Blockchain, What you need to know

Initially proposed as a public, decentralised and untrusted ledger for digital currencies with bitcoin, blockchain technology has been widely adopted in many fields. For some time now, it has been increasingly talked about in the technical sphere, and has become an important part of the discussion around reforms to be undertaken in businesses, governments and financial institutions. Without necessarily going into the technical aspects that make it special, this article sets out a comprehensive framework for blockchain technology and its implications.

Definition

In fairly basic terms, blockchain is a decentralised transaction and data management technology, first developed for the Bitcoin cryptocurrency.

If this definition doesn't seem simple enough, it's hard to do better, but we can try again.

The key word in this definition is decentralised. Because, yes, all the organisational interest around blockchain revolves around decentralisation. Basically, in the centralised context typical of most organisations today, where all the information is managed by a central entity, giving it the power of Olympus (planning and decision-making), decentralisation consists of removing this power and handing over the key to decision-making to all the participants.

The fundamental contribution of blockchain is therefore to eliminate the need to maintain central intermediaries by introducing a distributed ledger on which transactions can be irrevocably recorded.

To see how simple the first definition is, let's take a more formal one:

‘A blockchain is a register that has the particularity of being shared simultaneously with all its users, all of whom are also holders of this register, and all of whom also have the ability to enter data into it, according to specific rules set by a computer protocol that is very well secured thanks to cryptography.’[1]

You see!

Why blockchain?

Let's assume, for the sake of argument, that you're a meticulous person and you want to keep a written record of expenses.

So you take a sheet of paper and write down information about your expenses one after the other. Once the sheet has been filled in, you number it and place it in a ledger so that you can find it later if you need to. So you take a new sheet of paper, fill it in with the new transactions and once it's filled in, you number it and place it in the same ledger after the other. And so on...

This is exactly how a blockchain works. A sheet of paper can be considered as a block. A block contains transactions that have passed through the network. Once completed and validated, the block is linked to previous blocks to form a register in the form of blocks linked one after the other. Hence the name ‘blockchain’.

Although the ledger analogy is an excellent way of grasping the quesako of blockchain, the angles have been rounded off a little to make it easier to understand.

For the sake of completeness, it should be pointed out that because the register is decentralised, meaning that at any given moment all participants in the blockchain network have a copy of the main register, validating a block is not easy and is done via a consensus mechanism defined by the network. What's more, the blocks are linked together using cryptographic processes that cannot be summed up in a single sentence. We will develop this subject in future articles.

Features

Historically, blockchains have been developed to support transactions carried out using a new form of means of payment, known as cryptocurrencies, the main features of which are that they are not managed by any centralising body (such as a central bank) and are international: bitcoin and ether are the best-known examples.

Blockchain now makes it possible to fundamentally solve the problems of time and trust in order to improve efficiency and costs in a number of sectors.

In order to make peer-to-peer transfers of value possible and eliminate the presence of an intermediary, blockchain has provided an alternative means of guaranteeing trust by combining certain key characteristics:

• Register - A ledger on which transactions are recorded with the guarantee that they cannot be altered. In more or less technical terms, a register is an add-on-only data structure where data can be stored without the risk of being modified or deleted;
• Secure - the solid cryptographic foundation on which the blockchain is built - hash functions, digital signatures, etc. - ensures a high level of security for the information contained and its integrity. - ensures a high level of security for the information contained and for its integrity;
• Shared - Anyone can choose to join the network as a peer node and download the full history of the blockchain and check its validity;
• Distributed - a distributed topology where every node in the network is connected to every other node.

Type of blockchain and consensus mechanism

In general, we can opt for a public blockchain (‘fully decentralised’), a consortium blockchain (‘partially decentralised’) or a private blockchain (‘centralised’), but in reality, from a user point of view, there are two elements to consider when categorising the type of blockchain: permission to use the network and permission to participate in the consensus process. The first element refers to the Public or Private criterion of a blockchain and the second refers to the Permissioned or Non-permissioned criterion.

The consensus mechanisms of a blockchain structure can vary considerably and depend on whether it is public or private[2]. But they are generally based on an incentive structure that rewards participants who contribute to the network. In a public blockchain, consensus can be established by agents performing a proof-of-work and consolidating the new block in the blockchain. In a private blockchain, consensus is generally achieved through a process known as ‘selective approval’. This is based on the concept that the participants in the network have obtained permission to be there and that the participants involved in a transaction are able to confirm it.

Smart contract

The Ethereum blockchain has made it possible to build decentralised applications implementing a blockchain with a programming language that allows anyone to write smart contracts where it is possible to define customised arbitrary rules for transactions that run on the network. A smart contract is a computer program that translates a written contract into code that is automatically triggered when certain conditions are met.

The smart contract has the following characteristics [3]:

• Smart contracts are readable codes executed on the blockchain platform;
• Smart contracts are part of an application programme;
• Smart contracts are event-based programmes;
• Smart contracts are autonomous once they have been created, so there is no need to monitor them;
• Smart contracts are distributed.

Conclusion

The main characteristics of blockchain are immutability and a shared ledger where transactional updates are carried out by a system of trust based on consensus, making possible a truly digital interaction between several parties. ‘Blockchain’ and “Trust” will very often be associated because it has been proven that blockchain constitutes proof of trust in the sense that it is a single source of data truth (eliminating the need for remediation), it ensures the provenance and traceability of transactions (immutability and transparency), it enables a peer-to-peer sharing economy (decentralisation) and with the use of smart contracts, it guarantees a shared and immutable logic between all parties.

[1] https://www.assemblee-nationale.fr/dyn/15/rapports/micblocs/l15b1501_rapport-information [2] Valenta, M., & Sandner, P. G. (2017). Comparison of Ethereum, Hyperledger Fabric and Corda. [3] Mohanta, B. K., Panda, S. S., & Jena, D. (2018, 10–12 July 2018). An Overview of Smart Contract and Use Cases in Blockchain Technology. 2018 9th International Conference on Computing, Communication and Networking Technologies (ICCCNT)