A Beginner’s Guide to Blockchain Technology

What is Blockchain Technology?

A blockchain is a decentralised digital ledger that publicly records transactions made in Bitcoin and other cryptocurrencies.

The first significant blockchain innovation was the development of Bitcoin by Satoshi Nakamoto in 2008. The blockchain was seen as a core component of the distributed and decentralised ledger that Bitcoin would become. This then evolved into a smart contract, which was embodied in the Ethereum blockchain. Essentially, this allowed financial instruments such as loans and bonds to be featured as tokens, as opposed to the solely-cash like tokens of Bitcoin. The next significant development in the blockchain was Proof of Stake (PoS). Under a proof of stake system, the traditional mining data centers would be replaced by complex financial instruments. This was implemented with the idea that it could make the blockchain more secure than the existing proof of work method.

Most recently, the blockchain has evolved to include scaling. Currently, every transaction in the blockchain must be processed by each computer in the network. While this process adds to the security of the blockchain, it is unnecessarily slow and inefficient. A scaled blockchain manages to speed this process up while still ensuring maximum security. It does this by identifying how many computers are needed to validate each transaction and dividing the work accordingly, making it that much more efficient.

Is the Blockchain a Cryptography?

Cryptography is one of the main elements of blockchain technology. This is used primarily to protect the identity of each user, ensuring that all transactions are made with a sense of security. As such, all blockchain users can rest assured that their information is safe and cannot be tampered with. The combination of a private and public key cryptography makes the blockchain even more safe and secure than if it were using standard-symmetric key cryptography.

In a practical sense, the sender’s private key and receiver’s public key will encrypt the information, whilst the receiver’s private key and sender’s public key will decrypt it. Similarly, the security is as such that a private key can’t be figured out based on the public key information. This protects both the sender and receiver and ensures that the information will only be seen by the intended party.

Bitcoin and the Blockchain

Bitcoin was the first of the major blockchain innovations that have occurred over the past decade. Since its creation in 2008, Bitcoin has remained the top cryptocurrency by market cap and has been predicted by many to revolutionise how we make transactions. It now has a market cap over $100 billion and is used by millions of people around the world as a fast and safe way to transact. One of the driving forces behind the prominent rise of Bitcoin has been the impact of blockchain technology.

Bitcoin

Huge selling points of Bitcoin are that it is decentralised, distributed and deflationary. Not only does this maximise network security, but it also ensures that Bitcoin will remain a solid store of value for investors. Essentially, the Bitcoin blockchain is a publicly available ledger that records and stores all transactions. Thorough networks of nodes are constantly communicating with each other using Bitcoin software to keep the network afloat. These nodes then must validate transactions before they are permanently broadcast on the ledger.

How does Blockchain Technology Work?

While blockchain technology powers and drives the thriving cryptocurrency space, it can be a confusing aspect of the blockchain to wrap your head around. Essentially, blockchain technology works by leveraging the computer processing power of its users to service the network. As touched on earlier, the two users are able to transact safely and securely through the use of public and private key cryptography. All blockchain transactions incur a ‘miner’s fee’ to reward the user whose computer has helped to facilitate and validate this transaction.

While this may sound strange to some, it is a vital component of the blockchain eco-system. Given the amount of computing power necessary to validate these transactions, miners would have no incentive to do so without the promise of a reward. This is also very beneficial for the network as a whole as it helps to prevent the issue of double-spending; where currencies are spent in multiple transactions at the same time. Naturally, this would compromise the integrity and security of the network if not for proper blockchain technology.

Blockchain Structure

The blockchain structure typically comprises of an ordered and backlinked list of blocks and transactions stored in a simple database. Each of these blocks can be identified by a hash, which uses the SHA 256 algorithm on the header. In addition to its utility for verifying identity, the hash will also be used to verify the integrity and validity of the accompanying data set.

Once several new generations of blocks have succeeded a block, it is unable to be changed without having to recalculate all of the blocks in between. Doing so would compromise the blockchain network and call into question one of the Blockchain’s primary strong points, such as high security.

Nodes will maintain a local copy of the blockchain that starts from the very first block. This will consistently update as new blocks are subsequently generated and built. After a node receives and validates the information from the block, it will link this to the existing blockchain. This process will be consistently repeated as new blocks are generated to ensure the network continues to flow smoothly.

What is a Block in the Blockchain?

Blocks are key components of the blockchain network. They are essentially a permanent store of records that cannot be altered after they’ve been written. Blocks will record the most recent network transactions that have not been previously entered. These messages are then relayed by a network of nodes, which will store each new transaction address. Data is permanently stored after the completion of each block, and the cycle continues. Coupled with a strong P2P verification system, this makes it very difficult to tamper with Bitcoin transactions.

There is a mathematical problem associated with each block in the blockchain. Users known as miners will use their computer processing power to help facilitate these transactions in exchange for a reward. After the winning miner has solved this problem, the answer is subsequently shared with and validated by other nodes. New blocks can’t be submitted to the Bitcoin network before this answer is provided, which typically takes 10 minutes to complete.

Is the Blockchain Distributed or Decentralized?

Two huge benefits of the blockchain are that it is both distributed and decentralized. If an entity is centralised, all of the control is governed by a single authority. This is very common in the traditional financial world, with consumers having little say in the rules implemented by Central banks. Conversely, a decentralised entity such as the Blockchain is under no single authority and has multiple points combining to do the work. In the case of Bitcoin, this refers to miners from all over the world leveraging their computer processing power to facilitate smooth transactions across the network.

A decentralised blockchain comes with a plethora of benefits. The most notable of these is that it helps with fraud prevention. As every transaction on the network is recorded and then validated by miners across the world, patterns of fraud can be detected almost immediately.

Secondly, decentralised blockchains cannot be controlled by external governments or banks. Throughout history, the meddling of local governments has been responsible for significantly devaluing many currencies. Fortunately, a decentralised blockchain cannot be controlled by the government or any individual for that matter. As cryptocurrencies are essentially software programs with finite numbers of coins, this makes them very resistant to hyperinflation and helps retain the long-term value of your asset.

An added benefit of decentralised blockchains is the improved speed and efficiency of transactions. A common gripe with the modern banking system is that it can often take several days for transactions to process. Blockchains can make these transactions near instantly and at a more accurate rate. Faster transactions without borders can only be a positive thing in an increasingly globalised economy.

How Secure is Blockchain Technology?

A competitive advantage that blockchain technology has is its very high levels of security. Lots of sensitive information is shared today in ways that aren’t even remotely secure. Many companies today require customers to email personal information such as their license details, birth certificate and credit card details to verify their identity. This lacks a sense of security and opens them up to risks such as credit card fraud and identity theft.

Enhanced Security

Conversely, the enhanced security of the blockchain makes it the likely future of most business transactions. The innovative public key infrastructure protects the network from malicious attacks and provides an elevated level of security and privacy. Its decentralised nature means that all Bitcoin transactions need to be confirmed by 6 miners before they are completely processed. This acts as a way of protecting both parties and ensures that only valid and accurate transactions will occur.

Bitcoin Blockchain

Encryption Technology

At the forefront of the strong blockchain, the security system is advanced encryption technology. With Bitcoin transactions, the sender will encrypt their ‘message’ using the receiver’s public key. Using their private key, the receiver is then able to decrypt this message. This encryption is immensely beneficial in the sense that it protects the confidentiality of all digital data stored on the network. The algorithm has been created in such that potential attackers won’t be able to work out a user’s private key from the available public key information.

Distributed and Decentralized

Data is as important today as it has ever been. Technology has made it increasingly easy to share data with others all over the world but has also led to increased user vulnerability. Security breaches and malicious attacks can potentially destroy the digital relationships that we work so hard to forge. The blockchain ensures that all transaction data is stored on a vast network of computers that verify this information with each other. This means that instead of just one server being hacked, the majority of the vast Bitcoin network would have to compromise for a security breach to occur.

Moreover, the proof of work system adds a further layer of protection to the network. To facilitate transactions, miners will need to use their computer processing power to solve a mathematical equation. These equations effectively strike a balance between being too easy and too complicated, ensuring the network flows smoothly and preventing DoS attacks. The solutions are then checked and verified by other nodes in the network to allow for accuracy and transparency.

Blockchain and Web 3.0

Web 3.0 is a broad term that refers to the third generation of the web, one which will change how websites are created as well as their user interaction. Many believe that this will completely reinvent the world wide web and make everyone’s digital life much easier. Smarter and more intuitive applications will be able to better meet the needs of their users in a more efficient and interactive online environment.

Tying in with the Blockchain, the Web 3.0 would be decentralised, with large companies no longer having control over user data. No individual government or entity would be able to blacklist specific sites and services, while end users will regain full control of their own secured data. Blockchain technology would be used to ensure that all data is decentralised and distributed, meaning that hackers would need to compromise the entire network for a breach to occur.

Blockchains and ICOs

An initial coin offering (ICO) is the blockchain equivalent of an IPO. These act as a fundraiser for companies in the crypto space, as investors offer capital in exchange for specific cryptocurrency tokens. A blockchain ICO will typically begin with a whitepaper; where the firm states what the project is about, which problems it will solve, how much money is required, etc.

During the campaign, keen backers can use fiat or virtual currencies to purchases a specific amount of the company’s tokens. If the firm does not receive its minimum amount of required funds, all money is returned to backers, and the ICO is marked as unsuccessful.

ICO Blockchain Projects

ICO’s are typically decentralised, unregulated and have freer structures than their IPO counterparts, making them a very attractive investment proposition. Investors are very much enticed by the prospect of quick and significant returns on their investment. Recent ICO’s have proven extremely lucrative, with Filecoin, Tezos, Sirin Labs Token and Bancor all managing to raise over $1.5 billion.

Another notable ICO success was NEO, formerly known as AntShares. Billed as China’s Ethereum, NEO combined an outstanding branding strategy with solid fundamentals such as smart contracts, decentralized commerce and digitised assets. Buoyed by support from the Chinese Government, Microsoft and Alibaba, Neo’s value skyrocketed from $0.03 to an all-time high of over USD 88.

ICO Development at OneStop Media

The Neo example showcases just how an effective marketing campaign will take your ICO to the next level. Far too often you will hear stories of developers who had a great coin idea but just didn’t have the marketing skills to get it off the ground. Hiring an agency is a vitally important decision that can make you millions of dollars if done correctly.  Ideally, you want a comprehensive digital marketing agency that has experience with successful ICO launches. You need an agency that has an extensive network at their disposal that they can leverage to promote your ICO.

One such company is Blockchain Australia, who provides a comprehensive branding, email marketing and social media marketing campaign for your ICO. Their extensive list of services is designed to provide you with a complete branding strategy that will engage potential investors all around the world. Best of all, they have extensive experience in the ICO space. While most marketing agencies won’t understand the nuances involved in successful ICO launches, Blockchain Australia leverages their network and expertise to exceed business or individual needs and requirements.

Who Will Use the Blockchain?

Given that blockchains are virtual ledgers, the technology will begin to be implemented for more things than just money. As such, it has the potential to be used globally as part of everyday life. The travel, financial services and real estate industries are set to be revolutionised in the near future by innovative blockchain technology. Similarly, blockchain technology will be the driving force behind the strong potential of a decentralised internet.

Government Affairs

One area where Blockchain technology can have a tremendously positive impact is on governance. Specifically, the use of digital voting could make the election process much more efficient and save a significant amount of time and money in the process. A decentralised and distributed blockchain network will offer unparalleled transparency and accuracy over election voting. Each voter will be able to actively view their ballot and ensure it is not tampered with.

Similarly, blockchain technology can positively impact the notary services industry. Notaries currently provide services such as witnessing the signatures on certified documents and certifying the authenticity of certain documents. Through the use of the blockchain, a digital fingerprint could be created to prove that the document was created at a certain point in time. This can’t be changed or tampered with in the future and would be easily verifiable by 3rd parties where needed.

Moreover, blockchain technology is capable of transforming the healthcare sector. It could develop more efficient healthcare records, improve the accuracy of wearable devices and help medical exam systems display artificial intelligence. Not only this, but it would dramatically improve the integrity and security of what is very confidential health information.

Asset Tokenization

Asset tokenisation on the blockchain has become an increasing trend in 2018. Tokenisation will convert the rights to an asset into specific digital tokens. For example, a house costing $500,000 could be broken into 500,000 individual tokens and allocated accordingly. If you put in $100,000, you would receive 100,000 tokens and so on. These tokens could then be issued and distributed on a platform such as Ethereum that uses smart contracts. Expect this to be a common theme ss cryptocurrency regulations become more solid across the world.

Energy Markets

As renewable energy use increases, the blockchain provides a great way to handle increasingly complex transactions between energy companies and end-users. The implementation of smart contracts would mean that specific actions could incur automatic transactions. Being able to track usage more accurately would save companies money and ensure that users are getting a fair go. As decentralised energy continues to rise in the coming years, expect more and more energy companies to leverage the blockchain into a competitive advantage.

Other use cases for the blockchain in the future include:

Smart Contracts: Smart contracts help to exchange assets of value safely without needing to deal with a mediator. This provides users with complete autonomy over their transactions, backed by a comprehensive network that ensures security.

Land Title Registration: The blockchain will provide immutable and authentic records that show who owns each piece of land at a specific time. This helps to protect homeowners in the event that a natural disaster or legal issue arises.

Stock Trading: The blockchain can offer faster and more secure stock exchanges that increase trust and reduce the risk of fraud. Through the use of smart contracts, it will also eliminate the need for intermediaries, getting rid of brokerage costs and reducing transaction risks.

Digital Identity: Blockchain technology will provide each user with a single digital identity that can be updated to reflect the latest information. This provides an upgrade on the current system, where users have a large digital identity on different sites that can be difficult to keep up with.

Supply Chain Management: Smart contracts on the blockchain could conserve business resources and eliminate costly delays in the supply chain space. Instead of dealing with greedy third-parties, transactions can be done directly and more efficiently with no risk to either party.

Distributed Storage: Current solutions such as Google Drive and Dropbox are said by users to be too restrictive and prone to data leaks. The blockchain would ensure complete data control and privacy for all users.

Crowdfunding Sector: The blockchain and smart contracts could help overcome geographical and political borders that limit users in the current crowdfunding space. Traditional transaction fees would be eradicated, and the settlement of assets would occur much quicker.

The Future of Blockchain

The blockchain has immense potential to be the driving force behind the way we transact in the future. As outlined above, there are so many different industries that can immensely benefit from what the blockchain has to offer. Eventually, we are likely to see complete transparency across industries that gives users complete control over their own data. Similarly, distributed ledger technology is likely to form the basis of various government systems. This has already begun to occur, evidenced by the commitment of the Dubai Government to have solely distributed systems by 2020.

Moreover, increased collaboration between blockchains is very likely in the near future. This will forge several profitable partnerships between industries that also benefit consumers on the back end. Once users are exposed to the blockchain and its associated benefits, this will also likely increase the value of popular cryptocurrencies such as Bitcoin, Ethereum and Litecoin. As commerce becomes increasingly globalised, these currencies will begin to take centre stage as alternative payment options.

Bit coin

The disruptive force of blockchain technology is reshaping the economy as we know it. Businesses must now adapt or be left behind in an increasingly competitive environment. Decentralised data will give individuals full control over their information again and take it out of the hands of advertisers and third parties. As more countries continue to adopt the blockchain infrastructure, more consumers will start using cryptocurrencies as their primary method of payment. This is preferable to the existing financial setup in the sense that you have full control over your assets and can transact instantly.

Blockchain Consulting

Blockchain consulting can be an excellent way to take your cryptocurrency business to the next level. Blockchain Australia is one of the first blockchain companies in Australia, specialising in blockchain consulting, developing state of the art blockchain-based products and ICO marketing. Whether it’s an ICO launch, infrastructure development or general marketing advice, our blockchain experts have all the answers you need. It will save both time and money in the long run as you learn valuable and actionable information that can grow your business. If you’ve reached a sticking point in your business’ development and aren’t sure how to proceed, a blockchain consultation may provide you with an entirely new perspective.

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