What is Blockchain: Definition and Use Cases

Blockchain has the potential to change everything from how we vote to how we bank. It could even help us track our food supply from farm to table. If you want to stay ahead of the curve, you need to understand blockchain technology and what it means for the future of business.

What is Blockchain?

Blockchain, sometimes called Distributed Ledger Technology (DLT), uses decentralization and encrypted hashing to make the history of any digital asset unalterable and transparent.

A simple analogy for understanding blockchain technology is Google Doc. When we create a document and share it with a group of people, the document is distributed, not copied or transmitted. This creates a decentralized distribution chain so that everyone can access the document at the same time. No one is locked waiting for the other party's changes, and all modifications to the document are recorded in real time, making the changes completely transparent. Of course, the blockchain is more complicated than Google Doc, but this analogy is very appropriate because it illustrates the three key ideas of the technology:

Blockchain explained – a quick overview

• A blockchain is a database that stores encrypted data blocks and then links them together to form a single chronological source of truth for the data

• Digital assets are distributed rather than copied or transferred, creating an immutable record of assets

• Assets are decentralized, allowing full real-time access and transparency by the public

• A transparent ledger of changes preserves integrity of the document, which creates trust in the asset.

• Blockchain's unique security measures and public ledger make it a great technology for almost every industry.

Blockchain is a highly promising and innovative technology as it allows reduce risk, stamps out fraud, and brings transparency in a scalable manner for myriad uses.

How Does Blockchain Work?

Blockchain consists of three important concepts: blocks, nodes and miners.

Blocks

Each chain is composed of multiple blocks, and each block has three basic elements:

• The data in the block

• A 32-bit integer called a nonce. The nonce is randomly generated when the block is created, and then the block header hash is generated.

• The hash is a 256-bit number combined with a nonce. It must start with a large number of zeros (i.e. be very small). When the first block of the chain is created, a nonce generates a cryptographic hash. Unless mined, the data in the block is considered signed and is always associated with nonces and hashes.

Miners

Miners create new blocks on the chain through a process called mining. In the blockchain, each block has its own unique nonce and hash value, but it also references the hash value of the previous block in the chain, so it is not easy to mine blocks, especially in large chains.

Miners use special software to solve extremely complex mathematical problems, that is, to find nonces that generate acceptable hashes. Because the nonce is only 32 bits, and the hash is 256 bits, it is necessary to mine about 4 billion possible nonce-hash combinations before finding the correct one. When this happens, it is said that the miners have found the "golden nonce" and their blocks are added to the chain.

Making changes to any block earlier in the chain requires not only re-mining the changed block, but also re-mining all subsequent blocks. This is why it is extremely difficult to manipulate blockchain technology. Think of it as "security in mathematics" because finding golden nonces requires a lot of time and computing power.

When a block is successfully mined, all nodes on the network will accept the changes and miners will receive financial rewards.

Nodes

One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own this chain. Instead, it is a distributed ledger through nodes connected to the chain. A node can be any type of electronic device that maintains a copy of the blockchain and keeps the network running normally.

Each node has its own copy of the blockchain, and the network must use algorithms to approve any newly mined blocks in order to update, trust and verify the chain. Since the blockchain is transparent, it is easy to check and view every operation in the ledger. Each participant has a unique alphanumeric identification number that shows their transactions.

Combining public information with a system of checks and balances helps the blockchain maintain its integrity and build trust among users. In essence, blockchain can be considered as the scalability of trust through technology.

Blockchain Use Cases

Cryptocurrency: The beginning of the technology boom on blockchain

The most famous (and perhaps the most controversial) use of blockchain is cryptocurrency. Cryptocurrencies are digital currencies (or tokens), such as Bitcoin, Ethereum, or Litecoin, which can be used to purchase goods and services. Just like cash in digital form, cryptocurrency can be used to buy everything from lunch to the next home. Unlike cash, encryption uses blockchain as a public ledger and an enhanced encryption security system, so online transactions are always recorded and protected.

How does cryptocurrency work?

Encryption currency is a digital currency that uses blockchain technology to record and protect every transaction. Cryptocurrency (for example, Bitcoin) can be used as a digital form of cash to pay for everything from daily necessities to bulk purchases such as cars and houses. It can be purchased using one of multiple digital wallets or trading platforms, and then digitally transmitted when the item is purchased, and the blockchain records the transaction and the new owner. The attraction of cryptocurrencies is that the whole thing is recorded in a public ledger and secured using cryptography, making an irrefutable, timestamped and secure record of each payment.

So far, there are approximately 6,700 cryptocurrencies in the world with a total market value of approximately US$1.6 trillion, of which Bitcoin accounts for most of the value. These tokens have become very popular in the past few years, and one bitcoin is equivalent to $60,000. Here are some of the main reasons why everyone suddenly noticed cryptocurrencies:

• The security of the blockchain makes theft more difficult because each cryptocurrency has its own irrefutable identifiable number and is associated with an owner.

• Crypto reduces the need for personalized currencies and central banks-with the help of blockchain, encryption can be sent to any place and anyone in the world without currency exchange or central bank intervention.

• Cryptocurrency can make some people rich-speculators have been pushing up the price of cryptocurrencies, especially Bitcoin, helping some early adopters become billionaires. Whether that is in fact positive has yet to be seen, as a few retractors consider that speculators do not have the long-term benefits of crypto in mind.

• More and more big businesses are coming round to the concept of a blockchain-based digital currency for financial operations. In February 2021, Tesla famously announced investing $1.5 billion into Bitcoin and accept it as payment for their cars.

Of course, there are many reasonable arguments against blockchain-based digital currencies. First, encryption is not a very regulated market. Many governments quickly set foot in the field of cryptocurrency, but few governments have enacted a set of strict written laws on this. In addition, due to the aforementioned speculators, cryptocurrencies are very unstable. In 2016, the price of Bitcoin was approximately $450 per token. Then it jumped to approximately US$16,000 per token in 2018, fell to approximately US$3,100, and has since increased to more than US$60,000. The lack of stability caused some people to become very wealthy, while most people still lost thousands. Whether digital currency is the future remains to be seen. For now, the rapid rise of blockchain seems to have taken root in reality more than pure hype. Although it is still making progress in this new and highly explored field, the blockchain also shows the prospect of surpassing Bitcoin.

Beyond Bitcoin: Ethereum Blockchain

Blockchain was originally created as an ultra-transparent ledger system run by Bitcoin, and has long been associated with cryptocurrency, but the transparency and security of this technology has been increasingly adopted in many fields, among which part can be traced back to the Ethereum blockchain.

At the end of 2013, Russian-Canadian developer Vitalik Buterin published a white paper, proposing a platform that combines traditional blockchain functions with a key difference: the execution of computer code. Thus, the Ethereum project was born.

The Ethereum blockchain allows developers to create complex programs that can communicate with each other on the blockchain.

Tokens

Ethereum programmers can create tokens to represent any type of digital asset, track its ownership and perform its functions according to a set of programming instructions.

Tokens can be music files, contracts, concert tickets, or even patient medical records. Recently, non-fungible tokens (NFT) are all the rage. NFT is a unique blockchain-based token used to store digital media (such as video, music or art). Each NFT can verify the authenticity, past history, and unique ownership of digital media. The reason why NFTs are so popular is that they provide a new wave of digital creators with the ability to buy and sell their works, while at the same time obtaining appropriate credit and a fair share of profits.

The new use of blockchain expands the potential of ledger technology to penetrate into other areas such as media, government, and identity security. Thousands of companies are currently researching and developing products and ecosystems based entirely on emerging technologies.

Blockchain is challenging the current state of innovation by allowing companies to experiment with breakthrough technologies, such as peer-to-peer energy distribution or decentralized forms of news media. Just like the definition of blockchain, the uses for the ledger system will only evolve as technology evolves.

Blockchain applications

Blockchain has almost endless applications in almost every industry. Ledger technology can be used to track financial fraud, to securely share patient medical records between healthcare professionals, and even as a better way to track an artist’s commercial and music copyright intellectual property.

History

The history of blockchain

Although blockchain is a new technology, it already has a rich and interesting history. The following is a brief timeline of some of the most important and noteworthy events in blockchain development.

Year 2008

• The pseudonym Satoshi Nakamoto of an individual or group published "Bitcoin: A Peer to Peer Electronic Cash System".

Year 2009

• The first successful Bitcoin (BTC) transaction occurred between the computer scientist Hal Finney and the mysterious Satoshi Nakamoto.

Year 2010

• Laszlo Hanycez, a programmer in Florida, used Bitcoin to make the first purchase ever made - two Papa John's pizzas. Hanycez transferred 10,000 BTC, which was worth about $60 at the time. Today it is worth 80 million US dollars.

• The market value of Bitcoin officially exceeds $1 million.

Year 2011

• 1 BTC = $1USD, making the cryptocurrency at par with the U.S. dollar.

• The Electronic Frontier Foundation, WikiLeaks, and other organizations began accepting Bitcoin as donations.

Year 2012

• Blockchain and cryptocurrency are mentioned in popular TV shows such as "Good Wife", injecting blockchain into popular culture.

• Bitcoin Magazine was launched by early Bitcoin developer Vitalik Buterin.

Year 2013

• The market value of BTC is more than 1 billion U.S. dollars.

• Bitcoin reached 100 USD/BTC for the first time.

• Buterin published the "Ethereum Project" paper, suggesting that the blockchain has other possibilities besides Bitcoin (for example, smart contracts).

Year 2014

• Game companies Zynga, The D Las Vegas Hotel, and Overstock.com have all begun accepting Bitcoin as a payment method.

• Buterin's Ethereum project raised more than 18 million U.S. dollars in BTC through initial coin offering (ICO) crowdfunding, and opened up new avenues for the blockchain.

• R3 is a group of more than 200 blockchain companies that aims to explore new ways of implementing blockchain in technology.

• PayPal announced Bitcoin integration.

Year 2015

• The number of merchants accepting BTC exceeds 100,000.

• Nasdaq and San Francisco blockchain company Chain have teamed up to test the technology for trading private company stocks.

Year 2016

• Technology giant IBM announced a blockchain strategy for cloud-based business solutions.

• The Japanese government recognizes the legality of blockchain and cryptocurrency.

Year 2017

• Bitcoin reached 1000 USD/BTC for the first time.

• The market value of cryptocurrencies reached 150 billion U.S. dollars.

• JPMorgan Chase CEO Jamie Dimon said that he believes that blockchain is a technology of the future, and Wall Street has given a vote of confidence in the ledger system.

• Bitcoin reached a record high of 19,783.21 USD/BTC.

• Dubai announced that its government will be driven by blockchain in 2020.

Year 2018

• Facebook promised to set up a blockchain group and hinted that it might create its own cryptocurrency.

• IBM has developed a blockchain-based banking platform, and large banks such as Citibank and Barclays Bank have signed contracts.

Year 2019

• With the announcement of the Central Bank of China that it is developing its own cryptocurrency, Chinese President Ji Xinping publicly accepts blockchain.

• Twitter & Square CEO Jack Dorsey announced that Square will hire blockchain engineers to develop the company's future encryption plans.

• The New York Stock Exchange (NYSE) announces the establishment of Bakkt, a digital wallet company including crypto trading.

Year 2020

• By the end of 2020, Bitcoin has almost reached 30,000 USD.

• PayPal announces that it will allow users to buy, sell and hold cryptocurrencies.

• The Bahamas became the first country in the world to launch a central bank digital currency, known as the "Saudi dollar".

• Blockchain has become a key player in the fight against COVID-19 and is mainly used to securely store medical research data and patient information.