Written by Joseph Axisa
Blockchain is a system of information. As a mechanism, it was originally intended to have a notary-like function, such as timestamping digital documents. However, this changed in 2009 with the advent of Bitcoin.
Blockchain consists of a chain of blocks. Each block has 3 main components;
- Data
- Hash
- The Hash of the previous block
In the case of Bitcoin the data of a block in a blockchain consists of the person sending the coins, the person receiving the coins and the amount of coins that are going to be transferred to the receiver. From this description we can infer that there is no third party to a blockchain transaction. In an ordinary transaction the data of such a transaction would consist of the person sending the money, the person receiving it, the amount of money to be transferred and the bank or other financial entity to be used as a facilitator of the transaction (Together with any charges which may be imposed by the bank on the sender). In Blockchain the transaction is between the sender and the receiver alone.
The Hash is the second component of the block. One may refer to the hash as the identity of the block. The hash of a block is unique to that block alone. This hash may however change by amending something in the block. So, if one changes anything from the data of the block, the hash of the block will automatically change. For example, Bitcoin uses the Hash input of ‘SHA-256’.
The third component of a block is the hash of the previous block. This is what inherently creates the blockchain. This contributes to the increased level of security surrounding the blockchain sphere. This entails that Block 3 in a blockchain must contain its own unique hash together with the hash of the previous block (Block 2). An exception to this third component is found with regard to the first block in a blockchain.
The first block in a blockchain is known as the genesis block.
This genesis block need not contain the hash of the previous block in the block chain as, essentially, it is the first block of the blockchain. There are diverse and conflicting opinions as to what number the genesis block is to be given. Some say that it is Block 0 while others hold that it should be referred to as Block 1.
A problem arises when there is a change to the hash of a particular block. If the hash of block 2 changes or is tampered with in a manner that it is no longer the same, then the blocks following the amended block are automatically invalidated. If the hash of Block 2 was changed then Block 3 will have the wrong hash of the previous block as this would be the hash of block 2 prior to its change. To solve this problem you would need to recalculate the hash of all the following blocks in the blockchain. This would take some time in cases where the chain is very long.
Another element contributing to the increased security of blockchain is the proof of work mechanism.
The proof of work mechanism slows down the creation of new blocks and whilst also making it hard to tamper with the blocks. In Bitcoin for example, it takes circa 10 to 15 minutes to calculate the required proof of work for the creation of a new block. Tampering with one block would entail having to recalculate the proof of work for all the blocks following the block that was tampered with. Again this would take a lot of time, thus tampering with blocks is not a very favourable activity to carry out.
Smart Contracts have substantially grown in popularity over the years. Nick Szabo was the one to first propose the notion of a Smart Contract back in 1994. A more self-explanatory nomenclature would be that of a ‘Self-executing contract’. A Smart contract is in essence a normal contract. However, it does not contain a middleman such as a notary or a lawyer.
Like any contract, smart contracts define the rules of a contract and the penalties in the case of a breach of those rules. However, in the case of a smart contract these rules and obligations are automatically enforced via programming.
At the DC Blockchain Summit Vitalik Buterin gave an explanation of a smart contract. He stated that in a smart contract an asset or a currency is transferred into a program. This program then runs the code. Upon certain condition being met or certain circumstances arising, it automatically validates a condition and determines whether the asset should go back to the sender, be sent to the receiver, refunded to the person or any combination of the aforementioned circumstances.
At the moment the main area of implementation of Blockchain technology is in the area of finance.
Many writers claim that blockchain technology will only retain popular application in the financial sector. In my own personal opinion, blockchain technology can be effectively implemented in almost any industry containing a certain standard of technological application.
The blockchain company ‘Advocate’ for example, is the only platform that is a Blockchain based governance platform. The aim of the company is to strengthen representative democracy with the implementation of blockchain technology. Furthermore, the company ‘Energy Blockchain Labs’ has implemented the use of blockchain technology in the energy industry. The lab is working to develop a range of energy-based internet technologies based on blockchain technology covering the areas of energy production, consumption trading and management.
Apart from these 2 aforementioned areas of application blockchain technology has also been implemented in the areas of E-voting, gaming, gambling, market forecasting and content distribution.