Abstract
Blockchain could be called a string of blocks that acts like a ledger that is also distributed. Members in a defined P2P network are given access to the blockchain and can create new blocks. When the data is stored in a blockchain, changing it becomes virtually impossible. The data stored within blocks is timestamped to avoid tampering. Blockchain has applications in numerous fields like IoT, digital currency, financial services, reputation systems, smart contracts, security services, etc. If any virtual or real asset transaction is happening online, blockchain technology can be easily applied to optimize and secure the transaction better. Blockchain-based applications bring controversies, and yet many exceptional and diverse use-cases have been found for blockchain in both financial and non-financial sectors. Although it holds immense promise, it doesn't come without risks and uncertainties. This chapter elucidates the growing risks and uncertainties which accompany the use of blockchain in automated systems.
TopIntroduction
The IT industry has been growing at a fast pace since its inception. Many breakthroughs have disrupted our lives in ways not possible before. Especially the internet has been a godsend, for its capability to shelter disruptive technologies which encompass all walks of life. Since the creation of the internet, people were itching to come up with mechanisms to shift traditional methods of payment onto the internet. In 1999, Confinity was the first organization to attempt the same. Although they faced countless challenges, their efforts resulted in PayPal and the world could transfer money on the internet without any hassle. This system, however, still had a long way to go. It still relied on some crutches which decreased the speed of transaction and were significant drags on the efficiency of commerce. Whenever two entities made transactions, they all had to pass through some intermediary parties which functioned as trust holders to ensure the safety and integrity of the bargain. In some rare cases of failures, these intermediaries could be held accountable, but the business would end up losing capital anyway.
Which gives rise to questions like
- 1.
Can trust be placed in these parties
- 2.
What happens if a successful hack or attack occurs?
- 3.
What would happen if the data is not secure?
- 4.
Why not communicate peer-to-peer, when intermediaries slow down the entire process?
The solution to the questions asked above is a new technology called “Blockchain”.
Key Terms in this Chapter
DAO: Decentralized autonomous organization is represented by rules which are encoded as a computer program and it is transparent, shareholders control and cannot be influenced by central government.
Smart Contracts: A computer program which is embedded in a blockchain based system that verifies whether all the conditions necessary for a transaction are being met or not before allowing a transaction.
Cryptography: The practice of deliberately making a message gibberish on surface which can then be understood using a key to receive the original message, to avoid other people from reading the message.
IoT: Various devices are connected to a network in order to facilitate better collection and processing of data to improve business efficiency or consumer satisfaction.
Ethereum: Ethereum is an open-source, blockchain-based distributed computing platform and operating system. It also features, smart contracts, and a currency ether which every user gets.
Blockchain: A ledger that is digital, and decentralized, and distributed on a peer to peer network. Its applications include cryptocurrencies and others.
Proof of Work: A type of consensus mechanism, chiefly found in Bitcoin. It utilizes difficult mathematical puzzles that are solved by participants called miners, and they are rewarded when they solve the puzzle. This mechanism is used for verifying transactions, that is, creating new blocks.
Bitcoin: A digital independent currency, which has a consensus mechanism and can be securely transferred and verified by receiver over the internet, without relying on any third party.
Consensus Mechanism: Used to ensure that trust is distributed among all concerned parties internally within a network, without relying on external third party.
Peer-to-peer Network: Peer-to-peer (P2P) network is created when two or more peers who access the network through compatible devices, are connected and share resources without involving a separate server to host those resources.