An increasing number of articles suggest fascinating combinations of Blockchain and Machine Learning. It could be useful to introduce some intuitions about what is a blockchain, before venturing forth.
In the 2008 Bitcoin entered the market. It was a pioneering payment method and cryptocurrency.
The technology underlying Bitcoin is called Blockchain. Nowadays Bitcoin is the most important implementation of Blockchain. However, in the last 2 years many opportunities have emerged and Blockchain has assumed a central role in different contexts.
It is not simple to exactly explain how Blockchain works because it is a combination of different technologies. More appropriately, Blockchain is an ecosystem where different technologies, approaches and theories converge.
- From the peer-to-peer (P2P) paradigm, Blockchain inherits its decentralized nature and robustness because it removes the single point of failure that can be inherent in a client-server based system. Peers (interconnected nodes) are all equally privileged, equipotent participants in the system; they are both suppliers and consumers of resources, in contrast to the traditional client-server model in which the consumption and supply of resources is divided. As nodes arrive and demand on the system increases, the total capacity of the system also increases, and the likelihood of failure decreases.
- From the distributed databases perspective, Blockchain inherits the core idea of a ledger that is equally and locally accessible by each node. Every node can access the transactions’ history recorded in the distributed ledger. Inside the ledger, groups of transactions are recorded in special entities named blocks. Blocks are linked to form a chain.
- From the cryptography side, Blockchain gets its ability to guarantee stable and immutable blocks’ interconnections. If a block is hacked, all the following blocks are invalidated. Every block is linked to the previous one via a special cryptographic string (hash) that depends on the content of the predecessor block: if the predecessor’s content changes (also a single bit) the chained block becomes invalid because its hash copy is no more coherent with the predecessor’s content and this causes a chain reaction of subsequent invalidations.
- From specific mathematical studies, for example Game theory, some Blockchain implementations (e.g. Bitcoin) get the tools to support the chain consistency by introducing a block’s approval mechanism based on economic incentives in a competitive challenge context. Every peer’s owner, by investing money on high performance hardware, can decide to act as a miner and start to compete with other miners to approve and add blocks to the chain. The block’s addition requires finding solutions of computationally onerous mathematical problems (proof-of-work), but this is not executed for free. Whoever solves the problem gains a Bitcoins quota that supports costs for the computational efforts and generates profit. In this scenario, each miner is motivated to continue its job. Despite the competition, all participants work to maintain a consistent chain because this also guarantees their cumulated profits. Moreover, the Bitcoin’s value increases and this stimulates the diffusion of the cryptocurrency itself and, in the meantime, the diffusion also supports value increments of the currency (a virtuous circle). The effort required to hack a block (and all its following blocks) would be so uneconomical that it is practically impossible to alter the consistency of Bitcoin’s transactions stored in the ledger. The overall consistency continuously rises for each added block.
Thanks to its intrinsic complexity, durability and robustness, Blockchain enables many new applications and stimulates initiatives:
- Bitcoin has demonstrated how it was possible to make a new currency market from scratch with no intermediaries (e.g. banks) to monitor the consistency of each transaction. However, Bitcoin is the first of many to implement blockchain technology. The Blockchain’s ecosystem can be used to support very different transaction types (not only simple money exchanges) such as complex contracts that allow selling and buying of goods or anything else. These contracts are registered on a ledger and are immutable and visible to everyone, at all times. Specific enabled software can monitor contracts’ status by updating their execution and by guaranteeing that they will be satisfied in the interest of all involved parties and with no need for solicitors (e.g. lawyers, notaries, etc.). This is the case of smart contracts.
A unique Blockchain implementation doesn’t exist; there are different possible implementations:
- Ethereum, for example, is a platform that makes its users able to define smart contracts that involve automatic execution of specific clauses with consequent exchanging of goods, etc. Ethereum also uses a proper virtual currency (ETH).
- Specialized companies offer Blockchain’s implementations as services on the cloud. For example Microsoft launched Blockchain as a Service on Microsoft Azure.
- Major IT companies have already expanded their portfolios with products and services based on Blockchain’s implementations and they are able to address needs of a variety of sectors.
- Not all Blockchain’s implementations use technologies or approaches in the same manner and not necessarily work like Bitcoin. Each implementation can be based on different technologies’ combinations with reference to use cases and destinations1. For sure, the presence of a distributed publically accessible ledger is a common factor to all implementations. All blockchains are distributed ledgers but not all distributed ledgers are blockchains.
From the point of view of people, Blockchain is and will be something technologically exciting that will support humans’ (and machines in the very near future) interactions based on automated and secured sharing of reciprocal concrete interests. It provides technology’s bricks to support those interactions in a stable, robust and independent way.
A Blockchain application replaces authority (centralized figure) with cryptography (security). It takes all the people parts out. Transactions are based on a cryptographic proof instead of trust. The involved parties transact directly with each other without the need of a trusted third party.
The Blockchain’s acceptance will not be immediate because it introduces very pervasive transformations. People need time to trust new technologies having the potential to rule their affairs. Finance sector is progressively accepting and improving technologies underlying Blockchain. Blockchain as a Service (BaaS) is an emerging trend that appears very promising and will facilitate the diffusion at every level (from enterprise to single user).
Blockchain is now acting as a technology trigger and the progressive emersion of new exciting applications is pushing this new ecosystem in a different stage of its maturity. The common sensation is we already are witnesses of a new technology step as the Web in the 1991. Do you agree?
Curious about how Blockchain of Bitcoin works? Below one of the best infographic that I found around the Web: