Blockchain blockchain technology 2018 the complete guide to new blockchain revolution

Blockchain: Blockchain Technology 2018 - The CompleteGuide To New Blockchain Revolution!. Blockchain: Blockchain Technology 2018 - The CompleteGuide To New Blockchain Revolution!. W HAT

Blockchain: Blockchain Technology 2018 - The Complete

Guide To New Blockchain Revolution!

Mark Sloss

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Blockchain: Blockchain Technology 2018 - The Complete

Guide To New Blockchain Revolution!

T ABLE OF C ONTENTSTable of Contents

Introduction

Chapter 1 What exactly is the blockchain?

Chapter 2 How the Blockchain Works

Chapter 3 Blockchain and Cryptocurrencies

Chapter 4 Benefits of The Blockchain Technology

Chapter 5 Blockchain as a Service

Chapter 6 Blockchain Predictions of What Will Happen in 2018

I NTRODUCTION TO B LOCKCHAIN

First, let me congratulate you for purchasing this book and “thank you” for choosing this copy While you may not understand most

of the basics behind blockchain, I’m sure you know about Bitcoin and perhaps, Ethereum or Bitcoin Cash Well, all these digital currencies have one thing in common; they are written on the blockchain.

But that’s not all Blockchain has many other functions besides providing cryptocurrencies with a basis to operate on This

technology is regarded as the next big thing after the internet itself and therefore, learning its ins and outs can help you leverage its advantages in the digital world.

Since much about blockchain can be confusing, this book has been written in most basic language, so even a tenth-grader can understand much of the concepts discussed We will kick off by defining what this tech is, how it operates, its applications, merits, demerits and how it’s likely to change as the years go by.

This book won’t touch on the complex algorithms on how this technology is curated or anything that makes you think you are back

in college dealing with advanced algebra Once again, there is an overwhelming number of blockchain books out there, so thank you for making this one your number one choice.

Enjoy reading

~Mark Sloss

C HAPTER 1 W HAT EXACTLY IS THE BLOCKCHAIN?

A blockchain is a decentralized ledger where everyone’s transaction history is stored This

ledger automatically gets updated in regular time frames, is accepted by the community as afact, and gets stored on every participant’s computer This way, no central party has to governthe network, as issues like double spending rarely exist in this ecosystem

Instead of a central party dictating what is “real,” the community does so in a decentralizedmanner Blockchain technology thereby allows storage of any kind of information without

needing a governing body This can be applied to any type of ownership, identification,

knowledge, or…currency

Blockchain and digital currency

Blockchain technology provides the infrastructure for a digital currency to exist without a

central bank Currency is one of the many different applications that can run on a blockchain,using the benefits of decentralization in the digital world

Since this currency on a blockchain uses cryptography, it is called cryptocurrency

What is a cryptocurrency?

In a cryptocurrency, any rule or regulation is programmed into the cryptographic algorithm thatgoverns the decentralized community using the currency The combination of cryptography andcurrencies gives crypto-currencies their name This basically means a currency that is backed by

and made rare through cryptography.

Note that trust in a cryptocurrency network is derived from the underlying cryptography Sincethis is a new concept compared to thousands of years of using precious metals, it will take a bit

of time until more and more people start to understand the true benefits of the new system.Blockchain and Cryptocurrency nomenclature

To clear up some confusion, let’s define a few terms:

Blockchain: The immutable transaction history of a decentralized community.

Cryptocurrency: An application using blockchain technologies by which the transaction history

and therefore the exact amount of currency everyone owns gets stored via a blockchain

Bitcoin (capital B): This is used to name the idea and protocol of the first decentralized

cryptocurrency on a blockchain

Bitcoin(s)—lower case b: the currency itself.

WHAT WAS THE FIRST DECENTRALIZED CURRENCY?

There have been several cultures around the world that refused to have a centralized monetarysystem While it is very hard to say which one was the largest or first, the concept of Rai stones

on the island of Yap is quite fascinating and describes the concept of a blockchain and

decentralized currency in an easy to understand way The Islanders did not own much gold, so

in order to have some kind of currency that everyone could have access to if they wanted, theycarved huge round stones out of limestone They would then be used as currency In theory, every islander would have been able to do this, but it mostly became a specialized task done byfew, while the others preferred to sell products or services to receive such stones in return The system was decentralized, as it was completely open for anyone to join, and everyone had the same rights

Looking at blockchain and cryptocurrencies, you will recognize how similar this concept of theRai stones actually is—with the difference that Rai stones are physical, and cryptocurrencies aredigital That is why cryptocurrencies need a blockchain as an underlying technology

Blockchain has dominated media channels for quite some time now, leading to many peoplebecoming interested to know why this technology matters It’s expected that as 2018 drawstoward its end, we will be able to know just how well blockchain fits into the nerves of the

society

C HAPTER 2 H OW THE B LOCKCHAIN W ORKS

The blockchain operates through consensus This is an agreement from all the participants in ablockchain regarding the truth about certain data Cryptocurrencies operate around this

method to avoid a single entity from having dominion over every decision Usually, when atransaction has been dispatched, miners will review it and validate or discard it in unison

In traditional systems, a single authority like the government, banks and other agents are theones to review everything and issue the green light The problem with such centralized systems

is that they put too much power in a few individuals who can abuse it

Consensus, if not configured properly, can open loopholes that can lead to system corruption.For instance, since all you need for your transaction to be valid is other miners to confirm yourtransaction, why not create thousands of miners yourself? They, in turn could confirm thatsomeone sent you millions of dollars This would be called a Sybil attack, and may need a goodnumber of pages to describe it in full

Possibility of creating fake miners who work in your interest and allow you to cheat

Incentive mechanisms to motivate as many people in the system to participate in the

consensus and not only participating as a user

While there are many more consensus algorithms in the making and they might be labeleddifferently in different cryptocurrencies, these are the three most important ones:

importance, it is a probabilistic mix of when they have authority and when someone else does.

How importance is established

Different cryptocurrencies have different mechanisms for that, but one factor is the length oftime someone is part of the system, combined with the number of other miners trusting them

by opting in to receive information from them Compare it to social media You are more likely

to trust the friend request of someone on Facebook that has been there for quite some timealready, has a legit looking profile, and many of your friends are already connected to this newfriend

It is similar in the world of decentralization when Proof of Importance is used Someone’s

importance percentage is based on the value the system decides, which assigns how much

“voting power” they have, how often they get to go first with transaction processing, and howoften they are rewarded

The upside of this system is that, literally, anyone, poor or rich, can achieve a high level ofimportance The downside is that this system could be gamed by simply creating fraudulentparticipants who then vote for each other, thereby creating importance See it like a fake socialmedia account that people start to follow only because many others are following it Few

blockchain algorithms are using this mechanism for this reason, and it probably still needssome additional features to scale well

Proof of Stake

The idea of importance can be taken a step further, where money resembles importance

Basically, whoever controls more money in the system has more importance As you mightalready imagine, this system has a lot of critics, as it begs the question of how such a networkcould be decentralized, if only a few rich accounts share all the consensus power So far, only afew blockchains are using this consensus mechanism, but for those that do, it seems to be

working well The risk of one large player ruling it all is eminent, but the advantages of thissystem are on the table:

The mechanism of understanding how much voting power you have is clear by simplydividing the amount of money you stake (proof of your money by locking it in a

special contract for a given period of time), with the total amount staked by the

community So, there is the possibility that while someone might have a lot of

money, they may still not have much voting rights because they are spending it on aregular basis and not staking it as proof of his ownership The math is clear and

simple If you were to stake 1,000 coins, for example, and 100,000 coins are beingstaked in total, you have 1% voting power and are expected to get 1% of the say and1% of the rewards

Since the rewards of the transaction system get shared with the stakers, whoever put

up more will get a larger percentage of the rewards Therefore, you can calculate amuch more accurate return on your money on an annual basis, which might be aninteresting investment opportunity For example, you know that a blockchain mightreward you with 5% of your staked-up capital per year You stake 1,000 coins andreceive 50 coins every year for taking part in the consensus algorithm Depending onwhat these coins are worth, this can mean a lot

Since money cannot be created out of thin air in a legit blockchain, the possibility of fraudulent attackers, as in proof of importance is rather low

Of course, there are also downsides One of them, besides the rich getting richer, is the risk offorking attacks Let me give you a short overview: In proof of stake, if a blockchain forks (splits),you automatically control the coins on both new chains You just doubled your coins that youcan keep staking on either Developers are still looking for good solutions in that regard This isdifferent than proof of work, as here you have to make a decision on which chain you want toinvest your work into.

Proof of Work

Proof of Work, also called POW is the most used algorithm and the oldest of them all It hasbeen adopted by most cryptocurrencies because it has already been tested many times andfound to be immune to forking attacks amongst other things

In this method, the network will only recognize your worth by looking at your work-not thelevel of importance or how many stacks of money you own As a miner, you will have to

recognize transaction, validate it and put it on the block, so you can be the first to claim a

reward

COMMON BLOCKCHAIN ISSUES

Scaling

Most financial companies, for example, transact around 2,000 transactions per second This iswhere blockchain technologies still have a major limitation: Since every computer in the

network needs to keep a record of the entire network, the speed of the network is restricted bythe speed of the slowest node Blockchains limit the amount of transactions per second toavoid a centralization of the computing power by large and strong nodes, which can store andprocess these larger blocks, but also to keep the blockchain’s size from blowing up too fast.Some of the most heated discussions in the crypto-community are about the suggested blocksize with its upside being the ability to allow for more Tx/s However, that brings with it thedownsides of storage and processing capabilities

Bitcoin for example allows for around 6-7 Transactions per second, Ethereum around 15 Tx/s

In Bitcoin, a miner therefore gets around 4,200 puzzle pieces to fit every 10 minutes into a

puzzle (7 Tx/s * 60s * 10min = 4,200 Tx per block) Such a block in Bitcoin takes up 1MB of

space If you wanted to store more Tx within a block, you either have to make the size of atransaction smaller (less data per Tx), or you increase the blocksize (more data stored)

Segragation Witness (SegWit) solves that partially from the size angle

SegWit ( Segragation Witness

In late 2017, Bitcoin introduced an update called Segregated Witness, in short—SegWit—toenhance Bitcoin’s scaling If you remember the puzzle piece analogy of a cryptocurrency

transaction, you remember that half the puzzle is the transaction information itself and theother half is the signature of the private key With the SegWit update, the transactions gotstructured in a different manner, where now the signature was taken away and stored

“segregated.”

Instead of needing an area of the puzzle piece to store the signature, which is only needed forverification and not for actual information, it can now be stored differently, for example as atype of color on the piece itself That’s why it is called a “segregated witness.” Since the puzzlepieces are now only half the original size (the signature is not taking up space anymore), twice

as many SegWit transactions can be stored in the same 1 MB block (around 8,400 SegWit puzzlepieces fit into a complete puzzle)

For the user, SegWit is a soft-fork, meaning they can still send the old transaction format, justlike they can use an older version of WhatsApp and newer versions can still understand them.

“Old” Bitcoin addresses for example start with a “1,” SegWit addresses start with a “3.” It willtake a few more months until the full storage capabilities are being utilized, and of course, theblocksize and the scaling debate of Bitcoin will continue

C HAPTER 3 B LOCKCHAIN AND C RYPTOCURRENCIES

While blockchain is poised to do a great many different things in the near future, for now, themost important thing you will want to keep in mind is that blockchains make cryptocurrencypossible Bitcoin jumped in price to more than $19,000 during 2017 While this price has

pushed it out of the league of many amateur investors, there are more than 1,000 differentcryptocurrencies on the market these days, so there are plenty of opportunities out there forthose who are interested in a potentially profitable investment This is not to say that thereisn’t risk involved as well, however; it is important to keep the risks of cryptocurrency

investment in mind as well before making any investments in the space

Here are the advantages and disadvantages of cryptocurrencies:

Advantages

Reduced probability of fraud

As cryptocurrencies are an all-digital currency, this means there is less likelihood of fraud takingplace around them; they cannot be counterfeited, and there is no way for one member of thetransaction to reverse it once a transaction has taken place

Extreme access

Currently, there are three billion people in the world who have access to the internet but donot have regular access to any form of exchange This leaves the cryptocurrency market with alot of room to maneuver, and it is expected to see significant growth as it gains wideracceptance This means that an increasing amount of business will take place purely throughdigital currencies, which means those who invest in cryptocurrency now aren’t just likely to see

an increase; they are likely to see a dramatic increase

Less chance of identity theft

Once you have bought into a cryptocurrency, there is less chance that you will have to worryabout iden ty the than when working with tradi onal online exchanges This is a concern intradi onal instances, as credit or debit cards are charged with each new transac on, whichmeans that there is a far greater opportunity for iden ty thieves to find a way to crack thesystem and make off with personal information