Introduction
Blockchain is a distributed peer-to-peer network without any central control points. It uses distributed unified operation to achieve a set of tamper-resistant and trusted database technical solutions. It also features decentralized storage and highly transparent information with superior security against data tampering. Simply put, Blockchain is a "large open ledger" that records the entire transaction information across a network using computer programs.
While Blockchain V1.0, mainly applies to Bitcoin and large financial ledgers, Blockchain 2.0 is gaining momentum and investment across industries and applications. However, the evolution of Blockchain from 1.0 to Blockchain 2.0 is not a simple process. The complexities and challenges of this transformation are summarized in the 3-tier phases described below:
I. Registration Phase: We must first address the problems related to registration. Blockchain is trustable and traceable because it adopts the "proof of work algorithm" and other commonly recognized rules to ensure that only legal blocks can be added. Once a block is linked to Blockchain after thorough verification, it will be stored permanently. The native ledger chain databases on the internet can never be destroyed, and the recorded information field is matched to the generation time. All information in the trustable ledger chain is unique and tamper-resistant. As a result, Blockchain can be used to record various types of information.
II. Verification Phase: The second area of improvement is accurate verification. Being open-source and shareable, Blockchain allows various organizations and individuals into the functioning of the entire system. Every node participating in maintenance receives a full copy of the entire database so that the information ownership can be confirmed. Blockchain is an ideal solution for storing permanent records such as authenticity verification, land ownership, equity transaction, and other applications.
III. Management Phase: This brings us to the third phase. Here, it is imperative to focus on smart management. Fans of Blockchain believe that Blockchain's core contribution is to solve any credibility issue during multi-point information interaction. This issue or challenge has been coined as "The Byzantine Generals' Problem". As the name suggests, this problem originated in the Roman and Byzantine empires. Given the vast territory of the empire, generals of the empire army were separated geographically making it difficult for them to interact. There were also traitors in the army who would mislead the generals' decisions, preventing them from winning battles. This made it difficult to achieve consensus resolution due to the lack of accurate information.
In our case of Blockchain, given the geographical disassociation of the sources, we would need to ascertain their reliability to ensure accuracy.
The Evolution of Blockchain
Blockchain as a technology has evolved rapidly in the past decade. Let us discuss a few major innovations that have revolutionized this field.
- The first significant innovation in the last ten years was an experimental digital currency called Bitcoin. The current market cap of Bitcoin is between $10-$20 billion, with various organizations and millions of users globally.
- The second innovation was the realization of the potential of Blockchain for inter-organizational collaborations across regions. Currently, a considerable percentage of banks and financial institutions around the globe show exceptional commitment to research and investment on this technology.
- Smart contract emerged as the third innovation of Blockchain. Smart contract allows the representation of financial instruments such as loans, bonds, etc. to be built within devices, such as a personal computer.
- The next important innovation is 'proof of stake systems', expected to go live this year. In this system, the 'miners' are groups with maximum computing power and have the decision making authority for validation of transactions being carried out. They operate vast data centers to provide security in exchange for payments in the form of cryptocurrency.
Blockchain Alliance - A Year in Progress
Blockchain requires legal support to increase the pace of its development. A positive progress in this area, the introduction of "Legal Chain" took place on August 16, 2016. "Legal Chain" is the world's first electronic certificate Blockchain Alliance, which is an evidence recording and storing system, built and run jointly by Onchain, Microsoft (China) and fadada.com among other organizations. It is an open Blockchain alliance that facilitates participation of multiple parties.
The participating organizations in "Legal Chain" contribute in different areas to create an open ecosystem. Onchain provides the underlying Blockchain technology while fadada.com provides e-contracts, with both systems successfully achieving "in-depth integration."
All information is broadcasted on various storage nodes and is accessible by all members of the "Legal Chain." This information includes signing time, signing parties, and digital and fingerprint information such as file hash values of each e-contract. The system synchronizes and stores file hash value information in a national center for electronic data with authoritative judicial expertise. The restrictions imposed by "Legal Chain" to some extent prevent fabrication of information, addressing concerns of several netizens regarding the crisis of confidence during transactions.
Blockchain technology has the potential to meet requirements for e-evidences for judicial needs. This has been further validated by the newly-revised Law of Civil Procedure officially implemented from January 1, 2013. The law stipulates the admissibility of electronic data as evidence. However, in actual implementation, electronic evidence usually has low credibility due to its vulnerability to falsifications. By using Blockchain technology, no party can tamper with e-evidence once stored. Also, the e-evidence will aid every participant in removing obstacles, making it an effective judicial evidence.
Blockchain – The Way Forward
Similar to its predecessors, Blockchain 3.0 still focuses on the application and norms in its derivative fields. The differentiating feature of Blockchain 3.0 is the introduction of a decentralized domain name system - Namecoin. A brief description of Namecoin and its features along with its challenges and applications is described below:
Figure 1.
- What is Namecoin?
Namecoin provides functions similar to those provided by traditional DNS providers. The main difference is that Namecoin is based on decentralized Blockchain technology. Because of this, Namecoin can bypass internet censorships, ensuring free and neutral distribution of information. - Features of Namecoin
In Namecoin, there are no authorities or agencies that can alter a domain name. For example, the US government controls the DNS provider of the .com domain, and is capable of censoring websites registered under this domain. Namecoin however corresponds to the .bit domain name, which is free from the control of any agencies. The domain is permanently written into Blockchain, ensuring free release of information on the website. - Operating Principle of Namecoin
Namecoin shares DNS query table through a point-to-point network. The domain name is accessible as long as someone is running the Namecoin server application, and is not subject to anyone's control. - Application Fields of Namecoin
Since the .bit domain name can be used to bypass supervision and censorships, it is suitable for disseminating information freely and legally.
Apps based on the decentralized domain name idea Namecoin, are one of the first batch of apps that apply Blockchain technology into the non-currency field. These apps boast of a high research value. Several restrictions prevent them from becoming popular for now, although the ideology can be applied to various fields. For example, did you know that the digital identity authentication service "KeyID" draws some reference to Namecoin?
- Main Pitfalls of Namecoin
Most browsers do not support parsing the .bit URL by default, and users would need to install a plug-in to access .bit websites. This problem will prevent a majority of users from visiting .bit websites, making it hard to popularize.
The anonymity, low cost, and the immunity towards censorship make Namecoin vulnerable to misuse. Users can use .bit to host illegal content or businesses without being subjected to legal consequences.
In addition, websites in China have to be filed for record. Since .bit websites cannot be recorded in China, they are unusable within the country.
Conclusion
The financial services industry is expected to see many potential benefits of Blockchain. However, there would be various strategic and legal challenges which will increase complexity of its application. Despite all this, the future looks more secure and transparent with Blockchain. With its broad application, will Blockchain boost our digital innovations and habits? For that, we might have to wait a little bit longer to find out.