Chain of Blocks- A Product insight into the Block Chain technology

Before we understand how Block Chain technology works, we need to understand what problem it was designed to solve.

How do you tell if something is fake or real in today’s world? For example, how can you tell the validity of a 1,000 NGN note or your driver’s license?

Simple; we keep a record of it. For example, banknotes are marked with serial numbers, while your Driver’s license has a license number that is “recorded” centrally in the FRSC system. Today, we validate the authenticity of documents with the issuers (relevant authority) of that or those documents.

The key thing to note here is that these data are “Centralized”. Meaning there is a person or authority that has the power to issue and validate the data captured and relayed. With Centralization, comes the power of autonomy and that power means the data captured can be changed at any time without recourse to the holders of these data sets.

Today, our world history is kept in a centralized manner. The phrase “History is written by the Victors” tells us that “facts” can most times be distorted. For instance, most money is just a record of who owes what to whom. To justify the bailout in the financial crisis of 08, thousands of firms in the US received over $600B that no one knew existed, while some had their debts cleared. Basically, someone (or a group of people) in the highest authority decided to “change the records” of how much money was owed and owned.

?This was the Birth of BITCOIN

This was the first form of money that removed the need for a central authority, as it’s records are kept and tracked by everyone in the ecosystem. This means that no single player or participant can change the ledger of transactions, even when it is more convenient.

?Slight Deviation----> Is Bitcoin = Money?

For anything to be classified as money, it must have “money-like” features. (Same logic applies to the classification of animals in biology- animals who give birth to their young ones alive are called mammals, even if they live in the sea- Dolphins &Whales or fly- Bats).

To be called money, it must;

-??????Be a Unit of account

-??????Serve as a Store of Value

-??????Be a Medium of Exchange

?Yes, Bitcoin can be used in exchange for commodities and holds/stores value (of some sort). But cannot be used as a unit of account. Most countries have just one unit of account (Naira, Pounds, Dollars, etc.). This means that if I paid 0.5BTC for an item last night and the value of the BTC drops by 50%, I’d have to pay 0.75BTC for that item as the item’s unit account is in the country's home currency.

Fulfilling 2 out of 3 requirements does not qualify it as money, but merely a currency

Back to Block Chain---->

Centralization of Information

Do you remember those big encyclopedia books? Encyclopedia Britannica employed over a hundred full-time editors and over 4,000 contributors to publish what we considered to be the authority on knowledge. Just imagine the power the editors of these books had in deciding what was worth mentioning, condemning, condoning, or ignoring. Well, the last volume of encyclopedia Britannica was in 2010. Today, on Wikipedia, information is much more decentralized with over 130,000 active editors. The risk of any of them “going rogue” unnoticed is less likely since each edit is public and can be verified by anyone.

Decentralization reduces the risk of corruption, fraud, and manipulation. Blockchain technology is a new and innovative way to implement decentralization. It is a solution to the problem of centralization. It is a system for keeping records by everybody, without any need for a central authority in a decentralized way of maintaining a ledger that is practically impossible to falsify.

?Why Block Chain?

Imagine maintaining a shared ledger with many pages of records. Each page begins with a summary of the page before it. If you change a part of the previous page, you also have to change the summary of the current page. So the pages are actually linked or “chained” together. In tech terms, these pages are called “Blocks” and since each block is linked to the data of the previous block, we have a “chain of blocks” or a “Block Chain”.

Many people think Satoshi Nakamoto invented blockchain technology. Technically, he only created the first real-life implementation of it- Bitcoin. In fact, the word “blockchain” was never mentioned in Satoshi’s original white paper. The closest he comes to saying blockchain is a “Chain of blocks”.

How does the Block Chain technology work?

The process of allowing the creation, verification, and updating of records by everybody in the ecosystem requires 4 ingredients.?

The first ingredient required is a “P2P network”. A network of computers also known as nodes that are equally privileged. It’s open to anyone and everyone. This is basically what we have today with the Internet. We need this network so that we will be able to communicate and share with each other remotely

The second ingredient is “cryptography”. This is the art of communication in a hostile environment. It allows me to verify messages and prove the authenticity of my own messages even when malicious players are around. We need cryptography because of the first element. It is great that I can communicate but also ensure that my communication comes through unaltered

?The third ingredient is a “consensus algorithm”. This means we need to agree on the rule (algorithm) on how we add a new page also known as a block to our records. There are many types of consensus rules. In the case of Bitcoin, we use a consensus algorithm known as “Proof of work”. This states that for someone to earn the right to add a new page to our ledger they need to find a solution to a math problem that requires computational power to solve. Computers around the network run calculations to solve math problems and in doing so, consume a lot of energy. That’s why when one of them finds the number that solves the problem and displays it to the network, they are basically displaying a “proof of work”.

However, there are other consensus algorithms that don’t require so much energy, this is just the algorithm type that Blockchain tech employs. There are pros and cons to a different algorithm, but to run a decentralized ledger, you will need to choose one, otherwise, it will be hard to reach a consensus with so many people in the network

?The fourth ingredient is “Punishment and Reward”. This element is derived from the game theory and makes sure that it will be in people’s best interest to always follow the rules. So far, we have set up a network that has a way to communicate securely and follows the set of rules for reaching a consensus.

Now we’ll glue these ingredients together by giving a reward to people that help us maintain our records and add new pages. This reward is a “token” or “coin” that is awarded each time a consensus is reached, and a new block is added to our chain. On the other hand, bad actors who want to trick or manipulate the system will end up losing the money they spent on computational power, or their coins can be taken away from them. In the end, the important thing to remember is that the punishment and reward system works on psychological behavior. It turns the rules of the system from something you need to follow into something you’ll want to follow since it will be in your best interest to do so.

However, there is a fifth ingredient that can’t really be synthesized- “Market adoption”. I mean we can have a group of 5 people sharing a ledger consensus algorithm, but it doesn’t really make it decentralized, since not enough people are a part of the system. Moreover, if there is no adoption, there won’t be any value to our coin and the fourth ingredient of punishment and reward will not be very effective. Only once you achieve critical mass in the number of users does a blockchain become truly decentralized and therefore immutable. It is at that point the coin of that blockchain usually begins to appreciate.

It’s hard to say what triggers mass-scale adoption. In bitcoin’s case, things started through use on the dark web where people used bitcoin to pay for drugs and other illegal stuff. But since then, more people have begun to research Bitcoin and blockchain and have seen the benefits they offer, either in practice or as an investment.

Up until today, there are only a handful of blockchains that have over 1,000 truly independent participants, and as such can be considered decentralized. Bitcoin, Ethereum, and Monero to name a few. If you are thinking that it sounds like a lot of hard work to put a blockchain in motion, you are absolutely right. But this is where Ethereum comes in. It is a “Do it yourself” blockchain where all these 5 elements are already in motion. All you need to do is build the right solution on top of it.

?Private (Closed) Block Chain

This term refers to firms that screen and limit the players who participate in their blockchain. It’s a bit like how the internet, which is open to everybody and anybody, is different from an intranet- an internal network of company computers. While I assume some companies will find value in running private blockchains to improve their internal processes, it’s far from anything exciting in as much as it has nothing to do with decentralization. To emphasize this a bit more, let’s compare open, public blockchains to closed, private ones.?

Public (Open) Block Chain

A public blockchain is open to everybody. It’s transnational and borderless. It’s censorship resistant and does not require any 3rd party. It’s also neutral. There is no such thing as a “good”, “bad”, “illegal” or “legal” transaction. There is only a “Valid” or “Invalid” transaction.

A private blockchain on the other hand is limited to authorized participants only, and it’s governed by a handful of entities. You can just share a spreadsheet between the participants. The whole idea of blockchain was to decentralize a process through the public and that’s exactly the opposite of what a private blockchain does.

The features of a public blockchain on the other hand create enormous benefits. There is no single point of failure. The records are tamper-proof. It’s censorship-resistant, so you can’t really remove a record or stop it from getting published if it follows the consensus rule?

Do you need that "Block Chain tech"?

On a final note, as with every phenomenon, there must be a valid use case for every application of Blockchain technology. This is to ensure it serves a purpose and not just because “it is the new tech in town”. For instance, the queue in a pharmacy is managed in a centralized manner, but I don’t really care since there is not a lot at stake and it’s more efficient that way. Block-chaining tech is good at decentralizing, but it’s also very inefficient, slow, and energy-consuming. For example, Bitcoin’s network takes 10 mins on average to confirm a transaction.

The only reason to choose blockchain technology is if your problem is centralization. If you don’t need to decentralize something, you probably don’t need to use blockchain technology and are better off with some centralized solution. In fact, it will probably work better.

?Blockchain technology is truly disruptive, but currently, only a handful of use cases really require it.

So the real question is; at the current moment, is our world ready for a more complex blockchain implementation than what Bitcoin already offers?

References:

• https://www.chathamhouse.org/events/all/members-event/chatham-house-primer-blockchain
• The fantastic team at 99Bitcoins?