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Blockchain: Under the Hood

Justin Ramos, ThoughtWorks | Oct. 5, 2016
Despite the growing interest in blockchain, people often lack a concrete understanding of the underlying technology. Click here to bring yourself up to speed.

Ethereum is the most notable blockchain implementation to support dApps, and it has gained a lot of traction for this capability. Much of the blockchain space can be broken down into Bitcoin and altcoins. Many of these altcoins are actually forks of Bitcoin source code or used Bitcoin to initiate their cryptocurrency. For example, Ethereum deployed its blockchain by conducting a pre-sale and amassed 25000 BTC.

Smart contract written in Solidarity

Smart contract written in Solidarity.


Why Blockchain Matters

Now that you understand the basic tenets of blockchain, you're probably wondering why you should even care. How is this actually useful?

If we think of blockchain as a distributed ledger, you can start to envision how it can be a distributed database or even a decentralized hosting provider. Everledger, a fraud detection system built on blockchain, helps cryptographically insure diamonds by storing unique images of each diamond on the blockchain.

If Brienne buys a diamond, insures it, and then loses it, the insurance company can take ownership of the diamond and hope that it is eventually recovered. If it is found and someone tries to resell it, the purchasing jeweler can easily verify ownership of the diamond, at which point the insurance company will repossess the diamond.

This whole model can exist in a non-blockchain world, but it is much easier to build and maintain it in blockchain. Trust is decentralized and information on the diamond is ubiquitously available yet immutable. No one will question the validity of the diamond's image because its immutability is backed by the network.

Diagram of Everledger’s use of blockchain

Diagram of Everledger's use of blockchain.

Everledger is one application that stores digital representations of physical goods on blockchain, but as more goods, data, and content are stored on blockchain, it will shift the way we host and serve applications. Once data and applications are decentralized, it makes less sense to rely on hosting providers or data centers to serve our content.

Currently, most companies set up their own servers or use public/private clouds. While these solutions are often secure and resilient to outages, they still have concentrated points of failure.

Blockchain shifts trust from individual administrators or hosting providers and puts it in the hands of people running blockchain nodes. Since the data is immutable and pseudonymous, you can trust the data you receive without having to trust the people you receive it from. The integrity of the network is maintained by a large body of people all acting in their own self-interest. If a person's best interest is to compromise the network, they would have to convince 51% of the network to collude, which is computationally extremely difficult and very unlikely in a sufficiently large network. In this world of decentralized data and applications, everyone is now a server.


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