Blockchain Basics: Cryptocurrency and Blockchain Technology (Part 2)
The current article you are reading is Part 2.
Please see below for other articles contained in this series of Blockchain Basics.
- Blockchain Basics: The Blockchain Trilemma (Part 4)
- Blockchain Basics: Consensus Algorithm (Part 3)
- Blockchain Basics: Cryptocurrency and Blockchain Technology (Part 2)
- Blockchain Basics: Different Types of Networks (Part 1)
The next thing we need to know about Bitcoin is that it’s a cryptocurrency.
What is a cryptocurrency?
For now, let’s just think of a cryptocurrency as a distributed digital asset that can be used as a medium of exchange (e.g., digital currency).
Where does the prefix “crypto” come from?
Cryptocurrencies are a type of distributed digital asset that relies on strong cryptography to make each transaction safe + secure (i.e., as unhackable as possible).
Yes, Bitcoin uses cryptography too.
And Bitcoin is also a distributed digital asset that can be used as a medium of exchange.
Thus, Bitcoin is a cryptocurrency.
Focus on Decentralization
Further, as mentioned earlier, Bitcoin is fully decentralized, which although is not necessarily a requirement for a token to be labeled as a cryptocurrency, having a good degree of decentralization in place (many operating nodes spread out across the globe, run by many different people/entities) has sort of become a hallmark characteristic that the crypto community likes to see.
On the whole, cryptocurrencies have more or less become associated and anchored with the idea that they support decentralization.
In addition to Bitcoin, the following image shows examples of other cryptocurrencies such as: Ethereum, Ripple, Neo, Cardano, Dash, etc.
The list goes on and on.
Each token has its own set of defined token economics. For example, the Bitcoin token is BTC and there is currently ~18.3 million BTC is circulation, with a total fixed supply of 21 million BTC that can ever be minted. In contrast, the Ethereum token is ETH and there are currently ~110.5 million ETH in circulation, with no fixed maximum supply cap.
And although many cryptocurrencies (like the ones shown in the image above) also rely on something called blockchain technology to function(which we will discuss in the following section), not all cryptocurrencies need to be blockchain-based.
For instance, IOTA (which is also shown in the image above) and Hedera Hashgraph are two examples of cryptocurrencies that utilize cryptography on their own networks but don’t make use of blockchain technology.
So, just what exactly is blockchain technology?
According to Wikipedia, in a nutshell:
A blockchain is a growing list of records, called blocks, that are linked using cryptography.
A “growing list of records” could be anything, really.
In the real world, think along the lines of data, such as: voting results, vehicle registrations, real estate land title + deeds, tracking information of packages, health records, certifications and diplomas, etc.
Or, a growing list of records could be built up from data transactions that simply involve sending a digital currency from Point A to Point B (like in the case of Bitcoin, which represented both the first public blockchain network and first use case of blockchain technology).
As covered earlier, the use of cryptography can help keep digital assets and important data safe + secure, which is why it has been integrated into blockchain technology.
Transparent Public Ledger
Furthermore, with blockchain:
It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”.
For example, on the Bitcoin network, their “open, distributed ledger” (i.e., transparent public ledger) is shown below.
In fact, the first Bitcoin transaction ever recorded on January 12, 2009 is still (and in all likelihood always will be) visible for everyone to see.
Resistant to Modification
Blockchain-based networks like Bitcoin not only aim to be transparent, but also importantly:
By design, a blockchain is resistant to modification of the data.
On a blockchain network, each and every transaction is designed to be permanent and unalterable by anyone (immutable), which is what is needed to make the network robust + reliable + trustworthy.
Conceptually, the implementation of blockchain technology into real-world use cases could have huge implications down the road:
The potential of blockchain as a technology cannot be underestimated.
The principle of unchangeable data allows the exclusion of intermediaries from any sphere of human activity: from medicine and education to trade, production and logistics.
And this opens great prospects for the development of a new economy.
A new paradigm shift, if you will.
Detailed Transaction Information
In addition, each time a new transaction is recorded:
Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
For example, on the ICON network (a public blockchain project launched by ICON Foundation in 2017, which is now fully decentralized, like Bitcoin and Ethereum are), their list of records can be found on ICON Tracker.
As shown in the example below, you can see the previous block (‘Prev Hash’), timestamp (‘Time Stamp’), and transaction data (‘Amount’, in this case 15.45 ICX was transacted).
For the ICON network, a new block is generated every~2 seconds, but please keep in mind that this number will vary from blockchain network to blockchain network.
Further, it’s important to know that although many projects like ICON utilize blockchain technology, the exact implementation and design will vary from network to network.
In the case of ICON:
The ICON Network is powered by a proprietary blockchain engine called ‘loopchain’.
It’s worth emphasizing again that the transaction data on a blockchain can be anything, really; it doesn’t always have to only be about moving tokens around (like digital currency) from Point A to Point B.
For example, on the ICON network, a service called #broof was recently released which allowed Pohang University of Science and Technology (POSTECH) the capability to issue 828 new digital diplomas to fresh graduates earlier this year.
In POSTECH’s case, their wallet ID was “whitelisted” so you know that it’s the only authenticate issuer of this certificate.
Here’s a full demo, from iconTV, of using #broof to issue digital diplomas:
In addition, real-world data such as ID: identification card, driver’s license, passport, etc. are likely candidates to migrate onto the blockchain sooner rather than later.
Experience the future of Seoul:
Clearly, the use of blockchain technology to store important (sensitive + critical) real-world data on a decentralized network is only now in its infancy stage, but as the above examples show, this type of migration towards a new way of doing things has already been gaining traction in certain parts of the world.
First developed and pioneered by Nick Szabo in 1996, the use of Smart Contracts to handle sophisticated logic (e.g., terms and conditions for a transaction to execute) has become popular in recent years on blockchain platforms such as Ethereum.
Although not too prevalent yet in society, the use of both blockchain technology + Smart Contracts to help make certain real-world transactions like real estate more efficient has already begun:
You fill out an offer to purchase a property and wait for the seller to confirm it. Once the seller does that, you send the virtual currency to their virtual currency account. The contract is then executed publicly since the “if-then” premise that the contract is based upon is witnessed by hundreds of people.
Smart contracts are so effective exactly because they are fully transparent. First and foremost, this automatic ‘if-then’ premise guarantees that the contract will be executed in a conflict-free way. If you pay for goods, you receive them. All the network participants initiate the contract execution and supervise it.
Blockchain transactions are simply much faster, and that makes it “possible to drastically shorten the time required” to buy a property.
Likely, many more real-world use cases will emerge over time on individual blockchain networks that can prove they offer users/clients a platform that is superior to today’s existing solutions.
Public vs. Private Blockchains
It’s worth noting that a blockchain network can be public or private. As mentioned earlier, as it pertains to the ICON network, this is a public blockchain, so the ICON Tracker is fully accessible and transparent to everyone.
Revisiting our previous examples of other types of real-world data, for instance, public voting results might be something that makes more sense to store on a public blockchain, like ICON network, whereas an individual’s private healthcare records is definitely sensitive information that is arguably more suitable to be held on a private blockchain network (e.g, through an individual’s private healthcare provider).
And in the future, should a need ever arise where a private blockchain network needs to communicate and share data with a public blockchain network, or vice versa, readers should know that “bridges” (i.e., interoperability) are currently being constructed as we speak to allow for such access.
At least on certain blockchain networks.
For example, on the ICON network, a Blockchain Transmission Protocol (BTP) has been in the works for a few years now, with version 1.0 gearing up for commercial launch and release this year.
Here is the latest update on BTP 1.0 from ICON Foundation (March 2020 Development Roadmap Update):
We are also excited to announce that the core team is currently preparing a draft IIP (ICON Improvement Proposal) for BTP 1.0. Recall, BTP 1.0 is the interchain technology allowing the transfer of value and information between private loopchains and our public chain.
Over time, there will also be a major focus on building up interoperability infrastructure to allow for more public blockchains to talk to and communicate with other public blockchains, as well as private to private.
Thanks for reading. Salamat po.
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Disclaimer: Cryptocurrencies are EXTREMELY volatile! These assets are also very speculative in nature, and no one should ever buy any without first conducting their own thorough research + due diligence. Never put any more capital at risk than you can comfortably afford to lose all of!
As ALWAYS, proceed most carefully, and if you have any questions, please consult a professional financial advisor.