In these series of blogs written like a tweetstorm, we will summarize the best articles on blockchain technology (in our opinion) published on the web.
This blog will summarize the first such article published in the WIRED magazine which explains what is blockchain. The key points in the article are
1. The world is split between experts who think blockchain is either the most innovative technology since the internet or a solution looking for a problem
2. The digital currency bitcoin is the source of the original blockchain, the software for which was released to the public in January 2009. Blockchain is essentially a distributed ledger consisting of linked batches of transaction known as blocks (the reason for the term ‘blockchain’). Close to 200,000 computers make up the bitcoin network and an identical copy of the ledger is stored on each of the computer
3. Any entity making a bitcoin transaction (transferring digital coins) has to prove they are the actual owner of the coins; this is accomplished by cryptographically signing each change to the ledger. Since the information on each transaction/change is transmitted to every node in the bitcoin computer network as soon as the transaction is recorded in the ledger, the technology ensures no one can commit a fraud
4. Another well-known cryptocurrency Ripple began as an exchange for digital IOUs between parties; it was a prototype of a system for issuing tokens that could be traded with others in exchange for computing intensive work. The idea was to both keep track of how each unit of the virtual currency is spent and prevent unauthorized changes to the ledger. The upshot: No bitcoin user has to trust anyone else, because no one can cheat the system.
5. Advocates have seized on the idea of a decentralized, cryptographically secure database for uses beyond currency. They believe blockchains can not only replace central banks but usher in a new era of online services outside the control of internet giants like Facebook and Google. These new-age apps would be impossible to censor, advocates say, and would be more answerable to users
6. The idea could eventually show up in lots of places. For example, your digital identity could be tied to a token on a blockchain. You could then use that token to log in to apps, open bank accounts, apply for jobs, or prove that your emails or social-media messages are really from you. Future social networks might be built on connected smart contracts that show your posts only to certain people or enable people who create popular content to be paid in cryptocurrencies
7. One of the first projects to repurpose the bitcoin code to use it for more than currency was Namecoin, a system for registering domain names. The traditional domain-name management system—the one that helps your computer find our website when you type wired.com—depends on a central database, essentially an address book for the internet. Internet-freedom activists have long worried that this traditional approach makes censorship too easy, because governments can seize a domain name by forcing the company responsible for registering it to change the central database. The US government has done this several times to shut sites accused of violating gambling or intellectual-property laws. Namecoin tries to solve this problem by storing .bit domain registrations in a blockchain, which theoretically makes it impossible for anyone without the encryption key to change the registration information. To seize a .bit domain name, a government would have to find the person responsible for the site and force them to hand over the key
8. In 2013, a startup called Ethereum published a paper outlining an idea that promised to make it easier for coders to create their own blockchain-based software without having to start from scratch, without relying on the original bitcoin software. In 2015 the company released its platform for building “smart contracts,” software applications that can enforce an agreement without human intervention. For example, you could create a smart contract to bet on tomorrow’s weather. You and your gambling partner would upload the contract to the Ethereum network and then send a little digital currency, which the software would essentially hold in escrow. The next day, the software would check the weather and then send the winner their earnings. At least two major prediction markets have been built on the platform, enabling people to bet on more interesting outcomes, such as which political party will win an election. So long as the software is written correctly, there is no need to trust anyone in these transactions
9. Ethereum and other blockchain-based projects have raised funds through a controversial practice called an initial coin offering or ICO. The creators of new digital currencies sell a certain amount of the currency, usually before they’ve finished the software and technology that underpins it. The idea is that investors can get in early while giving developers the funds to finish the tech.The catch is that these offerings have traditionally operated outside the regulatory framework meant to protect investors, although that’s starting to change as more governments examine the practice
10. Meanwhile, despite the fact that bitcoin was originally best known for enabling illicit drug sales over the internet, blockchains are finding acceptance in some of the world’s largest companies. Some big financial services companies, including JP Morgan and the Depository Trust & Clearing Corporation, are experimenting with blockchains and blockchain-like technologies to improve the efficiency of trading stocks and other assets. Traders buy and sell stocks rapidly, but the behind-the-scenes process of transferring ownership of those assets can take days. Some technologists believe blockchains could help with that.
11. In 2015, some of the largest financial institutions in the world, including JP Morgan, the Bank of England, and the Depository Trust & Clearing Corporation (DTCC), announced that they would collaborate on open source blockchain software under the name Hyperledger. Several pieces of software have been released under the Hyperledger umbrella, including Sawtooth, created by Intel for building custom blockchains. The industry is already experimenting with using blockchains to make security trades more efficien
12. However, all is not sunshiny. Despite the blockchain hype—and many experiments—there’s still no killer app for the technology beyond currency speculation. And while auditors might like the idea of immutable records, as a society we don’t always want records to be permanent. Blockchain proponents admit that it could take a while for the technology to catch on. Also, security is another issue. In 2016 a hacker made off with about $50 million worth of Ethereum’s custom currency intended for a democratized investment scheme where investors would pool their money and vote on how to invest it. A coding error allowed a still unknown person to make off with the virtual cash.
13. All said and done bitcoin/blockchain proved that it’s possible to build an online service that operates outside the control of any one company or organization. The task for blockchain advocates now is proving that that’s actually a good thing.
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