Blockchained Technology: Blockchain Technology in Action

Thursday, February 12, 2015

Blockchain Technology in Action

Companies that integrate blockchain technology all integrate decentralized ledgers. Blockchained companies use a decentralized ledger to secure information. Trust no longer needs to be a risk when a third party handles anything that holds value to the user of that service. The figure below demonstrates how a service using blockchain technology handles information flow.

The flowchart shows three services of a blockchain company can provide. The handling use of multi-sig verification via wallets to gain access to the data in individual blocks, the creation of a block that stores information on a decentralized ledger, and the ledger itself run by designers and miners for that company. These sectors are evolving as problems are discovered and solutions are applied.

Blockchain technology is still in development stages and there are issues that need to be solved before mass adoption. Early innovation in computers and internet technology were also riddled with complex problems to solve before mass adoption. Problems blockchained companies need to solve are mostly unique constraints the blockchain has designed into the system. This is creating a tech boom which some are comparing to that of the early internet days as companies are trying to find the best solution to each problem. The New Yorker published a piece a few years ago highlighting a few concerns for bitcoin at the time.

For example, the size of a block of data on the blockchain is limited to 10MB a block. Not ideal for large files or handling a large volume of transactions. Members of the community are debating future sizes of a block on October 8th last year. The lack of a user friendly interface also intimidates outsiders that do not have basic programming knowledge. If someone sends a bitcoin, or any token on a blockchain network, there is no way to cancel a transaction once it has been recorded.

Ethereum and Factom are companies that allow users to design software based on the blockchain technology. These companies advertise the ability to create contracts, gaming apps, store medical records, financial data, and other services.

The tech space for designing and creating solutions with blockchain technology will only grow in the next few years as more security is added to each network. Keep an eye here for more companies that are Blockchained and what you should educate yourself about. Next week I will talk about how Ghana and other underdeveloped nations are being affected by blockchain technology.

Services Explained

Altcoins - A token reward set by a blockchain developer for distribution between users for various services. The value of each token is in relation to the value of the data that can be accessed with that token.

Signatures - a cryptographic signature is a mathematical mechanism that allows a user to prove ownership. On a blockchain network the token, and the wallet it is associated with, are linked by an algorithm. The software that interacts with the blockchain will sign the transaction with the private key of the parties interacting in the transaction. Private keys are a hash signature to show absolute ownership of the contents of the associated wallet.

Miners - Hardware in a blockchain network that is rewarded for processing services which can include transaction requests, synchronizing, and proof-of-work (mathematical) calculations. Miners can connect to their blockchains via various software and hardware.

Proof-of-Existence Services - Convert data files into a cryptographic hash algorithm (SHA256 specifically) which represent the file (as a whole) when the hash was created. The hash that is created of the document is unique to the contents of the document, and any adjustments to the document will result in a different SHA256 hash and would invalidate the transaction, rejecting the change. Website

Smart Contracts - Multiple inputs are placed into a single transaction. Those individual inputs can be independently signed by multiple parties and once conditions are agreed upon. The single output of all the inputs generates a unique hash. These contracts, located on a blockchain, can be used for multiple functions. Example: Assurance Contracts & Wills

Block Explorer - a service that provides an interface to interact with blockchain information. This service is a third party interaction to the client itself.

Private Keys - Every bitcoin wallet contains at least 1 private key. A private key grants the ability to spend the bitcoins attached to a transaction. Once a private key is used it can no longer be used again to spend those bitcoins.

Genesis Block - The first block, or ledger, created on a blockchain.

Oracles - Scripts or Code written to determine if a mechanism has passed or failed certain parameters. Oracles are implemented as a test condition and for verifying outputs.

Escrow Services - Perform duties as a representative of a particular account. Escrow services dealing in cryptocurrencies often offer private and public key representation.

M-of-N - N is the total amount of private keys assigned to validate a specific address. M is the minimum number of N keys needed to validate a transaction from that address. A 2-of-3 transaction requires 2 of the 3 private keys to validate the transaction.