. OpenBazar is a completely decentralized platform just like Amazon. OpenBazar charges no fees and it is completely free to use because trade happens directly between users. OpenBazar doesn’t collect information of the participants. One can use cryptocurrency for payment on OpenBazar and one doesn’t need to share an identity instead of other online payment features that require identity. Like Amazon decentralized version of UpWork, a remote job freelancing platform is available as well. Ethlance is a decentralized remote job platform that works on top of
Ethereum blockchain. Anyone can hire and work in exchange for Ether cryptocurrency. The most significant advantage of using Ethlance platform is no service fees and no restrictions on membership.
In healthcare, although patients are generating data, the patient’s medical data is owned by providers. A patient doesn’t have an access to their data. A patient can not share their data with other providers. Patient data is currently scattered across multiple electronic healthcare systems(EHR). Using blockchain patient data can be stored in a consolidated form digitally in a secure way. A patient will be able to access their entire medical history. A patient can control access to their data. A patient can share their data with multiple physicians to obtain the second opinion.
Gaming is usually considered as a hobby. Gamers were not able to earn money by playing the games. With the help blockchain technology game creators can reward their users in crypto tokens. With the help of blockchain need of middle agents like banks and other financial institutions for payments and distributors of games is eliminated. Game developers can creators can increase their profitability and can sell their product across the globe without worrying about the mode of payment.
4) Online Gambling
Currently, gamblers need to trust online casino owners while gambling. Online Casino owners had done some scams and because of that, they lost the trust of gamblers. Blockchain will ensure transparency and casino owners will be able to gain the trust of users. If casinos are using the blockchain for gambling then one no more need to trust casino owners. One just needs to trust on a smart contract that is being used for gambling. This will drastically reduce frauds in the gambling industry. Traditionally one needs to provide a lot of documents to regulators before doing gambling. Blockchain has completely eliminated the process of Know Your Custome(KYC) and gamblers can do gambling anonymously. Gambling is banned in various countries and residents of those countries can not participate in gambling because of restrictions. Blockchain will make gambling more accessible and more transparent. Anyone across the world can do gambling anonymously using blockchain.
5) Human Resource Management
Educational qualifications and work experience are the most important credentials while hiring new employees in an organization. Currently, candidates can claim fake credentials to get the job. Human resource managers need to spend a lot of time in verifying credentials of candidates. With the help of blockchain, one can store all those credentials securely so that no one can modify it. Blockchain makes it impossible for employees to alter any background or credential information entered about them. This will significantly reduce the time required for background verification of the candidate.
Constraints of the blockchain –
1) Scalability –
With every new transaction, a new block is added in the blockchain. As chain becomes bigger and bigger the data that chain is carrying increases. Although chain can grow infinitely there are storage limitations for each individual nodes in the blockchain network. The process of verification of block is time-consuming. Currently, blockchain can be called a slow database. Blockchain processes a lot lesser transactions per second as compared to any conventional database management system.
2) Regulations –
The main philosophy of the blockchain is to get rid of the regulators. The blockchain is facing a lot of friction by the governments and other regulatory agencies. A lot of countries have already banned cryptocurrencies. The situation is still grey in most of the countries of the world. Although cryptocurrencies are one of the applications of the blockchain, the blockchain does have many applications in various domains. Some applications might be welcomed by regulators.
3) Interoperability –
There are multiple platforms available for decentralized application development using blockchain technology. The major concern is a chain on one platform can not talk with the chain on the other platform. One can not pay ethereum smart contract in bitcoin. If multiple blockchain projects are developed on multiple platforms for the same use case then users data will be scattered across multiple chains. Interoperability is the ability to easily share information and transact across blockchain systems. In a fully interoperable environment, a user from one blockchain can send data, receive data and comprehend data of the user from another blockchain.
4) Security –
Blockchains are vulnerable to 51% attack. If a miner or group of miners control more than 50 percent of mining power then they can control confirmations of new transactions. Moreover, they would be able to reverse the transactions they confirmed and therefore double spend tokens. The probability of this attack reduces as more people participate in the network.
Written by Soham Lawar, Sr. Software Engg. at zCon Solutions