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Blockchain

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A block chain, or blockchain,[1] is a distributed database that maintains a continuously-growing list of data records hardened against tampering and revision. It consists of data structure blocks—which hold exclusively data in initial blockchain implementations,[2] and both data and programs in some (for example, Ethereum[1]) of the more recent implementations—with each block holding batches of individual transactions and the results of any blockchain executables.[3] Each block contains a timestamp and information linking it to a previous block.[4]

The block chain is seen as the main technical innovation of bitcoin,[5] where it serves as the public ledger of all bitcoin transactions.[2] Bitcoin is peer-to-peer, every user is allowed to connect to the network, send new transactions to it, verify transactions, and create new blocks, which is why it is called permissionless. This original design has been the inspiration for other cryptocurrencies[6] and distributed databases.[7]

Etymology

The block chain consists of blocks that hold timestamped batches of valid transactions. Each block includes the hash of the prior block, linking the blocks together. The linked blocks form a chain, with each additional block reinforcing those before it,[4] thus giving the database type its name.[8]

History

The original definition was published by Satoshi Nakamoto in 2008[4] and implemented in the original source code of bitcoin published in 2009.[9] This original design has been the inspiration for other cryptocurrencies and distributed databases.[6] By April 2014, there were more than 80 uses of cryptoledgers.

As of 2014, "Blockchain 2.0" was a term used in the distributed blockchain database field to distinguish between bitcoin as an asset and the "blockchain as a programmable distributed trust infrastructure" more generally, with additions of new scalable features of "on-chain utility and extensibility."[10][11][neutrality is disputed] By April 2014, at least eight funded projects to develop blockchain 2.0 technology were underway.[10]

The Economist has described one implementation of this second-generation programmable blockchain as coming with "a programming language that allows users to write more sophisticated smart contracts, thus creating invoices that pay themselves when a shipment arrives or share certificates which automatically send their owners dividends if profits reach a certain level."[1]

In 2016, the central securities depository of the Russian Federation (NSD) announced a pilot project based on block chain technology.[12][13] Various regulatory bodies in the music industry have started testing models that use block chain technology for royalty collection and management of copyrights around the world [14]

Bitcoin-based sidechains became possible by linking chains that utilize bitcoin as a transactional currency to support new assets. In this schema, even though there are "multiple chains, no new bitcoins are created."[10]

Model

A block chain implementation consists of two kinds of records: transactions and blocks.

Transactions

Transactions are the content to be stored in the block chain. Transactions are created by participants using the system. In the case of cryptocurrencies, a transaction is created any time a cryptocurrency owner sends cryptocurrency to someone.

System users create transactions that are passed from node to node on a best-effort basis. The system implementing the block chain defines a valid transaction. In cryptocurrency applications, a valid transaction must be digitally signed, spend one or more unspent outputs of previous transactions, and the sum of transaction outputs must not exceed the sum of inputs.

Blocks

Blocks record and confirm when and in what sequence transactions enter and are logged in the block chain. Blocks are created by users known as "miners" who use specialized software or equipment designed specifically to create blocks.

In a cryptocurrency system, miners are incentivized to create blocks to collect two types of rewards: a pre-defined per-block award, and fees offered within the transactions themselves, payable to any miner who successfully confirms the transaction.

Decentralization

Every node in a decentralized system has a copy of the block chain. This avoids the need to have a centralized database managed by a trusted third party.[15] Transactions are broadcast to the network using software applications. Network nodes can validate transactions, add them to their copy and then broadcast these additions to other nodes.[16]: ch. 8  To avoid the need for a trusted third party to timestamp transactions, decentralized block chains use various timestamping schemes, such as proof-of-work.[17]

Advantages

The core advantages of the block chain architecture include the following:

  • The ability for independent nodes to converge on a consensus of the latest version of a large data set such as a ledger, even when the nodes are run anonymously, have poor interconnectivity and have operators who are dishonest or malicious (see Sybil attack).
  • The ability for any well-connected node to determine, with reasonable certainty, whether a transaction does or does not exist in the data set (see consistency).
  • The ability for any node that creates a transaction to, after a confirmation period, determine with a reasonable level of certainty whether the transaction is valid, able to take place and become final (i.e., that no conflicting transactions were confirmed into the block chain elsewhere that would invalidate the transaction, such as the same currency units "double-spent" somewhere else).
  • A prohibitively high cost to attempt to rewrite or alter transaction history.
  • Automated conflict resolution that ensures that conflicting transactions (such as two or more attempts to spend the same balance in different places) never become part of the confirmed data set.

Debates

An ongoing debate disputes whether a private system with verifiers tasked and authorized (permissioned) by a central authority, should still be considered a block chain.[18][19][20][21][22]

Proponents of permissioned or private chains argue that the term "blockchain" is rightly applied to any data structure which batches data into blocks which are timestamped and that these blockchains serve as a distributed version of multiversion concurrency control (MVCC) in databases.[23] Just as MVCC prevents two transactions from concurrently modifying a single object in a database, block chains prevent two transactions from spending a single output in a blockchain.

The opponents say that the permissioned systems look like traditional corporate databases, not supporting decentralized verification of the data, and that such systems are not hardened against tampering and revision by their operators.[18][20]

Applications

Sidechains

Sidechains are networks based on the bitcoin protocol that are isolated from the block chain, allowing activity to exist in isolation until confirmation on the block chain, at which point transferability becomes bidirectional.[24][better source needed] Examples:

  • Liquid – Exchange sidechain developed by Blockstream[25]
  • ChromaWay – Sidechain platform for colored coins
  • DIONS – Digital I/O sidechain concept for identity
  • tØ (tee-zero) – SEC-approved sidechain developed by Overstock.com
  • Openchain – NoConsensus NoP2P modular distributed ledger technology for asset management, bidirectional pegging, and chain anchoring (or "sidechaining").

Alternative block chains

Alternative block chains (altchains) are based on bitcoin technology in concept and/or code.[5] These designs generally add functionality to the block chain design. Altchains can provide solutions including other digital currencies, although tokens used in these designs are not always considered to be such. Altchains target performance, anonymity, storage and applications such as smart contracts.[26] Starting with a strong focus on financial applications, block chain technology is extending to activities including decentralized applications and collaborative organizations that eliminate a middleman.[27][non-primary source needed] Notable designs include:

Trusted timestamp

The bitcoin block chain can be used as a trusted timestamp for arbitrary messages. Third party application services store messages directly in the block chain, allowing anyone who has the block chain to read the message.[31][32][33][34] Bitcoin Core developer Mike Hearn among others discouraged embedding large messages in the bitcoin block chain, criticizing it as "bloat".[35][36][37]

Other applications store a hash value in the block chain, recording data existence and confirming data integrity without revealing data and without bloating the block chain.[38][39] This information can be used to implement "colored coins" or side chains to support functionality such as smart contracts.

Other uses

Cooperative storage cloud solutions sometimes employ block chain technology to regulate exchange of data or actual payments for storage space.

See also

References

  1. ^ a b c "Blockchains: The great chain of being sure about things". The Economist. 2015-10-31. Retrieved 2016-05-05.
  2. ^ a b Antonopoulos, Andreas (December 2014). Mastering Bitcoin - Unlocking Digital Cryptocurrencies. O'Reilly Media. ISBN 1-4493-7403-4. Retrieved 3 November 2015.
  3. ^ Joseph Lubin (November 2015). DEVCON1: Towards a Dynamic Economic, Social and Political Mesh. Ethereum. Retrieved 2016-04-12.
  4. ^ a b c Satoshi Nakamoto (2008). "Bitcoin: A Peer-to-Peer Electronic Cash System" (PDF). Bitcoin.org. Retrieved 31 October 2008.
  5. ^ a b "Blockchain". Investopedia. Retrieved 19 March 2016. Based on the Bitcoin protocol, the blockchain database is shared by all nodes participating in a system.
  6. ^ a b "Blockchains and the Internet of Things". Postscapes.
  7. ^ "40 Banks Trial Commercial Paper Trading in Latest R3 Blockchain Test - CoinDesk". CoinDesk. Retrieved 2016-03-21.
  8. ^ "How does Bitcoin work?". Bitcoin.org. Retrieved 20 May 2015.
  9. ^ Nakamoto, Satoshi. "original-bitcoin main.h". Satoshi Nakamoto. Retrieved 2009. {{cite web}}: Check date values in: |accessdate= (help)
  10. ^ a b c Swanson, Tim (2014-04-08). "Blockchain 2.0 – Let a Thousand Chains Blossom". LTB Network. Retrieved 2016-03-30.
  11. ^ "Block Chain 2.0: The Renaissance of Money". Wired (magazine)/Wired. January 2015. Retrieved 2016-04-06.
  12. ^ "The National Settlement Depository started the pilot project based on the technology of the distributed register. Creation of the prototype of system of electronic voting for owners of bonds based on block chain was announced at the Exchange forum by the chairman of the board of NSD Eddie Astanin"
     Russian: "Национальный расчетный депозитарий запустил пилотный проект на основе технологии распределенного реестра. Создание прототипа системы электронного голосования владельцев облигаций на блокчейне анонсировал на Биржевом форуме председатель правления НРД Эдди Астанин"(source)
  13. ^ http://www.coindesk.com/russia-national-settlement-depository-blockchain-voting/
  14. ^ http://www.forbes.com/sites/rogeraitken/2016/01/23/muse-leveraging-blockchain-technology-to-revolutionize-music-industry/#385416c332b5
  15. ^ Jerry Brito and Andrea Castillo (2013). "Bitcoin: A Primer for Policymakers" (PDF). Mercatus Center. George Mason University. Retrieved 22 October 2013.
  16. ^ Andreas M. Antonopoulos (April 2014). Mastering Bitcoin. Unlocking Digital Crypto-Currencies. O'Reilly Media. Retrieved 23 October 2014.
  17. ^ Joshua Kopstein (12 December 2013). "The Mission to Decentralize the Internet". The New Yorker. Retrieved 30 December 2014. The network's "nodes"—users running the bitcoin software on their computers—collectively check the integrity of other nodes to ensure that no one spends the same coins twice. All transactions are published on a shared public ledger, called the "blockchain"
  18. ^ a b "It's All About the Blockchain - Money and State". Money and State. Retrieved 2015-11-02.
  19. ^ Reutzel, Bailey. "A Very Public Conflict Over Private Blockchains". Payments Source. SourceMedia.
  20. ^ a b "Blockchain".
  21. ^ "Blockchain Bandwagon Lesson". dinbits. 2015.
  22. ^ "Why the Bitcoin Blockchain Beats Out Competitors". American Banker. 2015.
  23. ^ Greenspan, Gideon. "Ending the bitcoin vs blockchain debate".
  24. ^ Adam Black, Matt Corallo, Luke Dashjr, Mark Friedenback, Gregory Maxwell, Andrew Miller, Andrew Poelstra, Jorge Timon, and Pieter Wuille (2014). "An explanation of Bitcoin Sidechains". Retrieved 22 October 2014.{{cite web}}: CS1 maint: multiple names: authors list (link)
  25. ^ SAMBURAJ DAS (2015). "The First SideChain for Bitcoin Exchanges". CrryptoCoinsNews.
  26. ^ "Why Bitcoin may herald a new era in finance". www.economistinsights.com. The Economist Group. Retrieved 9 June 2015.
  27. ^ "Primavera De Filippi: From competition to cooperation". TEDxCambridge. Retrieved 8 October 2015.
  28. ^ Coppola, Benmeleh, Gabrielle, Yaacov. "This Israeli Ride-Sharing App Is the Utopian, Hippie Uber". Bloomberg. Retrieved 27 January 2016.{{cite web}}: CS1 maint: multiple names: authors list (link)
  29. ^ Ayral, Sandrine. "Bitcoin 2.0 Crowdfunding Is Real Crowdfunding". Techcrunch. Retrieved 27 January 2016.
  30. ^ Miller, Carl. "In 2015 social media companies strengthened their rule. In 2016 they will face rebellion". The Telegraph. Retrieved 27 January 2016.
  31. ^ Aaron van Wirdum. "Student Aims to Boost Free Speech with Bitcoin Messaging App".
  32. ^ Ken Shirriff. "Hidden surprises in the Bitcoin blockchain and how they are stored: Nelson Mandela, Wikileaks, photos, and Python software".
  33. ^ "Bitcoin Strings: blockchain in words"
  34. ^ "CryptoGraffiti".
  35. ^ Daniel Cawrey. "Why New Forms of Spam Could Bloat Bitcoin's Block Chain".
  36. ^ "What are the key differences between different ways of embedding messages in the blockchain?".
  37. ^ Danny Bradbury. "Bitcoin, schmitcoin. Let's play piggyback on the blockchain".
  38. ^ "What is proof of existence?".
  39. ^ Danny Bradbury."Developers Battle Over Bitcoin Block Chain".
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