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It is wrong to say that blockchain is a digital currency. We can consider both the digital currency and the technolodecegy that uses advanced cryptography, custom network protocols and performance optimization as blockchain.. This concept is as broad as we can imagine. In fact, the whole market - banking services, consumer services, mobile operators, financial exchanges - is affected by the application of blockchain technology. Its implementation is made possible by start-ups, which are invested by the financial giants of the world market. There are three blockchain types:
- Fully private - all transactions are monitored and controlled by the central authority;
- Consortium - the transactions are coordinated among selected consortium representatives.
- Public - transactions are not controlled by anyone and occur in a free order.
Such a definition of blockchain includes closed and open registers (in case of a private blockchain system, there is just a closed type). Registries can also be distinguished by the level of access to them - passive and active. If you are a person representing a private blockchain or a member of a consortium, then your decisions regarding a particular transaction will be displayed on the whole process in the network. You can actively change the status of the registry, give it the right direction and content. With passive access such as a public blockchain system, your actions will be limited only by tracking information that is intended for a wide range of people and which is not confidential.
The whole management is built on selective nodes of the chain. Thus, private blockchain began to work on the principle of closed consensus independently determining the state of its network and the direction it will work in. Bitcoin enthusiasts began to react negatively to such a policy of creating private cryptocurrency registries; they believe that banks intentionally restrict access to hide information. The real goals behind the revision of confidentiality and decentralization policy are related to the specifics of the information contained in transaction records. It does not represent a special value or interest for most people. The information contained in cryptocurrency accounts is useful only for specialists of the narrow circle such as financial employees of blockchain consortium organizations. In this regard, consensus and approval of transactions simply do not make sense for private miners since they are not participants in the process of exchanging this information.
Blockchain managing is necessary in order to enable the execution of those transactions that we cannot carry out in the real world. Firstly, the distributed consensus scheme, which worked perfectly to confirm assets that exist exclusively within the virtual network (on-chain assets), cannot work for off-chain assets as well. Each node of the network has access to the entire volume of information necessary for the approval of the transaction in cryptocurrency registries. If you take a loan from a bank or an individual, you will need much more time and information to do this in order to approve the transaction - confirm the asset.
Any blockchain system has its own protocol and it includes a standard set of characteristics:
- Transparency and publicity.
Transparency and publicity resonate with the principle of anonymity. The issue of creating public and private blockchains plays a significant role for the representatives of the blockchain industry. The reason is that it is important in determining the further policy of creating new applications based on the distributed registry.
- Equality of participants.
Thanks to the principle of equality of participants, blockchain has gained its popularity. People have the opportunity to conduct their own transactions without intermediaries and regulators. Control over your expenses and freedom of choice became the determining factors of the popularity of the cryptocurrency solutions system.
The principle of inalterability is perhaps the most stable and independent of any developments and solutions. Whichever data you add to your account, you will not be able to erase it. No one can influence this as the blocks are constantly added and represent a single successive chain. It is already impossible to flip through everything. This is the principle of a decentralized system.
- Decentralization and distribution.
Decentralization and distribution carry the advantages and those features that you will not find in any software and in even the most established system. The blockchain system controls itself and gives commands to itself on the movement of transactions.
What is a blockchain protocol?
The protocol is a set of rules and actions according to which you transfer data; for example, HTTP and FTP are protocols. The blockchain protocol ensures greater safety of the transmitted data - it cannot get lost even if someone wants to. In other words blockchain protocol is the same as the usual protocols but decentralized. All actions and transactions are not recorded on a conditional central computer but on participants' devices. So, if attackers disable 99 computers out of 100, the information will still be preserved. Of course, there is a possibility that all computers will break down - this is not insured even by the block, but it is still safer because of its distribution.
For example, in October 2016, due to a hacker attack on the DNS provider Dyn, Twitter, Reddit, PayPal, Airbnb and many other sites were unavailable. If DNS-providers worked on the blockchain principle, such problems could be avoided.
Are there any blockchain problems?
Of course, the first example is capacity. There are two limitations in Bitcoin blockchain: the space in the block which stores transaction information is limited to two megabytes and the generation time of each new bitcoin is now about 10 minutes. The second restriction is artificial and created to ensure that mining bitcoins (the process of creating new blocks) was uniform.
Consequently, the bitcoin protocol processes three transactions per second and the ether is the second in terms of the mass of the cryptocurrency - five transactions. For example, Uber makes about 60 trips per second and the capacity should be much higher so that the blockchain system could become massive indeed and offline business could implement it.
Can you increase insufficient capacity?
Yes, by means ofthe new generation of blockchain protocols. If we imagine that the blockchain platform is a bottle, then NG widens its neck and the throughput becomes larger.
In September 2017, the Waves blockchain platform announced the launch of the NG protocol. Its task is to solve the problem of low blockchain capacity and increase the speed of transactions many times over. The concept of the NG protocol, Bitcoin-NG, was first proposed by Emir Siir, an associate professor at Cornell University. The point of such protocols is that the number of transactions increases and the number of forks remains unchanged (the transaction chain is split into several parts). The information needed to start generating the next block is delivered to all the platform computers immediately after the previous one. And only then all these blocks get into the network in parts with the maximum possible number of transactions.