Blockchain. Definition, operation, opportunities & examples!

What is the blockchain? How does blockchain technology work? What are the examples, disadvantages, applications and criticism of this technology?

After this article

After reading this article you are aware of what blockchain technology is, how it works, what the impact can be, what applications are developed and what the criticism is on technology.

What is blockchain?

Blockchain technology is revolutionary. By bitcoin I started to dig into blockchain and I find it fascinating. The potential is comparable to the internet. Through the internet information became openly accessible and people from all over the world can communicate with each other. Internet is a revolution in access to information.

Blockchain is a revolution in trust. With blockchain you can make transactions possible between people who do not know each other or do not trust each other, without the need for a central party (intermediary or intermediary).

The best known application of blockchain is bitcoin. This is the current price:

Blockchain technology

The database is shared online. Anyone can copy, edit and save the general ledger. The database is not intended to store large amounts of information. Every change to the general ledger is recorded - these are transactions or transactions.

The technology validates whether the changes comply with pre-set rules. If new requests are received and if they are approved, they will be immediately distributed to all participants in the blockchain.

Video blockchain

Interview with Rutger van Zuidam during the Singularity University the Netherlands Summit 2017

Advantage blockchain

The trick is that the smart technology and mathematical formulas know each other what the status is of the properties, mutations and transactions, without there being a party that determines this.

Traditional databases that we trust from the land registry, the notary, medical data that the GP or specialist owns and the bank. You assume that if you check your balance, the bank has kept it up to date. You trust the bank that it has organized it well.

I had an interview with Lykle de Vries in which he also explained clearly and clearly how the blockchain technology works.

Owner blockchain

The blockchain database works the other way around. No one owns the database and at the same time everyone is the owner. This is very similar to the internet. Nobody owns the internet and actually we are all. For this reason blockchain technology is compared with the Internet (as well as the expected growth of blockchain technology).

The blockchain software contains the rules, agreements and settings. This concerns the purpose of the blockchain, rules about how transactions take place, how they are registered and how the computers in the network communicate with each other.

Public and private key

An important basic functionality is the connection between the 'public' and 'private' keys. These keys are encrypted by a hash function. These three aspects ensure that it is possible to check whether the order for a transaction has been given authentically.

You can pay transaction costs for encrypting, sending and having your transactions checked. It is often the case that the more transaction costs you want to pay, the faster your transaction is processed.

Operation blocks

What makes blockchain technology powerful is that it is not possible to delete, replace or modify information if it is recorded on a blockchain. On a blockchain all actions and changes are recorded among themselves. These changes are continuously collected, checked and bundled. This bundling stands for the formation of a block, hence the term blockchain. This block is then added to the database.

A timestamp is also placed on each block. This is always traceable when information is added to the database. The very first block in the blockchain is called the genesis block. You can therefore look back completely at the mutations up to this first block.

Maersk investigates the application of blockchain for container transport and insurance. This example is described later.

Miners

Miners collect transactions and pass them on. They combine the transactions into a package (a block of transactions). They try to add that block to a blockchain. Sometimes there are several (or very many) miners who try this. Whoever can do this is determined by solving a mathematical puzzle. The puzzle is very difficult to solve, but the solution is easy to check.

The person who finds the solution has put in a lot of computing power. This mechanism is called 'Proof of Work'. Another mechanism that is sometimes used is 'Proof of Stake'. This concerns the financial interest in the blockchain. The greater your interest, the greater the incentive to behave reliably.

Transactions on blockchain

The best-known applications of blockchain technology is where transactions are concerned. Transactions are the changes of ownership, a value transfer from one owner to another. Usually it is now about the ownership of money, such as the blockchain under bitcoin and ethereum.

Other applications are about the ownership of houses, land or intellectual property. DJ Hardwell, for example, uses blockchain to record ownership of his music.

Security

The advantage of the design of the blockchain is that it is much more complicated than with a central database to change or modify information. In addition, the system is more robust: if one database falls over, the others can take over.

You can no longer attack one central point or change information there. These system properties of a distributed system make the protection of the database more solid.

Challenge

The biggest challenge still lies with validating people on the blockchain. How does the blockchain know that someone has the rights (is authorized) to make a transaction? For the time being, this is still done via old methods, such as logging in with a login name and password.

I think there are opportunities for biohacking here. This way you can store unique biometric information in a blockchain, in the form of my pupil or a chip in my body [link at the bottom].

Then I can authorize myself to implement certain transactions. With that, the blockchain knows for sure that I am the one who has agreed to a mutation.

Consensus

If a change is proposed, then there is not one person who validates the change. Everyone in the network has to do this. If the majority in the network agrees that the change is valid, a consensus is reached and the transaction continues.

This is not entirely flawless: you have to be sure that the underlying technology, such as the protocols and agreements, can be trusted. In 2016, for example, an adjustable blockchain was developed. If you do not know this and have made use of this blockchain, then you may end up being surprised.

An application can be to rent out your apartment via blockchain or to capture ownership of real estate in the blockchain. Later on I explain this further.

Public and private blockchain

There is a difference between public and private blockchains. Everyone can participate in a public blockchain. Private blockchains are only shared in an organization. Sometimes organizations work together in this. That is called a consortium blockchain.

According to Andreas Antopoulos, the public blockchain has the upper hand, because of the enormous development power in which everyone can participate in the further development. Other experts, such as in the book 'Blockchain', share this vision [link at the bottom]. The public blockchain offers the most pure and comprehensive version of this technology.

Smart contract

An application that is associated with blockchain is 'smart contracts'. This consists of conditions that are linked to transactions and that are recorded in code. This way you can set conditions before proceeding with a transaction.

For example, a company may want to raise money from new shareholders to make a large investment. A condition may be that on 1 January an amount of 1 million has been brought in. If that amount is not met, then the script is executed and all investors get their money back.

Decentralized Autonomous Organization

A concept that I did not quite understand for a long time is the 'DAO'. This stands for 'decentralized autonomous organization' . This is an organization in which you can work together without central management. Without supervision and without hierarchy.

In practical terms, the participants in the DAO determine which initiatives are invested. In addition to the participants in the DAO, you have 'contractors' who provide services or develop things and 'curators' who check the work. An example is Slock.it. They use 'smart contracts' to create an automated platform for renting and letting apartments and cars [link at the bottom].

Applications 6x

What are the applications of this technology? Some examples have already been shared in the first part of this article. These are other applications:

• Money
• Property
• Stuff
• Government
• Music
• Social media
• healthcare
  = Government
  The applications are described below.

1 Money

The best-known example of technology is managing the ownership of money. If you read this article, you probably already heard bitcoin once. According to the aforementioned Andreas Antonopoulos bitcoin is "the money from the internet" . Earlier I wrote an extensive article about bitcoin, cryptocurrency and I interviewed Lykle de Vries about this for my podcast [bottom left].

Other financial applications are international money transfers and shares.

International money transfers . For a number of technical projects on my blog I use a freelancer in Bangladesh, a country that is embedded in India. Where usually a transfer takes days and you pay a lot of transaction costs, my deposit with cryptocurrency is settled within a few minutes.

Shares . Perhaps you have heard of the term ICO. This stands for 'Initial Coin Offering'. This allows start-ups or companies to issue their own cryptocurrency, with each coin representing a share in the company. The company can also allocate voting rights to the coins, allowing you to conduct shareholders' meetings quickly and online, allowing the shareholders to exercise their influence immediately and frequently.

In the video below you can see my interview with Andreas Antonopoulos when he was in Amsterdam.

2 Real Estate

The power of technology lies in capturing property. For registration of real estate such as a house, business premises or land, we have all kinds of institutes and institutions. Think of a civil-law notary, the land register and the municipality. Other institutions again use the registrations in these databases, such as the tax authorities and the national government.

You can record the ownership of real estate in a 'basic blockchain', so that everyone has direct and real-time access to the correct data. It would be really powerful if you, as a homeowner, authorize access to your registrations on the database. That you can decide for yourself who does and who does not have access to it. Now I have no idea which agencies and institutions know if and which property I own.

Mathieu Paaps is an IT lawyer and guest lecturer at the University of Groningen. In the magazine Broerstraat 5 he says that it will not be long before deeds of ownership in the blockchain will be recorded. "Now the law does not allow it and it is still required that a notary is in between".

3 stuff

Not only when it comes to land and buildings, but also when it comes to stuff, blockchain technology can provide an interesting application. During the Biohacking Meetup, Krijn Soeteman talked about models like Airbnb for renting and renting apartment rooms, without the intervention of an organization like Airbnb. That is really peer-to-peer.

The same can be done for many more things. Especially for items you do not need that often, such as tools or a car. Now there are platforms such as Peerby and Snappcar for [link at the bottom]. The technology can speed up the shift from ownership to access to gear.

3 Government

Many international, regional, national and local governments are experimenting with blockchain technology. In the Netherlands, the ICTU issued a report in 2016 on the applications of blockchain for government services. The most important recommendation that the authors make is the realization of a 'data access service'. This is an infrastructure, based on blockchain, on which the government, citizens and companies can collaborate.

These are a number of other examples at local, national and international level:

At local level we look at the basic registrations of people and companies, as I had written in the example about the registration of real estate. Municipalities also look at permits. Now there are many institutions involved (municipality, police and other emergency services) who sometimes do not know the status of each other.

At national level, the Chamber of Commerce is looking at whether the 'smart contracts' can not be a solution for the VAT declaration. For example, in a transaction the VAT is automatically calculated and paid to the tax authorities. This saves the entrepreneur administration costs and reduces the chance of fraud.

There is also a lot of experimenting at international level . Estonia is using a pilot to explore whether they can set up a digital voting system based on the technology [link at the bottom]. The company Agora Voting uses open source systems and uses the blockchain for elections in Spain (link at the bottom).

4 Logistics

The logistics company Maersk is working with IBM, Microsoft and E & Y to investigate how they intend to use the technology in container transport from East Africa to Europe [link at the bottom].

The underlying reason for this project is that both companies suspect that large efficiency gains can be booked. This is due to the reduction of fraud, which means that the insurance premiums can be reduced.

5 Music

DJ Hardwell came in the news at the end of 2016 because he uses the technology to manage his (intellectual property) rights and payments. The payment of the payments now takes a long time and is accompanied by many errors [link at the bottom].

This can go even further. For example, a music band can make arrangements in advance about what share everyone has had in the song. This share can be programmed in the database, so that each person involved receives his or her share per transaction.

6 Social media

Social media is now managed by large companies such as Facebook and Twitter. A company that wants to decentralize this is Steemit [link at the bottom]. Under the platform is a blockchain database and an associated cryptocurrency.

If you make good content, that is appreciated by the users, you will be rewarded in the form of a share in the Steem cryptocurrency. I myself also registered at Steem. I will also publish on that to experience how it is and how I am valued for it.

7 Healthcare

Health data is a special category. Hospitals, institutions, medical specialists and healthcare professionals complain about the management and maintenance of patients' data. American senator Tom Price was appointed Secretary of Health in the United States in January.

During the last interrogations he explicitly discussed the electronic patient file. "We have turned doctors into typists," he sighed [link at the bottom]. According to a Mayo Clinic study, doctors also spend more time typing data than seeing patients.

The blockchain can be a new starting point in it. As Chief Executive Officer John Halamka of the Beth Israel Deaconess Medical Center in Boston says: "Now is probably the best time in our history to deal with patient data in a new way."

Patients can then indicate themselves which part of their medical information they want to release to which body or professional. An interesting pilot in this domain is MedRec [link at the bottom]. In this data is available both for patients and for care providers. An extra application is that as a patient you can also easily release the data for medical research. MedRec is built on the Ethereum network and can therefore also work with 'smart contracts'.

8 Government

Is it possible to build a government based on this technology? Creating the first virtual government is the purpose of Bitnation [link at the bottom]. The starting points are that it is a voluntary, limitless and voluntary virtual country. The mission is that the country can offer better services to its (virtual) residents than regular countries and states.

The platform that they use for this in Pangea. All code is open-source and can be found on Github. A number of pilots have been started up in Pangea in recent years. The most attention is 'Smart Love' where a marriage is registered in the blockchain.

My children were in the blockchain earlier than I had registered with the municipality!
Jurjen
In the world there are many governments that forbid their inhabitants to marry someone of the same sex, with several people or with someone of a different faith. "Smart Love" can be a solution for this.

Another example is the registration and identification of persons. In the Meetup that I organized about bitcoin, Jurjen told me that he had previously registered his children in the blockchain than he had registered with the municipality [link at the bottom]. I myself am also a resident of Bitnation.

From a practical point of view, technology can also help the government to collect taxes. Jurist Paapst: "I expect that in ten years' time, the taxes will be generated through such a system".

Criticism (6x)

What criticism is there on blockchain? The first criticism is that it sometimes seems like a panacea for all problems. Messages appear in the media that you can use the blockchain for everything.

A second criticism is that the blockchain is designed not to forget anything, not to be adaptable and to be completely public. If something about you as a consumer or citizen is stored incorrectly, you can not adjust it anymore.

A third criticism is that blockchain's promise is that it is anonymous, but that you still have to reveal your true identity when interacting with the blockchain. For example if you buy bitcoin with the balance of your bank account.

A number of criticisms concern the underlying technique. For example, the fourth criticism is that blockchain technology is sometimes very slow and difficult to scale up. A 5th point of criticism is that the work of the 'miners' demands a lot of energy and resources. The technology is not very environmentally friendly.

Finally, the 6th criticism is that the technology is still complex. You still need technical knowledge to use blockchain applications.

Solutions

Within the community, many initiatives are being set up to improve these points of criticism. Andreas Antonopoulos compares this with the development of the internet. That also happened in jumps and shocks. He expects the same type of development with blockchain.

A side note here is that the further development is a political process. Take bitcoin, a large number of miners in China and where the laws and regulations of the country have a major influence on the price of the bitcoin and other cryptocurrency.