Discuss about the Primary Infrastructure for Internet Commerce.
Blockchain is a universal ledger where all transactions of cryptocurrencies are maintained. Unlike traditional ledgers, the Blockchain ledger is however public, decentralized and digitised. The technology includes the transactions as blocks and records them in a chronological order (in a chain) which allows the users to keep track of their transactions without a third party [1]. This technology eradicates the need for a centralized authority to maintain the transactions.
In this assignment, the Blockchain Technology has been evaluated. The architecture of the Blockchain has been discussed and several features of the Blockchai technology has been evaluated. In this report, the challenges that Blokchain technology is facing has been discussed in detail. In the next section, the applications of Blockchain has been discussed. One of the most renowned application of Blockhain is smart contracts. The other application is its use in currency especially cryptocurrency. Both of these applications have been discussed in this report in detail. With the move towards decentralised architecture of Blockchain from the traditional storage and computing power, a social bearing can be expected from its users and how these applications are perceived by them. In the last section of the report, the socio technical aspects of Blockchain has been discussed.
The architecture of Blockchain consists of a Blockchain platform, nodes, blocks and security implementation. It is an application that runs on a network of servers which are distributed. Blockchain is applied as a transactional database that acts like a secure ledger. The data base is shared by all the servers (nodes). This makes the system totally decentralized allowing any node that runs the software to locally run the Blockchain [3]. The LevelDB database of Google is used for metadata storage by the Blockchain client. The data of the Blockchain can be stored in a relational database or in a flat file. Once the Blockchain client is installed in a server it syncs with the rest of the nodes that are present in the network. After that all the transactions are maintained by the particular server using cryptocurrencies.
The technology relies on P2P or peer to peer network which does not have any centralized node and has a flat topology [7]. Through a consensus mechanism, all the nodes consume and provide services equally. The nodes play the role of a trusted third party. In each node, the entire history of every Bitcoin that has been created is stored as a database copy with the ownership information. A full copy of the database is saved in the full nodes where the external lookup is not needed. The transactions are packed in a data format and structure known as block for the transactions to be confirmed as valid. The block has to go through strict cryptographic rules that are mentioned by the Blockchain network. To maintain system integrity, the cryptography also makes sure that the blocks are not modified [16]. Due to the Blockchain overlay network, increased level of semantics is provided which allows for various crypto currencies to co-exist together and offer management abstraction.
Faster settlement- The settlement process in traditional banking system is very slow and can take days. With Blockchain, the transaction can be completed at real time speed. This helps the financial institution to save money as well as time [11].
Immutability- Blockchain has the capability to create immutable ledgers. Centralized databases need to be checked by a third party for accurate information exchange. Blockchains can help the ledger to stay in a forward momentum. For changing the ledger, hackers will need to control over fifty one per cent of the hashing power [4]. Moreover, as the number of attacks increases on the ledger, the more expensive the attacks would turn out to be. The ledger can only be changed with a joint collaboration between individual users, exchanges, operators of node, miner and developer. It removes the mediator to speed up the process.
Improved security- As there is no single point of failure, Blockchains are incredibly secure. Traditional financial institutions have been hacked time and time again but Blockchains like Bitcoin has never been hacked [6]. As multiple computes run the nodes and provide confirmation for the transactions, Blockchain provides increased level of security.
More capacity- Unlike traditional systems which has a few centralized servers, Blockchain have thousands of computers that increases the capacity of the Blockchain network.
Decentralized system- Blockchain is a decentralized system or in other words, the assets can be stored and accessed over the internet. The system grants individuals their own right to their own assets and mitigates trusting a third party such as banks and governments. The system is free from scams, has a high transaction rate with low transaction costs and is transparent.
There are several challenges that needs to be addressed by Blockchain before it is touted as a mainstream mode of transaction. The first challenge comes with an environmental cost. The computing power needed to run Bitcoin last year was more than the energy consumed by around 160 nations. As several cryptocurrencies like Bitcoin are immensely valuable, it takes a lot of computational power and energy to keep it running safe and secure. The second challenge comes from the lack of regulation [5]. With the latest scam of Onecoin which resulted in the loss of millions of dollars for investors, people are reluctant to use thus volatile system. Another challenge is that the complexity of Blockchain technology is difficult for many individuals to understand their true benefits and risks. During the financial crisis, many people expressed their distrust against the existing institutions but such global crisis was unexpected. Maybe someday Blockchain could pose as a threat for these potential users [15]. The final challenge is the difficulty that institutions face in replacing their existing legacy systems with Blockchain technology. The process in the transitioning can take significant funding, human expertise and timing.
One of the applications of Blockchain technology is the utilization of digital currencies. Due to the relative advantages of new revenue streams, lower costs and streamlining the existing systems, financial institutions are working hard to introduce token systems and Blockchain platforms [14]. Due to its decentralized nature, Blockchain technologies is used for conducting transactions with the help of Bitcoins, Ethereum and other crytpocurrencies.
The Blockchain technology is used with Bitcoins to make every transaction visible my making the online ledger publicly visible [2]. The system is maintained with the help of miners who conduct calculations for every transaction preventing the spending of the same currency twice. After Bitcoin was introduced in 2009, several other currencies have cropped out which are collectively called as alternative coins or Altcoins [10].
It is a computer protocol which is used to simplify the process of enforcing, verifying and facilitating a contract negotiation. The smart contracts are used to facilitate transactions without the need for a third party [13]. The decentralization protocols and algorithms (Byzantine fault tolerant) of Blockchain technology has allowed for the implementation of smart contracts. The technology can be used by replicating contract execution and asset registries using replication with Byzantine fault tolerant and hash chains [8]. The advantages of smart contracts over its traditional counterparts are that it helps to minimize risks form counterparty, settlement time reduction and more transparency. This Blockchain technology has its some drawbacks though. Smart contracts are used to manage agreements between individuals, used as multi signature accounts, provide other contracts with utility and store informations such as membership records and registration information of domain.
The smart contracts were initially used by Bitcoins to transfer value from on individual to the next but the applications were not abundant due to Bitcoin’s limited use case of currency and restrictive language. Ethereum on the other hand, allowed programmers to write their own contracts or autonomous agents [9]. Turing complete language is used for this purpose which supports a wide set of computational instructions.
Recently, issues with smart contracts devised by Ethereum was found which lead to insecure constructs and ambiguities. Moreover, Virtual machine bugs, compiler bugs and absence of proper documentation of the known vulnerabilities.
The socio technical aspects of Blockchain will open up social impact investment where public assets such as solar farms and wind turbines will be opened up for public ownership. The socio technical aspects will be just like crowd funding but instead social contracts will be used to automatically pay-out shareholder profits. The need for financial and legal intermediaries will be negated and the technology will be used to accurately measure investment outcome variations. With local peer to peer services, the delivery of renewable energy to the common people will become more transparent and distributed [13]. Extra energy can be traded off with local companies and neighbours. Another socio-technical aspect includes control of personal data. People can use this technology at their discretion to distribute or store their personal information to health officials, insurance companies and financial institutions. The technology will be used with big data to create effective delivery of information. The technology can be implemented in smart watch technology where the user can send their health data to prospective health officials without any one’s discretion in a tokenised incentive method with Blockchain. Blockchain technology can be used to offer proper responsiveness, greater accuracy and increased speed of their prescription.
Other socio technical aspects include direct funding access to charity services. The Blockchain technology will be used to provide instant transfer of funding to organisations that practice charity services irrespective of the borders. This will allow the emergency services to process the money faster and offer more targeted responses. The transaction also includes lower cost of transfer so more number of people will help the victims during an emergency situation. The Blockchain technology can be also used to verify volunteers internationally so that they can work for international charities in an authenticated way. Traditionally, the authentication process takes time before emergency aids are dispatched and with increasing number of volunteers this process becomes tedious. This technology can instantly verify medical records allowing for faster response time during disaster relief programs [12]. Other socio-technical impacts include new behavioural changes regarding voting. People may level democracy as a trustless organisation and new type of peer to peer voting system may be enabled in the future. Economies can be shared with this technology like people will be able to control speed limits of electronic cars and holiday homes can be time limited by the owners. Unemployment can be counteracted with smart contracts just like universal funds to monitor social impacts and the monitoring efficiency can be increased for welfare services.
Conclusion
To conclude the report, it can be stated that Blockchain technology has the power to create new operations and businesses due to the decentralization opportunity it provides. The peer to peer transactions make the technology truly secure and flexible. It still remains to be seen whether the companies are willing to use this technology for new services and products and whether the consumers are willing to trust these companies. The opportunities and vast range of applications that is possible with Blockchain is the main reason why investors need to watch this technology carefully.
Despite the challenges mentioned in the report, Blockchain technology is advancing and maturing rapidly and the demand for the technology is rising every day. Although the report discusses only two applications of Blockchain, most of its applications are still unexplored. Most of the applications of this technology are still in bet testing or at their development stage and th potential applications are limitless. In the future, the socio technical aspects of this technology need to be watched carefully for making the technology truly mainstream. Moreover, many consumers are still unaware of this technology and its implications, so companies which are investing in this complicated technology need to find a way to explain Blockchain in simple terms. Blockchain is truly the technology of the future.
References
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