The emergence of Bitcoin in 2009 piqued the world’s interest in blockchain’s application in cryptocurrency. Since then, blockchain has been used for diverse applications by many organizations, companies and governments — in ways we never even considered back when Bitcoin started.
Before we examine how blockchain is used, it is important to understand why is blockchain so useful — what important features make it so?
It is useful to keep in mind these key characteristics of blockchain when exploring the various uses of blockchain technology, because they are recurring themes when examining why blockchain is used for each of these applications. Blockchain is:
Decentralized: No single user has control over the blockchain — instead, all users of the blockchain collectively retain control. Why?
Immutable: once data is entered into blockchain, it is “immutable” or “irreversible” — i.e. it is prohibitively difficult or almost impossible to amend the data. Why?
Transparency: Each node has its own copy of the blockchain — i.e the full record of all the data stored on the blockchain since the blockchain’s inception. Additionally, as new blocks are constantly added to the blockchain, this copy/record gets updated. Thus, anyone on the blockchain can see any transaction that has been recorded and that any transaction that gets recorded onto the blockchain.
Privacy/anonymity: While anyone on the blockchain can see any transaction made on the network, the identities of users are protected. Although each node/user has the entire transaction history of the blockchain, you would not be able to match it to an actual individual/person. This is because transaction parties are represented only by their addresses (derived from their public keys using a hash function), which does not reveal users’ identities or personal information. What you will see is only a long string of letters and numbers (i.e. the addresses/hashes). A downside may be that this anonymity may encourage hacking — since you can only track the address where the funds are transferred to, but not identify who is the exact person responsible for the hacking.
How has blockchain been used, and what other possible ways can it be used?
(1) EXCHANGING DIGITAL ASSETS: Blockchain technology can be used to transfer ownership of digital assets, e.g. cryptocurrency without central authorities/intermediaries like banks, stock exchanges, payment processors.
(2) STORING DIGITAL RECORDS/LEDGERS: This could be applied in various ways/industries.
(3) SMART CONTRACTS: A smart contract is an agreement between 2 parties in the form of computer code — completely digital. The terms and conditions of the contract are written into the lines of code, which exists on the blockchain. This code controls the execution of the contract.
Smart contracts are only carried out when its conditions are satisfied, i.e. the occurrence or non-occurrence of an action or event. For example, when item A is transferred to Party 1, then the smart contract releases Party 1’s money to Party 2. If Party 2 fails to transfer item A to Party 1, then the smart contract returns the money back to Party 1. Or when event B occurs, then the smart contract releases Party 1’s money to Party 2. If event B fails to happen, then the smart contract returns the money back to Party 1.
If this condition (e.g. occurrence of a certain event or action) is dependent on external information or data outside of the blockchain network, then what or who determines whether this condition is satisfied?
Such transactions can be carried out without a central authority or third-party intermediary because they are processed by the blockchain itself once the requisite requirements are met (i.e. “self-executing”). If the requirements are not met by either party (e.g. failing to transfer the purchase price), they will not receive whatever they were promised by the other party. Hence, transacting parties can be assured they will not give something up without getting what was promised in return.
Usually, for many transactions, a third party is often required to facilitate the transaction and create trust between the two transacting parties. However, due to their self-executing nature, smart contracts on a blockchain do not require such a central intermediary. Transacting parties are not required to trust or even know each other for the transaction to be facilitated. This creates a trustless system, and allows blockchain to essentially function like an “escrow”, just without the third-party entity.
Additionally, because smart contracts are stored on the blockchain, they possess all the important traits of blockchain. Transactions are trackable (can be seen by all blockchain users — transparent) and irreversible (once smart contract is created, it cannot be changed or tampered by someone who wishes to change the terms — immutable). Smart contracts are also decentralized — meaning that once the smart contract is validated by users on the network, it makes it difficult for somebody to tamper with the smart contract.
Simplified examples of smart contracts include:
Fun fact: one of the biggest blockchain systems which supports smart contracts is the Ethereum blockchain network.
We have examined what features makes blockchain technology so useful and revolutionary, as well as several ways of how blockchain can be applied in the real world. Of course, there are just so many other potential applications of blockchain waiting to be discovered — and the sky’s not even the limit!
Inconspicuous to us are billions of devices embedded with sensors communicating with one another, typically through a cloud network. This is loosely defined as the Internet of Things (IoT). For decades, security and privacy concerns have loomed over IoT technology. As the saying goes – a chain is only as strong as its weakest link […]
Interview with Eugene Ng, Co-Founder, Head of Growth at StaffAny
Home has taken on a whole new meaning in 2020, as we now spend between 30%-40% more of our time at home compared to pre-COVID days. Our living space has become a refuge, a workspace, and at times, might even feel like a cage as we grapple with work from home. At the same time, […]