Thursday, February 19, 2015

Securing Information on a Blockchain

Visualizing Blockchain Data Handling

Being able to visualize how to use a blockchain service aids in seeing aplications for the technology. A current service that exchanges data in a similar system to blockchain technology are Torrents. Torrent users are seeding and leeching data by participating in a barter system. Several participants exchange data, in exchange for other data, to access the complete file in the specific Torrent network such as BitTorrent.  Decentralized apps (Dapps) are developed with electronic token systems, on a virtual network, that exchange tokens for information to be recorded and validated on a ledger. Dapps are modeled to trade tokens for data rather than trading data for data. The value of each token is based on the value of information that can be unlocked with that token. In the case of Bitcoin, the value of having a decentralized token is worth enough to exchange government issued currency. Not all blockchain services will want to trade their tokens on an open market.

Mastering Bitcoin by Andreas M. Antonopoulos
Napster is one of the biggest modern day examples how a dApp model can impact an industry with resource distribution. Napster provided the first resource distribution application platform for music. Human participants interacted with music data, connected in a communal fashion, and Napster had a transparent business model. A current dApp that offers computing services is Filecoin. Filecoin model networks a portion of a user's hard disk space for tokens that they can exchange on their network for their own file storage or exchange for outside currency. Not all dApps are based on a dynamic membership though. Some models will encourage any user to interact with their specific blockchain. Other blockchain companies will offer Smart Contracts via resource redistribution that will appeal to businesses/consumers that want predictable decision outputs.

DApps that offer smart contracts offer a trustworthy intermediary compared to traditional service. Legal documents, credit history, user information, and other data are secured in each transaction. This security is proved via a cryptographic method known as Hashcash, to create a Proof-of-Work. The Secure Hash Algorithm (SHA256 for bitcoin) creates a string of characters that the sender computes before sending a transaction request.

Example of data input / cryptographic output 

Bitcoin is the incentive for correctly verifying the Proof-of-Work in each block in the blockchain. The verification in a Bitcoin transaction is by the calculation of an algorithm that can adjust it's difficulty.  The reward for solving a Proof-of-Work calculation, or Mining, rewards 25 BTC on the bitcoin network. Individual blockchain ledgers can reward their own token, or altcoins, for solving these algorithms other than Bitcoin. These tokens, importantly, do not need to carry value outside of their own network.

Blockchained companies use Proof-of-Work or Proof-of-Existence in proving validity when providing smart contract services. The market for services that provide digital asset validation could expand in the next few years. Caution is still advised as scammers will take advantage of user ignorance while the blockchain tech space is still expanding. Having an understanding of protecting your private key will decrease the likelihood of information being mishandled and tokens lost. Legitimacy of blockchain offerings will increase as more people understand the gears moving in other successful dApp services. Where these services emerge will drive innovation in this new field of technology.

Additional Infograph





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