Blockchain

Blockchain

The blockchain is an undeniably ingenious invention – the brainchild of a person or group of people known by the pseudonym,  Satoshi Nakomata. But since then, it has evolved into something greater, and the main question every single person is asking is: What is Blockchain?

By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency,Bitcoin, (Buy Bitcoin) the tech community is now finding other potential uses for the technology.

Bitcoin has been called “digital gold,” and for a good reason. To date, the total value of the currency is close to $9 billion US. And blockchains can make other types of digital value. Like the internet (or your car), you don’t need to know how the blockchain works to use it. However, having a basic knowledge of this new technology shows why it’s considered revolutionary. So, we hope you enjoy this, what is Blockchain guide.

Blockchain as an accounting revolution

While blockchain is often thought of as an advancement in computer technology, it can more easily be understood as an advancement in accounting. In its essence, accounting is the task of keeping track of transactions and ownership of value. Ownership, is kind of a vague concept if you think about it. Ownership is not an intrinsic attribute of an object. Rather, ownership is determined purely by consensus. You can write your name on an object or plant your flag on a property but unless you can convince other people in your society that an asset truly belongs to you, it can be taken away from you just as easily. So, if ownership is not an intrinsic attribute, how do we determine ownership at any given time? How can we set up a system to ensure that ownership information is safe and can’t be altered by people with malicious intentions?

This is not a simple question and it is one that humanity has invented increasingly clever ways of answering as our societies have grown more complex. The exact ways in which we determine and record ownership in the modern world vary between asset types but can commonly be boiled down to something like the following.

Advantages of Blockchain:

DISINTERMEDIATION:

The core value of a blockchain is that it enables a database to be directly shared without a central administrator. Rather than having some centralized application logic, blockchain transactions have their own proof of validity and authorization to enforce the constraints. Hence, with the blockchain acting as a consensus mechanism to ensure the nodes stay in sync, transactions can be verified and processed independently.

But why is disintermediation good for us? Because a database is still a tangible thing even though is just bits and bytes. If the contents of a database are stored in the memory and disk of a particular computer system run by a third party even if it is a trusted organization like banks and governments, anyone who somehow got access to that system can easily corrupt the data within.

Thus the third-party organizations especially those who control important databases need to hire many people and design many processes to prevent that database being tampered with. Unavoidably, all this takes a great amount of time and money.

However, with blockchains, we can now replace these third-party organizations with a distributed database, locked down by clever cryptography. “Like so much that has come before, they leverage the ever-increasing capacity of computer systems to provide a new way of replacing humans with code. And once it’s been written and debugged, code tends to be an awful lot cheaper” (Gideon Greenspan).

Disadvantages of Blockchain:

PERFORMANCE:

• Because of the nature of blockchains, it will always be slower than centralized databases. When a transaction is being processed, a blockchain has to do all the same things just like a regular database does, but it carries three additional burdens as well:

• Signature verification. Every blockchain transaction must be digitally signed using a public-private cryptography scheme such as ECDSA. This is necessary because transactions propagate between nodes in a peer-to-peer fashion, so their source cannot otherwise be proven. The generation and verification of these signatures is computationally complex, and constitutes the primary bottleneck in products like ours. By contrast, in centralized databases, once a connection has been established, there is no need to individually verify every request that comes over it.
• Consensus mechanisms. In a distributed database such as a blockchain, effort must be expended in ensuring that nodes in the network reach consensus. Depending on the consensus mechanism used, this might involve significant back-and-forth communication and/or dealing with forks and their consequent rollbacks. While it’s true that centralized databases must also contend with conflicting and aborted transactions, these are far less likely where transactions are queued and processed in a single location.
• Redundancy. This isn’t about the performance of an individual node, but the total amount of computation that a blockchain requires. Whereas centralized databases process transactions once (or twice), in a blockchain they must be processed independently by every node in the network. So lots more work is being done for the same end result.