Web 3 Series #2: Introduction to Blockchain Technology
FINE#8385
0x1552
September 21st, 2022

Author(s): IsaB#7716 and hamzat_iii#5660

Editor(s): Alan Nguyen#4569

Last updated: 21st Sept 2022

Table of Contents:

  • Introduction

  • Brief History of Blockchain Technology

  • How does blockchain work

  • Purpose of Blockchain

  • Types of Blockchain

  • Blockchain Technology and DAOs

  • The Oracle problem

  • Blockchain interoperability

  • Cross-chain technology

  • Closing Thoughts

  • Reference links

Introduction

To begin, a blockchain is a digital public ledger that holds a growing list of records called “blocks”. Each new block includes the cryptographic hash of the previous block in the blockchain, linking the two.

Also, Blockchain technology is simply a structure that stores transactional records of the public in several databases known as the “chain” in a network that operates without a central authority, connected through peer-to-peer (P2P) nodes. The information stored in each block is dependent on the type of blockchain.

The first ever foundation block to be recorded on its respective blockchain is called the Genesis block, or Block 0/1. Blockchains are designed to be not hackable and unforgeable, which makes them secure and immutable. This is mostly because blockchains are thought of as impenetrable information ledgers that cannot be modified, leaked, or destroyed. Its security lies in the fact that it is distributed, decentralized, and transparent, giving users the confidence that their data and digital assets are secure.

Brief History of Blockchain Technology

Although the first decentralized blockchain was conceived by an anonymous person (or a group of people) known as Satoshi Nakamoto in 2008 to serve as a public distributed ledger for bitcoin, it is based on previous work by Stuart Haber and Scott Stornetta in 1991 since they initially had the idea to introduce a practical solution for time-stamping digital documents in order to avoid backdating or tamper. Also, the first whitepaper which provided details of how equipped the technology was, was released in 2009.

Then the design was improved in a very important way, using a Hashcash-like method to timestamp blocks without requiring them to be signed by a trusted/third party. ‘Block’ and ‘Chain’ were used separately in the white paper but were later published into a single word ‘Blockchain’ by 2016.

Bitcoin came alive as the first practical application of Blockchain Technology. Nakamoto formed the genesis block, from which other blocks were added resulting in one of the largest chains holding quite a number of different pieces of transactional data.

Blockchain history and evolution doesn’t stop with just Bitcoin and Ethereum. It has over time, developed the potential to be the bedrock of worldwide record-keeping systems despite being launched a little over a decade ago.

How does blockchain work?

The term “blockchain” is derived from the way it stores transaction data in “blocks” linked together to form a “chain”. With each recorded transaction, the blockchain grows by confirming the time and sequence of transactions, which are then logged in within a discrete network governed by rules agreed to by the network participants. Blockchain also facilitates the process of tracking assets in a business network.

Purpose of Blockchain

The sole purpose of Blockchain Technology is to digitally record and distribute immutable data across a network of computers. With this, blockchain has become the foundation for ledgers or records that cannot be altered, deleted, or destroyed.

One of the biggest use cases of blockchain technology is Cryptocurrency. It is powering digital currency - a novel type of currency that can be transferred or transacted with, without the monopolistic influence of big centralized organizations like banks and the government. Cryptocurrencies now go further to facilitate the Web3 ecosystem: DeFi, NFTs, etc.

Types of Blockchain

Mainly, there are four types of Blockchain which are Public, Private, Hybrid, and Consortium blockchain.

1. Public Blockchains

Just as the name implies, a public or permissionless blockchain is one that is without restrictions. Basically, anyone with internet access can sign-in on a public blockchain platform and become a part of the network. Public blockchains authorize any user to access past and current records and are mostly used for document validation, mining, and cryptocurrency exchange. It is trustworthy and transparent. For example, Ethereum is open source, meaning that anyone can run their computer as a node and verify any transaction on the network.

2. Private Blockchains

A private blockchain controls who can access its blockchain data. This type of blockchain is also known as “Enterprise Blockchain” because the companies have direct control over them. Private blockchains are used mainly for asset ownership, supply chain management, etc.

  • In private blockchains, there is no form of anonymity but it is restrictive.

  • It is known for its high performance and it also requires authorization.

  • Quite similar to public blockchain but its network is limited in size.

  • Private blockchains are a bit more centralized as a result of their nature.

For example, Multichain is a private blockchain that is utilized by enterprises and organizations to execute private transactions. This is done to keep the blockchain’s visibility to specific users, ensuring stability and control over the blockchain.

3. Hybrid Blockchains

Hybrid blockchains are a combination of public and private blockchains as they operate with some features of both blockchains. With a hybrid network, access to data can be controlled by the users. As a result of its flexible system, Hybrid blockchains enable users to join a private blockchain with multiple public blockchains. Hybrid blockchains are unique because they combine privacy benefits of a private network with the security benefits of a public blockchain.

  • Hybrid blockchains make it easy for businesses to be transparent while maintaining security and privacy since users get to choose which data to keep private and which to make public.

  • Hybrid blockchains are also known for their good performance and scalability.

They are used mostly for medical records and real estate. Examples include Ripple network (XRP) etc.

4. Consortium Blockchains

Going by its name, a consortium blockchain is a semi-decentralized network as it is immune to monopoly. This blockchain type proves to be more secure, and it also provides a significant degree of control.

  • There is less transparency since most of the information from the blocks is not disclosed to the public.

  • Transactional speed is fast compared to private and public blockchains as there is a reduced load on the network and fewer nodes are involved.

  • Consortium blockchain is mostly applied in logistics, banking, and insurance. Examples include Energy Web foundation, etc.

Blockchain Technology and DAOs

Blockchain technology guarantees new methods of business administration and also promises to overtake how activities are coordinated…now, this is the foundation on which DAOs are formed:

  • The speedy development of blockchain technology has enabled the formation of DAOs that allow people around the world to cooperate on real time projects and create value for all using cryptocurrencies and tokens as investment assets and pools of shared resources.

  • DAOs rely on blockchain technology to execute code and record transactions, and also makes use of smart contracts that are stored and executed in the blockchain protocol (smart contracts are programmable agreements based on computer code). Although the founders of the DAOs define its governance and functioning rules, they are carried out by the machine. Therefore, investing, mining and developments in a DAO is mostly dependent on blockchain technology.

The rules encoded in the smart contracts facilitates clear interactions, transparency and trust amongst DAO contributors. Blockchain automatically matches different roles and tasks to contributors (Wang et al., 2019), thereby enhancing efficiency in DAOs when mobilizing people and evaluating individual performances, enabling reward systems via native tokens. This will continually ease future development of DAOs and also transform its organizational design.

The Oracle problem

The blockchain industry is expanding exponentially, owing to its diverse utility and potential to revolutionize the internet, as experts often claim. Considerable and justifiable hype, among individuals and organizations alike, surround the growth of this industry; and like every other promising venture, it obviously however has limitations to its global adoption. The biggest of them being what Web3 experts refer to as the oracle problem.

The oracle problem revolves around the limitation of blockchains: blockchains cannot fetch or share data outside their environment on their own. As such, blockchains are isolated networks. However, cross-chain technology is an emerging innovation that addresses this issue.

Oracles are the most popular solution to this problem. Just like oracles of ancient Greek mythology bridged the communication gap between humanity and the gods, present-day blockchain oracles help to bridge the information gap between blockchain networks, on-chain and off-chain domains, thereby ultimately facilitating cross-chain interoperability.

“Blockchain ecosystems need to be flexible and willing to interact across ecosystems for the technology to be adopted.” – Dailycoin

Moving forward, this article would be discussing the concept of blockchain interoperability and how cross-chain technology comes to play in this regard.

Blockchain interoperability

Blockchain interoperability is the ability of different blockchain networks to share and interact with data and digital assets across their individual ecosystems.

Blockchain interoperability  is facilitated by cross-chain technology; the most common use case being the use of trustless interfaces called oracles.

Cross-chain technology

There has been an obvious increase in the adoption and application of many blockchain networks, this increased adoption has however led to the emergence of some issues that need to be addressed (the oracle problem for example).

Users are able to freely perform transactions on specific blockchains; however, there are constraints to harnessing the full benefits of blockchain technology owing to the fact that these blockchains are isolated from each other.

The introduction of cross-chain technology solves these problems by facilitating blockchain interoperability and enabling users to communicate and share data across different chains.

Cross-chain technology refers to the broad array of solutions to the oracle problem that allow different blockchains to ultimately collaborate better with each other. Cross-chain technology is one of the most effective solutions to facilitate blockchain interoperability.

What are the benefits of cross-chain technology?

Cross-chain technology is important to blockchain technology seeing that it addresses the biggest limitation to the global adoption of blockchain technology.

Some of the specific benefits include the fact that cross-chain technology connects albeit isolated blockchain networks, offers better scalability to blockchain technology, and facilitates easier transfer of data and digital assets.

Closing Thoughts

Blockchain technology will change how the internet and most organizations are run. The major selling point for blockchain technology is the accuracy and transparency it offers, as well as its potential to dismantle monopolies.

Blockchain interoperability is however an issue that needs to be addressed in order to facilitate its complete global adoption. Cross-chain technology proffers solutions to the problems blockchain technology faces as regards its adoption.

Reference links:

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