Alike your home and business having an address, a blockchain also has an address to identify its location. A blockchain address is a long alphanumeric reference to access the precise location of your transaction “wallet“, or where you’d like to receive, send or hold on to blockchain transactions. An example of a blockchain address is: 7iDA45HeGdCc62RmLg7Wzwe3oQ335t3PDz
Basically any digital asset that is not Bitcoin. (e.g. Ethereum, Ripple, Litecoin, etc.)
“Bitcoin” vs. “bitcoin”
This difference stylistically between the capitalization is meant to reflect whether you are talking about the “Bitcoin” ledger, network, or protocol or “bitcoin” the asset or unit of account. Similarly with “Ethereum” and “ether,” the same principles apply.
A blockchain, simply put, is a specialized type of database management system that uses a non-centralized global network to create a digital public ledger of transactions. Users engage with the public ledger through cryptography and a series of public and private keys, the operator allowing these transactions to occur by using their private keys as digital signatures. Due to its architectural makeup there’s no central authority or intermediaries, so the speed of these transactions are fast while also relatively cheap. As opposed to the prior approach of networks being centralized by one person or company, with blockchain, people and computers all over the world work with each other to establish a network. Many different “blocks” make up the blockchain, which is continuously growing as new blocks are added to the chain. Cryptography enables and protects the blockchain network. We have seen this used in currency, data transfer and startup funding through ICO’s.
This term is used when including all coins, tokens and digital assets that are traded on cryptoasset platforms and/or exchanges.
Distributed-apps are a new type of architecture being used in the blockchain. Dapps are extremely beneficial in that it stores data and source code in a decentralized manner that is distributed in the blockchain. The biggest advantage to this structure is that a Dapp ensures the blockchain application is always online and is not reliant on a single servers’ availability. Dapps are an extremely disruptive application architecture as compared to the current cloud architectures. While Dapps aren’t a complete replacement of the cloud (yet), they could potentially replace it someday.
A fork is the alternative creation of a continuous version an already existing blockchain. It involves creating two blocks at the same time, but on different parts of the network. As a result, two blockchains are created and one of the two parallels ends up being the winning blockchain. Users end up determining the winning blockchain by a majority choice of adoption.
Hash is an algorithm or data function used to encrypt information within a block in the blockchain to prevent tampering. Each block is identified by a unique Hash. There is only one cryptographic hash function per blockchain at a time. The more complex the hash function, the more secure it is, but the slower it is to encrypt. Transactions often include the sender, receiver, amount, and a number of points of time for each. Each Bitcoin block has a unique Hash tied to it that will change if the block is altered in any way. Once the block is created, its Hash is also calculated. If any component of the block ever changes, the hash will automatically change. Therefore, the Hash is able to identify a specific block and its components. It also serves as the link in the chain of blocks. Changing anything within the block, even a single character, will cause not only the hash to change, but the block to be considered “new.”
Initial Coin Offering (ICO)
Any company in any stage of development can begin selling tokens or coins at any time. Crypto assets can be purchased in exchange for benefits ranging from equity to physical services and can be sold and traded in a blockchain marketplace. Early on, these digital currency tokens can be purchased by the public and by investors at a discounted rate and, ideally, appreciate in value as the company grows and meets targets. This technology created a major disruption that shifts who can invest in new businesses.
Traditionally, VCs were given exclusive right to hearing new ideas and deciding the best ventures to invest in. The beauty of the Initial Coin Offering (ICO) is that it opens the doors for the public to freely invest, which in turn has led to an increase in funds available to and opportunities for early stage startups and blockchain venture funds. Initial Coin Offerings (ICO) make it possible for ventures in the earliest of stages to not only source necessary funding, but also to grow a community of supporters and customers long before a product is ever brought to market.
Initial Coin Offerings (ICO) are a crowd-sourced method for fundraising that takes advantage of virtual tokens that are sold or auctioned to investors in order to raise capital for a new startup. Entrepreneurs now have the opportunity to trade real money for these virtual tokens that can be saved, traded and/or used for services offered by the startup.
A startup can choose to offer any of the three forms of an Initial Coin Offering (ICO) or some combination thereof, giving investors the benefit of quick return while building an army of actively invested customers and brand advocates.
There Are 3 Basic Types of ICO Tokens:
- Equity tokens work like shares and offers investors the opportunity to vote on company initiatives
- Asset tokens make it possible to trade items not currently available on the blockchain market, like shares in a rental property
- Utility tokens act as company currency and can only be used for goods and services from the company sold by and any partnering organizations
A miner is responsible for maintaining a blockchain through validation. Miners use computer power, also known as hash power, to solving mathematical problems. The result of this process is the creation of verified data strings that are then added to the blockchain. If a miner is the first to verify a block, they are given a new token as a reward. Verifying a block is no simple task, as a block can contain hundreds of individual transactions. And just how children’s blocks connect to one another, new blockchain blocks also contains data from the preceding block. This means that the system builds upon itself, making it difficult to go back and alter an individual block. This process also makes it difficult for tampering to occur. As you can see, mining the major blockchain systems takes up considerable energy and requires equipment that is highly specialized.
Transactional records are added to the public ledger of past transactions, also known as the blockchain – a chain of blocks linked by hash, through mining. Mining was engineered to be be extremely challenging and resource draining so the number of blocks found each day by miners remains steady. Mining results in a new token as payment.
The phenomenon where increasing the number of people or users using a good or service improve its value naturally. A perfect example, the Internet. It began privately under the government for the military and their communications. Outside of military and scientific research at that time, its use had very little value (tremendous upside though). Until the rise of personal computing in the early 1990’s, its attention grew among enthusiasts as well as researchers and professors at colleges and universities working to create the networks and protocols that allowed them to communicate with one another. Soon more users gained access to the Internet, applications were built on top of the protocols and networks giving people new methods to share content, information, and services. As the Internet as an entire network gained more users with more websites for them to visit along with suites of applications and software allowing them to communicate, share, and connect with more people faster and cheaper than ever before possible. It naturally became extremely valuable as it accredited more users over time.
A computer is connected to the blockchain network through a node. The node is the backbone of the network, validating and relaying transactions. The node connected to the network also receives a copy of the full blockchain itself.
Proof of Work (PoW)
Proof of work (PoW) is a requirement for successful mining on the blockchain. PoW involves distributed trustless consensus. Once a valid ledger state is observed, transactions of a certain age cannot be negated. This is because creating a ledger longer than the one seen requires computing power to compete with the network that exists. As a result, it’s deemed that these transactions are valid and have lasting consensus. Individual blocks in the blockchain are required to have a PoW in order to be validated. This PoW is confirmed by other blockchain notes each time a new block is received.
Proof of Stake (PoS)
Proof of stake (PoS) has is an alternative to PoW. While PoW requires computational work to occur by the prover, a PoS system offers a different way to achieve distributed consensus. Using this model, the creator of the next block is chosen by different combinations of random selection and proof of ownership of money or stake.
In the blockchain universe, a public key is a cryptographic hash that is used to encrypt a message by any party as well as serves as the user’s address. Another party then receives and decodes the message using a key that is only known to that individual or group, hence “private key.”
“A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs.“
– Nick Szabo (The Idea of Smart Contracts in 1994)
Example: Smart contract reassigns physical access to your car from you to your bank in you don’t make a payment.
Smart Contract Applications
- Supply-Chain Management
- Crypto Asset Exchanges
- “Self-Sovereign” Identity Management
- Sharing Economy
- And much, much more…
The Advantages & Disadvantages of Smart Contract
- Transactions to smart contracts must be all-or-nothing (example: lotteries)
- Contracts are enforced by the blockchain (example: automated insurance contracts)
- Contracts have an auditable history
Properties of Smart Contracts
- Guaranteed to execute correctly
- Malicious miner cannot cheat
- Transactions are all-or-nothing (they work or they don’t)
- Autonomous: Enforced by Network
- Cannot be changed or stopped, even by its creator
- All Data is Stored on the Blockchain
- Auditable history
- Intuition: Smart contract simulates trusted third party with public state
Traditional Contracts vs. Smart Contracts
|Specification||Natural language & “legalese”||Code|
|Identity & Consent||Signatures||Digital Signatures|
|Dispute Resolution||Judges, Arbitrators||Decentralized Platform|
|Nullification||Judges||Unknown ? ? ?|
Web 1.0 (The Web of Information) This is the term used to describe the first and earliest stage of the World Wide Web. It basically describes the Internet as a web of nodes connecting information. The focus at this point was getting people onto “the net.” (1990 – 2000)
Web 2.0 (The Web of Applications) This term explains the next stage of the World Wide Web, and how it morphed from a web of information into a web of applications and user data. Its focus is about connecting people to each other and putting the “I” in in user interface as well as the “we” into a web publishing as user numbers soared with high amounts of participation among online communities, thanks to the rise of blogging and social media along with the emergence of smartphones. (2000 – 2010)
Web 3.0 (The Decentralized Web of Crypto Assets & P2P Monetization) This is the latest and greatest generation of the Internet that is going beyond the World Wide Web. Its predecessors lacked security and privacy with massive, monopolistic companies stockpiling user data on centralized servers for the convenience of products and services (whether they knew it or not). Decentralization is the name of the game at this stage; blockchain is the means of enhancing the best ideas from the ‘early days’ of the Internet and pairing them with advanced applications that create new opportunities through their democratization of the underlying economic profit centers. It enables recently developed networks, protocols, and markets for users to participate in and benefit from the more fair and transparent infrastructure, which can be implemented for both public and private transactions, products, and services. (2010 – Present)
First came “@,” and now we have “₿.” What comes next?