The first blockchains, which became widespread, implied the use of only one type of property (or assets) and the accounts in which they were contained, as well as the recording of transactions between these accounts. Bitcoin is the flagship of blockchains for storing value. In other words, the Bitcoin protocol does not allow other operations with available resources, except for their transfer to another account. Ownership is registered in Bitcoin registries and nothing else.
Along with this, there are many other blockchain protocols for recording and transferring commitments. Imagine a simple exchange that is not related to money: you buy us coffee, and we promise to clean up your apartment later. This is not really evidence of the property, because the apartments still do not shine with cleanliness, but this is an obligation that can be saved in the blockchain, and then used to call us to account. Such simple promises are often “tokenized,” that is, they become assets in the blockchain that can be traded and owned. If we had sold our promise to tidy up your house in the form of a token, you could resell it to someone else in the blockchain, and we, having an undeniable agreement, now would have to tidy up the house of this third person, and not you.
More complex obligations are called smart contracts. They allow you to work with more serious issues and set a framework of behavior for participants that is automatically applied by the blockchain itself. For example, we can promise to clean the house of the first ten people who buy us coffee today. As the beverage was received, our smart contract would generate ten “harvest” tokens, but no more than that and only today. Such restrictions are established by the provisions of the smart contract, which are automatically processed by all participants of the blockchain. Given the fact that the smart contract is written on the blockchain, its rules are visible to all and are not subject to modification, so we cannot unilaterally change them, even if we do not clean up ten apartments.
In addition, there is a special kind of proof of ownership on the blockchain, which links other types of digital data with its world of cryptographic truths. It has to do with the concept of hash values. A hash is something like a fingerprint, a short sequence of numbers that have guaranteed uniqueness and can be calculated for any kind of digital content: you can find out, for example, a hash of this text, a Windows boot disk or a digital copy of the Beatles album. A hash is a “one-way” thing: with its help you will not be able to recover data or adjust arbitrary information to it.
This property of the hash turned out to be extremely useful: by calculating it and making it public, you can prove the existence of certain information at a particular point in time, by avoiding the display of specific copyright information, and later refer to this record again. A striking example is provided by patents where primacy in matters of discovery and inventions can be the subject of litigation. While preparing a patent application, you can save its draft with explanations of the essence of your invention and publish the hash of this text in the blockchain. In the event of a dispute, you can always prove exactly when you made your discovery, making the draft text public and showing that it coincides with the recorded hash. After the fact, it is impossible to forge a text that would correspond to it, so this hash will be a strong proof of the recording of your invention at the time the hash was published. Hashes play a crucial role in the implementation of many aspects of blockchain technologies, and this term will appear in a wide variety of contexts.
Remember, we talked about the fact that in Bitcoin’s registries only the ownership of coin created on the network is fixed? In truth, there is a loophole in the Bitcoin protocol for transferring a small amount of information of a different nature along with transactions, and it is enough to be included in hash values. In this way, you can use Bitcoin’s blockchain even to save your own digital fingerprints. It is worth noting that in this case for each transaction you will have to pay a fee, which is about a dollar.
In practice, in this sense, it is much more convenient to use other protocols, especially those that were created specifically for cheaper and efficient storage of such information. However, the aforementioned loophole in Bitcoin transactions vividly illustrates the essence of the blockchain as a joint registry of records of certain facts, and these facts can be absolutely any – within the acceptable protocol.
There are two characteristics that are traditionally associated with the blockchain, but, in fact, are only side effects of its implementation, and not mandatory components. It’s about mining and anonymity. Perhaps you read in the press that mining Bitcoin now requires significant amounts of electricity, which could supply the whole of Denmark, or that because of Ethereum mining, the demand for graphics accelerators has risen sharply, and now gamers can not buy good video cards. These are obvious side effects of the choice made by the creators of the Bitcoin and Ethereum protocols. Both of these technologies imply the achievement of a consensus through mining, which means that the computers of the blockchain participants perform complex calculations that are useless by themselves but can be confirmed by other users. All this work occurs during the processing of transactions, and remuneration is paid for it in coins.
The above protocol is called Proof of Work (PoW). This is a very clever scheme, which allows to ensure the achievement of consensus by an arbitrary number of chain members unfamiliar with each other. As long as no party is in the hands of more than 50% of mining, this approach guarantees honesty. Its main disadvantage is a significant amount of energy consumption required for work, which is absolutely useless out of context, since the only function of the performed calculations is to confirm transactions. However, there are other protocols, for example, Proof of Stake (PoS).
In order to better understand this issue, let’s go back to the year 1750 again for a minute. What kind of consensus did the heroes of our story use? The captain of the second ship provided a copy of the payment order and vouched for his authenticity with his honor, so this approach may be referred to as “Proof of Authority”. As for the blockchain, its whole essence boils down to independence from centralized power, so in its case, the Proof of Authority is not used.
Another characteristic often associated with blockchain is anonymity. Accountability of people to each other does not depend on whether they can identify each other. Some blockchains are designed to hide real user data. This can be useful for achieving a wide variety of goals – from combating government censorship to selling drugs. Other technologies were created specifically with the use of verified personal data – for example, to record real estate transactions in blockchains. Most of them are somewhere in the middle of the anonymity scale. For example, Bitcoin at first glance seems to be anonymous, but tracking real people behind transactions is not that difficult. In other words, you should not think that the tax service will never know anything about transactions in Bitcoins.
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This concludes our introduction to the world of blockchain technologies. We still decided not to explain a couple of terms like a computer that would embarrass the real George Washington (however, if you really consider yourself to be George Washington, see which monument in your honor was built in the American capital, that’s crazy!). Well, if you are not a time traveler, but still a little confused, leave a comment and let’s look into this issue! Thanks for your attention.
Source: chby.io
