What is Blockchain Technology?
A Step-by-Step Guide For Beginners
By
Hafiz ur Rahman
PhD Scholar (CyberSecurity)
Hafiz ur Rahman
PhD Scholar (CyberSecurity)
In this guide, we are going to explain to you what the blockchain technology is, and what its properties are what make it so unique. And if you already know what blockchain is and want to become a blockchain developer please check out our in-depth blockchain tutorial and create your very first blockchain.
A blockchain is, in the simplest of terms, a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain).
So, what is so special about it and why are we saying that it has industry-disrupting capabilities?
The blockchain network has no central authority — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see . Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
So, what is so special about it and why are we saying that it has industry-disrupting capabilities?
The blockchain network has no central authority — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see . Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
Blockchain in Netshell:
Blockchain technology uses various mathematical functions as well as algorithms to create a highly secure as well as distributed ledger system which enables transitions to take place without a need for third party or any need for transition or commission requirements. Furthermore, you don’t have to depend on third party to take your transitions through.
If you want a more detailed explanation about the Blockchain and how Blockchain technology works keep on reading , here’s what I’ll cover:
Blockchain technology uses various mathematical functions as well as algorithms to create a highly secure as well as distributed ledger system which enables transitions to take place without a need for third party or any need for transition or commission requirements. Furthermore, you don’t have to depend on third party to take your transitions through.
If you want a more detailed explanation about the Blockchain and how Blockchain technology works keep on reading , here’s what I’ll cover:
- The Downside of Central Authorities
- What exactly is Blockchain?
- The 4 Elements of a Blockchain
- Different types of Blockchain
- Architecture of Blockchain
- Work flow of Blockchain
- Will Blockchain Technology Change the World?
- 26 real worl use cases of Blockchain
- Conclusion
Blockchain in Details
Before we understand how Blockchain technology works, we need to understand what problems it was designed to solve, so let’s take a step back and let me ask you a questio.
How do we tell if something is fake or real in today’s world?
For example, a dollar bill, a driver’s license, a vote in the election. How do we determine whether it’s valid or not? The answer? We keep a record of it.
For example, each dollar bill has a serial number that is recorded by the bank. Your driver’s license number is recorded by the DMV and voting records are used to track who voted and who didn’t, so the same person won’t be able to vote twice. Whenever you want to verify that a document is legit, you just look it up with the relevant authority. We even have Notaries, people who are licensed by the government to act as witnesses to attest and record the validity of pieces of information or identities.
You’ll notice there’s one thing that all of these mechanisms have in common – they are centralized, which means there’s a central authority, whether it’s a bank, state office, or person that has the power to issue and validate information.
How do we tell if something is fake or real in today’s world?
For example, a dollar bill, a driver’s license, a vote in the election. How do we determine whether it’s valid or not? The answer? We keep a record of it.
For example, each dollar bill has a serial number that is recorded by the bank. Your driver’s license number is recorded by the DMV and voting records are used to track who voted and who didn’t, so the same person won’t be able to vote twice. Whenever you want to verify that a document is legit, you just look it up with the relevant authority. We even have Notaries, people who are licensed by the government to act as witnesses to attest and record the validity of pieces of information or identities.
You’ll notice there’s one thing that all of these mechanisms have in common – they are centralized, which means there’s a central authority, whether it’s a bank, state office, or person that has the power to issue and validate information.
The Downside of Central Authorities
Central authorities have a lot of power, and as you know power may sometimes corrupt. So what happens if one of these authorities wants to change the facts or maybe even change history a little bit?
Decentralization reduces the risk for corruption, fraud and manipulation. Blockchain technology is a new and innovative way to implement decentralization.
Distributed Ledger Technology (DLT) has attracted widespread attention in recent years. DLT is a transparent, distributed, secure data storage and transfer technology that works without any centralized trusted third party. A distributed ledger is a decentralized database that is maintained by several nodes over a peer-to-peer network. The ledger is verified and replicated by each node. Blockchain is one form of DLT. The blockchain organizes data into blocks, which are chained together using an append-only structure. The chainbased block structure is the most popular data structure of DLT, but it is not the only one. There are other data structures to implement DLT, such as Directed Acyclic Graph (DAG).
Blockchain technology is a solution for the problem of centralization. It’s a system for keeping records by everybody, without any need for a central authority – a decentralized way of maintaining a ledger that is practically impossible to falsify. I mean, when so many eyes are watching and verifying everything that’s being done, it’s really hard to break the rules unnoticed.
Decentralization reduces the risk for corruption, fraud and manipulation. Blockchain technology is a new and innovative way to implement decentralization.
Distributed Ledger Technology (DLT) has attracted widespread attention in recent years. DLT is a transparent, distributed, secure data storage and transfer technology that works without any centralized trusted third party. A distributed ledger is a decentralized database that is maintained by several nodes over a peer-to-peer network. The ledger is verified and replicated by each node. Blockchain is one form of DLT. The blockchain organizes data into blocks, which are chained together using an append-only structure. The chainbased block structure is the most popular data structure of DLT, but it is not the only one. There are other data structures to implement DLT, such as Directed Acyclic Graph (DAG).
Blockchain technology is a solution for the problem of centralization. It’s a system for keeping records by everybody, without any need for a central authority – a decentralized way of maintaining a ledger that is practically impossible to falsify. I mean, when so many eyes are watching and verifying everything that’s being done, it’s really hard to break the rules unnoticed.
What exactly is Blockchain and why it is call blockchain?
Imagine we’re maintaining a shared ledger with many pages of records. Each page begins with a sort of summary of the page before it. If you change a part of the previous page, you’ll also have to change the summary on the current page. So the pages are actually linked, or chained together. In technological terms, 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 blockchain, as shown in the below figure.
The Four Elements of a Blockchain
Now that you know what blockchain technology is, we still have two major questions to answer – how does it actually work, and is blockchain going to change our future? There are four elements a blockchain needs to actually have a life of its own.
1. Peer-to-Peer 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 already have today with the Internet. We need this network so that we will be able to communicate and share with each other remotely.
2. Cryptography
Cryptography is the art of secure 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. Remember, I said anyone can participate in this network – including bad actors. It’s great that I can communicate, but I also need to make sure my communication comes through unaltered.
3. Consensus Algorithm
You can switch the technical word “algorithm” with the word “rule”. This means we need to agree about rules on how we add a new page, also known as a block, to our records.
There are many types of consensus rules, in Bitcoin’s case we use a consensus algorithm known as Proof of Work. This algorithm states that in order for someone to earn the right to add a new page to our ledger they need to find a solution to a math problem, which requires computational power to solve.
Computers around the network run calculations to solve the math problem and in doing so, consume a lot of energy. In other words, they do a lot of work. That’s why when one of them finds the number that solves the problem and displays it to the network, they’re basically displaying a “proof of work”.
Think of it as the computer’s way of saying: “Hey, I spent quite a bit of energy here in solving this problem first, so I’m entitled to write the next page”. There are other consensus algorithms, unlike the one I just described, that don’t require so much energy. This was just the algorithm type that the Bitcoin blockchain employs. There are pros and cons to different algorithms, but in order to run a decentralized ledger you’ll need to choose one, otherwise, it will be really hard to reach a consensus with so many people in the network.
4. Punishment and Reward
This element is actually derived from game theory and it makes sure that it will be in people’s best interest to always follow the rules. So far, we’ve set up a network that has a way to communicate securely and follows a set of rules for reaching consensus.
Now we’ll glue these elements 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 has been reached and a new block is added to our chain.
On the other hand, bad actors who try 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 behaviour. 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.
This was just a very high-level explanation of what a blockchain consists of. If you want to dig a little deeper into this process, check out the next section, also attand our 7 day crash course on Bitcoin [freely], check the end of this for for details.
1. Peer-to-Peer 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 already have today with the Internet. We need this network so that we will be able to communicate and share with each other remotely.
2. Cryptography
Cryptography is the art of secure 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. Remember, I said anyone can participate in this network – including bad actors. It’s great that I can communicate, but I also need to make sure my communication comes through unaltered.
3. Consensus Algorithm
You can switch the technical word “algorithm” with the word “rule”. This means we need to agree about rules on how we add a new page, also known as a block, to our records.
There are many types of consensus rules, in Bitcoin’s case we use a consensus algorithm known as Proof of Work. This algorithm states that in order for someone to earn the right to add a new page to our ledger they need to find a solution to a math problem, which requires computational power to solve.
Computers around the network run calculations to solve the math problem and in doing so, consume a lot of energy. In other words, they do a lot of work. That’s why when one of them finds the number that solves the problem and displays it to the network, they’re basically displaying a “proof of work”.
Think of it as the computer’s way of saying: “Hey, I spent quite a bit of energy here in solving this problem first, so I’m entitled to write the next page”. There are other consensus algorithms, unlike the one I just described, that don’t require so much energy. This was just the algorithm type that the Bitcoin blockchain employs. There are pros and cons to different algorithms, but in order to run a decentralized ledger you’ll need to choose one, otherwise, it will be really hard to reach a consensus with so many people in the network.
4. Punishment and Reward
This element is actually derived from game theory and it makes sure that it will be in people’s best interest to always follow the rules. So far, we’ve set up a network that has a way to communicate securely and follows a set of rules for reaching consensus.
Now we’ll glue these elements 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 has been reached and a new block is added to our chain.
On the other hand, bad actors who try 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 behaviour. 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.
This was just a very high-level explanation of what a blockchain consists of. If you want to dig a little deeper into this process, check out the next section, also attand our 7 day crash course on Bitcoin [freely], check the end of this for for details.
Figure 1: A typical block structure. The block structure mainly includes two parts: block header and block body. The block body stores verified transactions. The block header specifies the metadata, including hash of previous block, hash of current block, timestamp, Nonce and Merkle root.
Blockchain systems are typically classified into three categories:
The public blockchain is permissionless blockchain, while both consortium blockchain and private blockchain are permissioned blockchain. In the public blockchain, anyone is allowed to join the network, participate in the consensus process, read and send transactions, and maintain the shared ledger. Most crypto currencies and some open-source blockchain platforms are permissionless blockchain systems. Bitcoin and Ethereum are two representative public blockchain systems.
Note: Bitcoin is the most famous crypto currency that is created by Satoshi Nakamoto in 2008. Ethereum is another representative public blockchain that supports extensive decentralized applications using its Turing-complete smart contract programming languages.
- Public blockchain,
- Consortium blockchain and
- Private blockchain
The public blockchain is permissionless blockchain, while both consortium blockchain and private blockchain are permissioned blockchain. In the public blockchain, anyone is allowed to join the network, participate in the consensus process, read and send transactions, and maintain the shared ledger. Most crypto currencies and some open-source blockchain platforms are permissionless blockchain systems. Bitcoin and Ethereum are two representative public blockchain systems.
Note: Bitcoin is the most famous crypto currency that is created by Satoshi Nakamoto in 2008. Ethereum is another representative public blockchain that supports extensive decentralized applications using its Turing-complete smart contract programming languages.
The consortium blockchain systems are generally used in business domain to record cross-organizational business transactions. Different from public blockchain systems, consortium blockchain systems only allow authorized entities to participate in the consensus process. The private blockchain is a distributed but still centralized network that is owned by an organization or entity.
Permissioned blockchain systems can be further divided into two categories: public and private permissioned blockchain systems. Both public and private permissioned blockchain systems allow only the authorized entities to participate in the consensus process, send transactions, and maintain the shared ledger. The main difference between them is that public permissioned blockchain systems allow anyone to read transactions in the shared ledger, while in the private permissioned blockchain systems, reading transactions is also restricted to the authorized entities. Most blockchain systems developed for business are permissioned blockchain systems. Hyperledger Fabric is a representative permissioned blockchain system.
Permissioned blockchain systems can be further divided into two categories: public and private permissioned blockchain systems. Both public and private permissioned blockchain systems allow only the authorized entities to participate in the consensus process, send transactions, and maintain the shared ledger. The main difference between them is that public permissioned blockchain systems allow anyone to read transactions in the shared ledger, while in the private permissioned blockchain systems, reading transactions is also restricted to the authorized entities. Most blockchain systems developed for business are permissioned blockchain systems. Hyperledger Fabric is a representative permissioned blockchain system.
Hyperledger Fabric is a Linux Foundation project developed for business. Nodes in the Hyperledger Fabric are divided
into validating peers and non-validating peers.
The validating peers are responsible for validating transactions, participating in the consensus process and maintaining the ledger by running the Practical Byzantine Fault Tolerance (PBFT) consensus protocol. The non-validating peers are allowed to read and verify transactions. In below Table, we provide a brief comparison of some well-known blockchain systems.
into validating peers and non-validating peers.
The validating peers are responsible for validating transactions, participating in the consensus process and maintaining the ledger by running the Practical Byzantine Fault Tolerance (PBFT) consensus protocol. The non-validating peers are allowed to read and verify transactions. In below Table, we provide a brief comparison of some well-known blockchain systems.
In the following, we present a brief introduction of blockchain from the perspectives of architecture and workflow of blockchain.
A. Architecture of Blockchain
A basic blockchain architecture is composed of six main layers, including data layer, network layer, consensus layer, incentive layer, contract layer, and application layer. The architectural components of each layer are shown in below figure 2.
Figure 2. A general blockchain architecture. The data layer encapsulates the time-stamped data blocks. The network layer is composed of distributed networking mechanism, data propagation mechanism and data verification mechanism. The consensus layer consists of various consensus algorithms. The incentive layer is the main driving force for blockchain network. The contract layer brings programmability into blockchain. The application layer is composed of blockchain-based business applications.
In the following, we will give a detailed description of these layers and their functions.
1. The Data Layer:
The lowest layer in blockchain architecture is the data layer, which encapsulates the time-stamped data blocks. Each block contains a small part of transactions and is “chained” back to its previous block, resulting an ordered list of blocks . A typical block structure is shown in Fig. 1.
The block structure mainly includes two parts: the block header and the block body. The block body stores verified transactions. The block header specifies the metadata, including hash of previous block, hash of current block, timestamp, Nonce and Merkle root. The hash of previous block is used by the current block to connect its previous block called parent block. The first block of a blockchain is named as genesis block that has no parent block.
Timestamp indicates the creating time of this block. Nonce relates to mining process. The Merkle root is the root of a Merkle tree. The Merkle tree uses a hash binary tree to store the transactions within a specific time period. In this way, the existence and integrity of transactions can be verified rapidly, efficiently and securely.
1. The Data Layer:
The lowest layer in blockchain architecture is the data layer, which encapsulates the time-stamped data blocks. Each block contains a small part of transactions and is “chained” back to its previous block, resulting an ordered list of blocks . A typical block structure is shown in Fig. 1.
The block structure mainly includes two parts: the block header and the block body. The block body stores verified transactions. The block header specifies the metadata, including hash of previous block, hash of current block, timestamp, Nonce and Merkle root. The hash of previous block is used by the current block to connect its previous block called parent block. The first block of a blockchain is named as genesis block that has no parent block.
Timestamp indicates the creating time of this block. Nonce relates to mining process. The Merkle root is the root of a Merkle tree. The Merkle tree uses a hash binary tree to store the transactions within a specific time period. In this way, the existence and integrity of transactions can be verified rapidly, efficiently and securely.
2. Network Layer
The network layer is composed of distributed networking mechanism, communication mechanism and data verification mechanism. The goal of this layer is to distribute, forward and verify blockchain transactions. The topology of blockchain network is generally modeled as a P2P network, where peers are equally privileged participants. Once a transaction is generated, it is broadcast to all neighboring nodes. Each node will verify the received transaction according to predefined specifications. If the transaction is valid, it will be forwarded to other nodes. Otherwise, it will be discarded. In this way, only valid transactions are stored by every node in the blockchain network. Digital signature based on asymmetric cryptography mechanism is generally applied to verify the authentication of transactions. The typical digital signature includes two phases: the signing phase and the verification phase. When a node creates a transaction, the transaction is signed by the node’s private key. Once other nodes receive the transaction, the initiator’s public key is used to verify the authentication of the received transaction.
The network layer is composed of distributed networking mechanism, communication mechanism and data verification mechanism. The goal of this layer is to distribute, forward and verify blockchain transactions. The topology of blockchain network is generally modeled as a P2P network, where peers are equally privileged participants. Once a transaction is generated, it is broadcast to all neighboring nodes. Each node will verify the received transaction according to predefined specifications. If the transaction is valid, it will be forwarded to other nodes. Otherwise, it will be discarded. In this way, only valid transactions are stored by every node in the blockchain network. Digital signature based on asymmetric cryptography mechanism is generally applied to verify the authentication of transactions. The typical digital signature includes two phases: the signing phase and the verification phase. When a node creates a transaction, the transaction is signed by the node’s private key. Once other nodes receive the transaction, the initiator’s public key is used to verify the authentication of the received transaction.
3. Consensus Layer
The consensus layer consists of various consensus algorithms. How to reach consensus efficiently among the untrustworthy nodes in decentralized environments is an important issue. In a blockchain network, there is no trusted central node. Thus, some protocols are needed to ensure a consensus among all decentralized nodes before a block is included into the blockchain. In the existing blockchain systems, there are four major consensus mechanisms: Proof of Work (PoW), Proof of Stake (PoS), PBF, and Delegated Proof of Stake (DPoS). PoW is a consensus algorithm used in Bitcoin blockchain. Nodes in the PoW algorithm repeatedly run hashing functions to generate a nonce value which is difficult to produce but easy for other nodes to validate. PoS is an energy-saving mechanism, which enables the node with the largest amount of stake (e.g., currency) to generate blocks. PBFT is a replication algorithm to tolerate byzantine faults. DPoS is similar to PoS. The major difference between PoS and DPoS is that PoS is direct democratic while DPoS is representative democratic. There are some other less popular consensus mechanisms such as Ripple, Stellar, Tendermint, Proof of Bandwidth (PoB), Proof of Elapsed Time (PoET), Proof of Authority (PoA), Proof of Retrievability, Proof of Burn, Proof of Activity, Proof of Space, Proof of Trust, Proof of Luck, BFT-SMART and ScalableBFT. Among all consensus mechanisms, PoW, PoS, DPoS and other protocols based on PoW such as Proof of Activity, Proof of Space and Proof of Luck, are generally used in public blockchain systems. In contrast, Byzantine Fault Tolerance (BFT)-related algorithms (e.g., PBFT, Tendermint, Stellar, Ripple, BFT-SMART and ScalableBFT) are typically suitable for permissioned blockchain systems.
The consensus layer consists of various consensus algorithms. How to reach consensus efficiently among the untrustworthy nodes in decentralized environments is an important issue. In a blockchain network, there is no trusted central node. Thus, some protocols are needed to ensure a consensus among all decentralized nodes before a block is included into the blockchain. In the existing blockchain systems, there are four major consensus mechanisms: Proof of Work (PoW), Proof of Stake (PoS), PBF, and Delegated Proof of Stake (DPoS). PoW is a consensus algorithm used in Bitcoin blockchain. Nodes in the PoW algorithm repeatedly run hashing functions to generate a nonce value which is difficult to produce but easy for other nodes to validate. PoS is an energy-saving mechanism, which enables the node with the largest amount of stake (e.g., currency) to generate blocks. PBFT is a replication algorithm to tolerate byzantine faults. DPoS is similar to PoS. The major difference between PoS and DPoS is that PoS is direct democratic while DPoS is representative democratic. There are some other less popular consensus mechanisms such as Ripple, Stellar, Tendermint, Proof of Bandwidth (PoB), Proof of Elapsed Time (PoET), Proof of Authority (PoA), Proof of Retrievability, Proof of Burn, Proof of Activity, Proof of Space, Proof of Trust, Proof of Luck, BFT-SMART and ScalableBFT. Among all consensus mechanisms, PoW, PoS, DPoS and other protocols based on PoW such as Proof of Activity, Proof of Space and Proof of Luck, are generally used in public blockchain systems. In contrast, Byzantine Fault Tolerance (BFT)-related algorithms (e.g., PBFT, Tendermint, Stellar, Ripple, BFT-SMART and ScalableBFT) are typically suitable for permissioned blockchain systems.
4. Incentive Layer
The incentive layer is the main driving force for blockchain network by integrating the economic factors, such as economic incentive issuance and allocation mechanisms, into the blockchain network to motivate the nodes to contribute their efforts to verify data. Specifically, once a new block is generated, some economic incentives (e.g., digital currencies) will be issued as reward and allocated to corresponding nodes according to their contributions
The incentive layer is the main driving force for blockchain network by integrating the economic factors, such as economic incentive issuance and allocation mechanisms, into the blockchain network to motivate the nodes to contribute their efforts to verify data. Specifically, once a new block is generated, some economic incentives (e.g., digital currencies) will be issued as reward and allocated to corresponding nodes according to their contributions
5. Contract Layer
The contract layer brings programmability into blockchain. Various scripts, algorithms and smart contracts are utilized to enable more complex programmable transactions. Specifically, smart contracts are a group of state-response rules that are securely stored on the blockchain. Smart contracts can control users’ digital assets, express business logic, and formulate the participants’ rights and obligations. When all terms within a smart contract are agreed by two or more participants, the contract will be signed cryptographically and broadcast to the blockchain network for verification. Once the predefined conditions are triggered, the smart contract will execute independently and automatically according to the prescribed rules
The contract layer brings programmability into blockchain. Various scripts, algorithms and smart contracts are utilized to enable more complex programmable transactions. Specifically, smart contracts are a group of state-response rules that are securely stored on the blockchain. Smart contracts can control users’ digital assets, express business logic, and formulate the participants’ rights and obligations. When all terms within a smart contract are agreed by two or more participants, the contract will be signed cryptographically and broadcast to the blockchain network for verification. Once the predefined conditions are triggered, the smart contract will execute independently and automatically according to the prescribed rules
A smart contract can be regarded as a self-executing procedure stored on the blockchain. Like transactions on the blockchain, the inputs, outputs and states of a smart contract are verified by each node. All blockchain systems have their programming languages to implement transaction logic. Bitcoin and its derived altcoins support non-Turing complete languages to provide limited functionality mainly in charge of validating the ownership and availability of the crypto currencies. For example, Bitcoin provides approximately 200 opcodes that can be used by developers to write stackbased programs. Ethereum is the first open-source blockchain platform that offers Turing-complete smart contract languages. A Turing-complete language refers to a programming language that supports all types of computations including loops. Due to the Turing-complete languages, Ethereum not only enables anyone to design his/her own rules, formats of transactions, and state transition functions, but also supports developers to deploy arbitrary decentralized applications in the form of smart contracts. The most popular programming language for writing smart contracts in Ethereum is Solidity. The smart contracts programmed in high-level programming languages (e.g., Solidity) are compiled into low-level bytecodes by the Ethereum Virtual Machine (EVM). Then, the bytecodes are broadcast to Ethereum blockchain network. Each smart contract has its address. A smart contract can be invoked by sending a contract-invoking transaction to its address. To prevent attackers from attacking blockchain systems using programming bugs, some blockchain systems such as Tezos, Corda and Kadena provide non-Turing complete, but more powerful programming languages than Bitcoin’s opcodes. For a more insightful discussion on smart contracts, please refer to.
6. Application Layer
The highest layer in the blockchain architecture is the application layer, which is composed of business applications, such as Internet of Things, intellectual property, market security, digital identity and so on. These applications can provide new services and perform business management and optimization. Although blockchain technology is still in its infancy, academia and industry are trying to apply the promising technology into many areas.
The highest layer in the blockchain architecture is the application layer, which is composed of business applications, such as Internet of Things, intellectual property, market security, digital identity and so on. These applications can provide new services and perform business management and optimization. Although blockchain technology is still in its infancy, academia and industry are trying to apply the promising technology into many areas.
B. Workflow of Blockchain
To understand the blockchain architecture, it is important to recall its basic operation.
Fig. 3 shows the working procedure of the PoW-based blockchain network. First, a transaction related to Alice and Bob is created and signed using their private keys. The signed transaction is broadcast to neighboring nodes. Then this transaction is verified by these neighboring nodes. If the transaction is valid, it will be forwarded to other nodes. Otherwise, it will be discarded.
Finally, this transaction is spread across the entire network. Each miner bundles this transaction and many other transactions during the time period into a block. PoW algorithm is executed by all miners to find a nonce value which makes the block header hash value less than a “Difficulty Target”. Once the nonce value is found by a miner, the miner will add a timestamp to the block and broadcast the time-stamped block to the blockchain network. Other miners need to validate the time-stamped block. If all transactions in the block are proved to be valid, the block will be added to the chain.
Fig. 3 shows the working procedure of the PoW-based blockchain network. First, a transaction related to Alice and Bob is created and signed using their private keys. The signed transaction is broadcast to neighboring nodes. Then this transaction is verified by these neighboring nodes. If the transaction is valid, it will be forwarded to other nodes. Otherwise, it will be discarded.
Finally, this transaction is spread across the entire network. Each miner bundles this transaction and many other transactions during the time period into a block. PoW algorithm is executed by all miners to find a nonce value which makes the block header hash value less than a “Difficulty Target”. Once the nonce value is found by a miner, the miner will add a timestamp to the block and broadcast the time-stamped block to the blockchain network. Other miners need to validate the time-stamped block. If all transactions in the block are proved to be valid, the block will be added to the chain.
Figure 3. The general processing procedure of a PoW-based blockchain network. Tx stands for Transaction.
Use cases of Blockchain
Who Will Use The Blockchain?
Blockchain applications go far beyond cryptocurrency and bitcoin. With its ability to create more transparency and fairness while also saving businesses time and money, the technology is impacting a variety of sectors in ways that range from how contracts are enforced to making government work more efficiently.
We've rounded up 26 examples of real-world blockchain use cases for this pragmatic yet revolutionary technology. It's far from an exhaustive list, but they're already changing how we do business.
We've rounded up 26 examples of real-world blockchain use cases for this pragmatic yet revolutionary technology. It's far from an exhaustive list, but they're already changing how we do business.
Figure 4. 26 BLOCKCHAIN APPLICATIONS AND REAL-WORLD USE CASES DISRUPTING
1. Every/Any Industry
The blockchain process of transacting and storing information on a decentralized, distributed ledger yields many benefits for enterprise application data:
The blockchain process of transacting and storing information on a decentralized, distributed ledger yields many benefits for enterprise application data:
- An integrated network, updated in real-time with always-consistent data
- Ability to set rules for each blockchain enforces compliance
- Tracing data from provenance to present to reduce disputes or discourage fraudulent activity
- Increased efficiency of industry processes, reduced auditing costs
- Consent, protection, and control of consumer/customer data
- High level of trust in repository of transactional data
- Information-sharing across organizations — trust, transparency, and efficiency
- Supply Chain Management — With FlureeDB, a consortium of stakeholders in a supply chain can own, operate and enforce rules for their own shared blockchain.
- Coordinate logistics, payments, financial terms, and contract rules
- End-to-End visibility and tracking of supply chain process in real-time
- Auditing — Records can be instantly independently verified.
- Compliance — Track processes against regulations with pre-defined rules
- Business Contracts — Set pre-defined rules for transactions between two or more companies engaged in a partnership
2. Automotive
- Track truthful, full history of vehicle from pre-production to sale
- Supply chain parts management
3. Banking, Financial, Fintech
- Streamline payments processing with high efficiency, fast and secure transactions
- Empower global transactions, tearing down national currency borders
- Minimize auditing complexity for any financial ledger
4. Charity
- Tracking donation allocation, accountability, integrity
- Reduce overhead and complexity of donation payment processing
- Increased security with a shift from centralized data security to decentralized network
- Lower transactional costs within a decentralized network
- Crowdsourcing unused cloud storage
- Tracking journey stops; paired with IoT to create an immutable ledger of trip data
- Make credit reports more accurate, transparent, and accessible
- Fight hacking with immutability of ledger
- Guarantee validity with data integrity
- No Single Point of Failure (decrease in IP-based DDoS attack success)
- Provide auditable trail for donations to prevent fraud
- Ensure crowdfunded campaigns receive donations and contributors are compensated
- Digitizing, verifying academic credentials
- Federated repository of academic information specific to class, professor, and student
- Bypass public grids to allow for cheaper, peer to peer energy transfer
- Smart utility metering
- Combined with machine learning algorithms, blockchain can provide a decentralized forecasting tool
- Reduce voter fraud, inefficiencies with verifiable audit trails
- Minimize government fraud, digitize most processes
- Increase accountability and compliance for government officials
- Identity validation; integrity of citizen registry data
- Tracking gun ownership and possession related information
- Tracking criminal ID history and attempts to purchase
- Background checks: Verification of identity, employment history
- Payment and benefits process validation — smart contracts
- Improve multi-party contracts
- Streamline risk contract efficiency
- Streamline claims adjudication
- Reduce disputes with transparency of shared data
- Ability for IoT applications to contribute transactional data to blockchains
- Implications across industries (trucking/transportation, supply chain integrity, etc.)
- Integrity of evidence, resistance to falsification of case data
- Documentation of time-stamped, chronological chain of facts
- Smart contracts with defined rules, expiration, and accessibility for relevant parties.
- Bypass intermediaries, providing more cost-effective advertising
- Control of ownership rights
- Anti-piracy / copyright infringement
- Use of smart contracts for artist compensation/legal proceedings
- Payments processing — cryptographic, secure, and anti-3rd party (this opens up content availability internationally)
- Drug Supply Chain Integrity
- Patient Databases/Indexes on blockchain
- Claims Adjudication
- Medical Supply Chain Management
- Transparency and Automation within the patient-to-hospital or patient-to-doctor transactions
- Clinical trial provenance — integrity with an auditable trail of data exchange
- Efficiency, privacy, and ownership of patient health data
- Streamline public transportation
- Provide more accurate payment for ride, gas, and wear and tear
- Transparency within agreements
- Verify property information, update and decentralize records
- Reduce paperwork, digitize transactional processes
- Record, track, transfer land titles
- Passenger Identification, boarding, passport, payment, and other documentation digitized and verified
- Loyalty programs digitization and tracking
- Smart contracts to determine validity of will and allocation of inheritances
References:
- Nguyen, Dinh C., et al. "Integration of blockchain and cloud of things: Architecture, applications and challenges." IEEE Communications Surveys & Tutorials 22.4 (2020): 2521-2549.
- Xie, Junfeng, et al. "A survey of blockchain technology applied to smart cities: Research issues and challenges." IEEE Communications Surveys & Tutorials 21.3 (2019): 2794-2830.
- https://medium.com/fluree/blockchain-for-2018-and-beyond-a-growing-list-of-blockchain-use-cases-37db7c19fb9