What is blockchain? Complete guide

Content

1. Blockchain 101

2. How does blockchain work?

3. What is blockchain used for?

Chapter 1 - Blockchain 101

Content

• What is blockchain?

• How are the blocks connected?

• Blockchains and decentralization

• The problem of Byzantine generals

• Why should blockchains be decentralized?

• What is a P2P network?

• What are nodes on the blockchain?

• Public vs Private Blockchains

• How are transactions carried out?

• How to make Bitcoin transactions

  • How to withdraw Bitcoin from Binance

  • How to send Bitcoin from Trust Wallet to Electrum

• Who invented blockchain?

• Pros and cons of blockchain technology

  • Pluses

  • Cons

What is blockchain?

Blockchain is a special type of database. You may also have heard the term "distributed ledger technology" (or DLT). In many cases, they mean the same thing.

Blockchain has certain unique properties. There are rules for adding data and once the data is saved, it is almost impossible to change or delete it.

Data is added over time to structures called blocks. Each block is built on top of the previous one and includes a piece of information related to the previous one. Such a system was created with the aim that any user, after viewing the extreme block, could easily check the correctness of its order. If we go all the way along the "chain", we will reach the very first block called the genesis block.

For an analogy, suppose you have a spreadsheet with two columns. In the first cell of the first row, you put any data you want to save.

The data in the first cell is converted to a two-letter identifier, which will then be used as part of the next input. In this example, the two-letter identifier KP must be used to fill the next cell in the second row (defKP). This means that if you change the first input (abcAA), you will get a different combination of letters in all other cells.

A database where each record is linked to the last.

If you look at line 4, our last ID is TH. Remember how we said you can't go back or delete entries? This is because in a large system of members sharing the same set of consistent data, you can notify everyone that you have already made changes to a table, but most may simply ignore your attempt to change the entire data structure.

Let's say you change the data in the first cell - you'll get a different ID, which means your second block will have different data, leading to a different ID in row 2, and so on. TH is essentially the product of all previous information.

How are the blocks connected?

What we discussed above with our two-letter identifiers is a simplified analogy of how the blockchain uses hash functions. Hashing is the glue that holds the blocks together. It consists in the fact that we take data of any size and pass it through a mathematical function to get a result (hash) that is always the same length.

The hashes used in blockchains are interesting because the probability that you will find two pieces of data that produce the same result is astronomically small. Like our identifiers above, any small modification to our input will produce a completely different output.

Let's illustrate SHA256, a function widely used in Bitcoin. As you can see, even changing the capital letters is enough to completely encrypt the output.

The fact that there are no known conflicts with SHA256 (ie two different inputs giving us the same result) is incredibly valuable in the context of blockchains. This means that each block can refer to the previous one, including its hash, and any attempt to edit older blocks will be immediately apparent.

Each block contains an imprint of the previous one.

Blockchains and decentralization

We have explained the basic structure of the blockchain. But when you hear people talk about blockchain technology, they're most likely talking about not just the database itself, but the ecosystems built around blockchains.

As self-contained data structures, blockchains are only really useful in niche applications. What gets interesting is when we use them as tools to coordinate with each other. Combined with other technologies and game theory, blockchain can act as a distributed ledger that is not controlled by anyone.

This means that no one has the right to edit records outside the rules of the system (more on the rules later). In this sense, it can be argued that the registry belongs to everyone at the same time: the participants will agree on what it looks like at any given moment.

The problem of Byzantine generals

The real problem standing in the way of a system like the one described above is the so-called Problem of Byzantine Generals. Invented in the 1980s, it describes a dilemma in which isolated actors must communicate to coordinate their actions. This dilemma involves several army generals surrounding a city and deciding whether to attack it. Generals can communicate only through a messenger.

Everyone must decide whether to attack or retreat. It doesn't matter whether they attack or retreat, the main thing is that all the generals come to a single decision. If they decide to attack, they will only succeed if they move at the same time. So how can we ensure that they can make it happen?

Of course, they could communicate through a messenger. But what if the messenger was intercepted and the message changed from "we attack at dawn" to "we attack tonight"? What if one of the generals deliberately misled the others so that they would be defeated?

All generals successfully attack (left). When one retreats, the others attack, they are defeated (right).

We need a strategy where consensus can be reached even if participants become malicious or messages are intercepted. Not being able to maintain a database is not a life-threatening situation like attacking a city without reinforcements, but the same principle applies. If there is no one to monitor the blockchain and give users the "correct" information, then users must be able to communicate with each other.

To overcome the potential failure of one (or more) users, blockchain mechanisms must be carefully designed to be resilient to such failures. A system that can achieve this is called "Byzantine General Consensus". As we will soon see, consensus algorithms are used to enforce overarching rules.

Why should blockchains be decentralized?

Of course, you can manage the blockchain yourself. But you'll end up with a database that's clunky compared to better alternatives. Its real potential can be used in a decentralized environment, that is, in one where all users are equal. Thus, the blockchain cannot be deleted or hijacked by attackers. It is the only source of truth that everyone can see.

What is a P2P network?

A P2P network (Peer-to-peer) is the level of users (or generals in our previous example). There is no administrator, so instead of calling a central server any time a user wants to exchange information with another user, they send it directly to their colleagues.

Consider the graph below. On the left is a centralized structure in which participant A needs to send a message through the server to deliver it to participant F. However, on the right, all participants are connected directly, without any intermediary.

Centralized network (left) and decentralized (right).

Usually, the server stores all the information needed by the users. When you access Binance Academy, you are asking its servers to provide you with all the articles. If the website goes down, you won't be able to see them. However, if you downloaded all the content, you would be able to access it on your computer without sending a request to Binance Academy.

Essentially, this is what every user does with a blockchain: the entire database is stored on their computer. If someone leaves the network, the remaining users will still be able to access the blockchain and exchange information with each other. When a new block is added to the chain, the data is distributed across the network so that everyone can update their own copy of the ledger.

Be sure to check out P2P Networks Explained for a more in-depth look at this type of network.

What are nodes on the blockchain?

Nodes are simply what we call machines connected to a network. Nodes store copies of the blockchain and exchange information with other machines. Users do not need to handle these processes manually. Typically, all they need to do is download and run the blockchain software, and everything else will be done automatically.

The above describes what a node is, but this definition can also apply to other users who interact with the network in any way. For example, in cryptocurrency, a simple wallet app on your phone is called a lite node.

Public vs Private Blockchains

As you may know, Bitcoin laid the groundwork for the blockchain industry to evolve into what it is today. Since Bitcoin began to position itself as a real financial asset, innovators began to think about the potential of the underlying technology in other areas. This has led to blockchain being explored for countless uses outside of finance.

Bitcoin is what we call a public blockchain. This means that anyone can view transactions on it, and all that is needed to join is an internet connection and the necessary software. Since there are no other requirements for participation, we can call this an inclusive (permission-free) environment.

In contrast, there are other types of blockchains called private blockchains. These systems set rules about who can see and interact with the blockchain. Thus, we call them exclusive environments. While private blockchains may seem redundant at first, they do have several important applications – mostly in enterprise settings.

For more information on this topic, you can see this article "What is the difference between public, private and consortium blockchains?"

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How are transactions carried out?

If Alice wants to pay Bob by bank transfer, she tells her bank. Let's assume for simplicity that both parties use the same bank. The bank checks whether Alice has the funds to complete the transaction before updating its database (eg -$50 for Alice, +$50 for Bob).

This is not very different from what is happening with the blockchain. After all, this is also a database. The key difference is that there is no one party that performs checks and updates the balance. All nodes should do this.

If Alice wants to send 5 BTC to Bob, she sends a message about it to the network. It won't be added to the blockchain right away - it will be seen by the nodes, but other actions must be taken in order for the transaction to be confirmed. See the article "How are blocks added to the blockchain?"

Once this transaction is added to the blockchain, all nodes will see that it has taken place. They will update their copy of the blockchain to reflect this. Now Alice cannot send the same 5 BTC to Carol (double spend) because the network knows she has already spent it in an earlier transaction.

There is no concept of usernames and passwords – public key cryptography is used to prove ownership of funds. First of all, to receive funds, Bob needs to generate a private key. It's just a very long random number of characters that is virtually impossible for anyone to guess, even with hundreds of years at their disposal. But if he tells someone his private key, then those users will be able to prove ownership of his funds (and therefore Bob will spend them). Therefore, it is important that he keeps it a secret.

However, Bob can obtain the public key from his private key. He can then give the public key to anyone because it is virtually impossible to reengineer it to get the private key. In most cases, it will perform some other operation (such as hashing) on ​​the public key to obtain the public addresses.

He will give Alice a public address so she knows where to send the money. It creates a transaction that says: transfer these funds to this public address. Then, to prove to the network that she is not trying to spend someone else's funds, Alice generates a digital signature using her private key. Anyone can take Alice's signed message, compare it to her public key, and say with confidence that she has the right to send those funds to Bob.

How to make Bitcoin transactions

To illustrate how you can make Bitcoin transactions, let's imagine two different scenarios. The first is when you withdraw Bitcoin from Binance and the second is when you send funds from your TrustWallet to your Electrum wallet.

How to withdraw Bitcoin from Binance

1. Log in to your Binance account. If you don't have BTC yet, check out our How to Buy BTC guide.

2. Hover over "Wallet" and select "Spot Wallet".

3. Click the "Remove" button on the sidebar on the left.

4. Select the coin you want to withdraw, in this case BTC.

5. Copy the address you want to withdraw your Bitcoins to and paste the recipient's BTC address.

6. Enter the amount you want to withdraw.

7. Click "Send".

8. You will receive a confirmation email shortly. Carefully check the correctness of the address. If everything is correct, confirm the transaction in the email.

9. Wait for the transaction to go through the blockchain. You can track its status on the Deposit and Withdrawal History tab or using Block Explorer.

How to send Bitcoin from Trust Wallet to Electrum

In this example we will send BTC from Trust Wallet to Electrum.

1. Open the Trust Wallet app.

2. Click on your Bitcoin account.

3. Click "Send".

4. Open your Electrum wallet.

5. Go to the "Receive" tab in Electrum and copy the address.

Alternatively, you can return to Trust Wallet and click the [–] icon to scan the QR code that leads to your Electrum address.

6. Paste your Bitcoin address into the "Recipient Address" field in Trust Wallet.

7. Enter the amount.

8. If everything is correct, confirm the transaction.

9. Everything is ready! Wait until your transaction is confirmed on the blockchain. You can track its status by copying your address into Block Explorer.

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Who invented blockchain?

Blockchain technology was created in 2009 with the launch of Bitcoin, the first and most popular blockchain. However, its creator, under the pseudonym Satoshi Nakamoto, drew inspiration from earlier technologies and proposals.

Blockchains make extensive use of hash functions and cryptography that existed decades before Bitcoin. Interestingly, the blockchain structure can be traced back to the early 1990s, although it was simply used to timestamp documents so that they could not be changed later.

For detailed information, please see the article "History of Blockchain".

Pros and cons of blockchain technology

Properly designed blockchains solve a problem faced by stakeholders in a range of industries, from finance to agriculture. A distributed network has many advantages over the traditional client-server model. But there are also some disadvantages.

Pluses

One of the immediate advantages noted in the "Bitcoin whitepaper" is that payments can be transmitted without an intermediary. Subsequent blockchains went even further, allowing users to send all kinds of information. Eliminating counterparties means less risk for involved users and results in lower fees because the middleman doesn't get a share.

As we mentioned earlier, a public blockchain network is also inclusive – there is no barrier to entry as there is no regulatory body. If a potential user can connect to the Internet, he will be able to interact with other nodes in the network.

Many argue that the most important quality of blockchains is their high level of resistance to censorship. To crash a centralized service, all an attacker needs to do is attack the server. But in a P2P network, each node works as a separate server.

A system like Bitcoin has over 10,000 visible nodes scattered around the world, making it impossible for even a well-resourced attacker to compromise the network. It should be noted that there are many hidden nodes that are not visible to the wider network.

But there are some superficial advantages. There are many specific use cases that can be implemented in blockchains. You can learn more about this in this article "How is blockchain used?"

Cons

Blockchains are not a panacea for all problems. Optimized for the benefits described in the previous section, they lack development in other areas. The most obvious barrier to mass adoption of blockchains is that they don't scale very well.

This is true for any distributed network. Since all participants must synchronize, new information cannot be added fast enough because nodes cannot keep up with it. Therefore, developers usually deliberately limit the rate of blockchain updates to keep the system decentralized.

For network users, this can manifest itself in long waiting periods if too many people are trying to complete transactions. Blocks can contain a limited amount of data and are not added to the chain instantly. If there are more transactions than can fit in a block, any additional ones must wait for the next block.

Another possible disadvantage of decentralized blockchain systems is that they are not easily updated. If you create your own software, you can add new features as you see fit. You don't need to work with others or ask for permission to make changes.

In an environment with millions of users, making changes is much more difficult. You can change some of your node's software settings, but you'll end up disconnected from the network. If the modified software is incompatible with other nodes, they will recognize this and refuse to interact with your node.

Let's say you want to change the rule about how big blocks can be (from 1 MB to 2 MB). You can try to send this block to the nodes you are connected to, but they have a rule "don't accept blocks larger than 1MB". If they receive a larger block, they will not include it in their copy of the blockchain.

The only way to push through change is to get the majority of the ecosystem to accept it. It may take months or even years of intense discussion on forums before changes can be coordinated on the underlying blockchains. See the article, "Hard forks and soft forks" for details.

Chapter 2 - How does blockchain work?

Content

• How are blocks added to the blockchain?

• Mining (Proof of Work)

  • Pros of Proof of Work

  • Cons of Proof of Work

• Staking (Proof of Stake)

  • Pros of Proof of Stake

  • Cons of Proof of Stake

• Other consensus algorithms

• Is it possible to cancel a Bitcoin transaction?

• What is blockchain scalability?

• Why does blockchain need to scale?

• What is a blockchain fork?

  • Soft fork

  • Hard fork

How are blocks added to the blockchain?

So far we have talked about a lot. We know that nodes are interconnected and keep copies of the blockchain. They pass information about transactions and new blocks to each other. We've already discussed what nodes are, but you might be wondering how new blocks are added to the blockchain?

There is no single source that tells users what to do. Since all nodes have equal power, a fair decision mechanism is needed on who can add blocks to the blockchain. We need a system that makes it expensive to cheat users, but rewards them for being honest. Any reasonable user will want to act economically beneficial for himself.

Since the network is inclusive, the creation of blocks should be accessible to everyone. Protocols often ensure this by requiring the user to contribute to the game, i.e. involve some risk. This will allow them to participate in block creation and if they create a valid block, they will be rewarded.

However, if they try to cheat the system, the rest of the network will know about it. Whatever stake a miner contributes to the network will be lost. We call these mechanisms consensus algorithms because they allow network participants to reach consensus on which block should be added next.

Mining (Proof of Work)

Mining is by far the most popular consensus algorithm. Mining uses the Proof of Work (PoW) algorithm. This involves users sacrificing computing power to try to solve the problem outlined in the protocol.

The puzzle requires users to hash the transactions and other information included in the block. But for a hash to be considered valid, it must be less than a certain amount. Since it is impossible to predict what this or that output will be, miners must hash slightly altered data until they find the correct solution.

It is obvious that multiple hashing of data requires large computing resources. In Proof of Work blockchains, the stake that users put forward is the money invested in purchasing mining devices and the electricity used to power them. They do this in hopes of getting a block reward.

Remember how we mentioned that the original value from the hash is almost impossible to get, but is it easy to verify its correctness? When a miner sends a new block to the rest of the network, all other nodes use it as input to the hash function. They just need to pass its hash through a function to verify that the block is valid and mined according to all blockchain rules. If this is not the case, the miner is not rewarded and will be wasting electricity.

The first Proof of Work blockchain was Bitcoin. Since its inception, many other blockchains have adopted the PoW mechanism.

Pros of Proof of Work

• Reliability. To date, Proof of Work is the most mature consensus algorithm that secures hundreds of billions of dollars.

• Inclusivity. Anyone can join mining or just run a validating node.

• Decentralization. Miners compete with each other to produce blocks, which means that hash power is never controlled by one party.

Cons of Proof of Work

• High service cost. Mining consumes a huge amount of electricity.

• High barrier to entry. As more miners join the network, the protocols make the mining task more difficult. To stay competitive, users must invest in better hardware. This can stop many miners.

• Attack 51%. Although mining promotes decentralization, there is a possibility that a single miner will receive most of the hash power. If he does, he could theoretically cancel transactions and undermine the security of the blockchain.

Staking (Proof of Stake)

In Proof of Work systems, what motivates you to act honestly is the money you paid for mining computers and electricity. You won't get a return on your investment if you don't mine the blocks correctly.

With Proof of Stake (PoS), there are no external costs. Instead of miners, we have validators that offer blocks. They can use a normal computer to create new blocks, but they have to put a large part of their funds on the line to get this privilege. Staking is done with a predetermined amount of native blockchain cryptocurrency according to the rules of each protocol.

Different implementations have different variations, but once a validator starts staking its units, it can be a randomly chosen protocol to announce the next block. If done correctly, they will receive a reward. Alternatively, there may be several validators who agree on the next block, and the reward is distributed in proportion to the funds in staking of each of them.

"Pure" PoS blockchains are less common than DPoS (Delegated Proof of Stake) blockchains, which require users to vote for nodes (witnesses) to verify blocks of the entire network.

Ethereum, the leading smart contract blockchain, will soon switch to Proof of Stake in the transition to ETH 2.0.

Pros of Proof of Stake

• Green – Compared to PoW mining, the carbon footprint of PoS is extremely small. Staking eliminates the need for resource-intensive data hashing operations.

• Fast transactions. Since there is no need to expend additional computing power on arbitrary tasks imposed by the protocol, some PoS proponents argue that this can increase transaction throughput.

• Staking rewards and interest. Network security rewards are paid directly to token holders, not miners. In some cases, PoS allows users to earn passive income in the form of airdrops or interest simply by staking their funds.

Cons of Proof of Stake

• Not fully tested. PoS protocols have yet to be tested on a large scale. There may be some undetected vulnerabilities in its implementation or crypto-economy.

• Plutocracy. There are fears that PoS systems are an ecosystem in the form of "the rich getting richer", as validators with a larger share of assets tend to receive more rewards.

• Nothing is at stake. In the case of PoW, users can only "bet" on one chain that they believe is the most successful. During a hard fork, they cannot bid on multiple coins with the same hash power. However, validators in PoS can work with multiple chains with little overhead, which can cause economic problems.

Other consensus algorithms

Proof of Work and Proof of Stake are the most common consensus algorithms, but there are many more. Some of them are hybrid and combine elements of both systems, while others use completely different methods.

We won't cover them in detail, but if you're interested, check out the following articles:

• Explanation of Delayed Proof of Work

• Explanation of Leased Proof of Stake Consensus

• Explanation of Proof of Authority

• Explanation of Proof of Burn

Is it possible to cancel a Bitcoin transaction?

Blockchains are inherently very secure databases. Their inherent properties make it extremely difficult to delete or alter blockchain data once it has been recorded. When it comes to Bitcoin and other large networks, this is almost impossible. So, once you make a transaction on the blockchain, it is irreversible.

That being said, there are many different blockchain implementations, and the fundamental difference between them is how they reach consensus on the network. This means that in some implementations, a relatively small group of participants can gain enough power in the network to effectively reverse transactions. This is especially true for altcoins that operate on small networks (with low hashrates due to weak mining competition).

What is blockchain scalability?

Blockchain scalability is commonly used as a general term to refer to the ability of a blockchain system to meet increasing demand. Although blockchains have desirable properties (such as decentralization, censorship resistance, immutability), they come at a cost.

Unlike decentralized systems, a centralized database can operate at higher speed and bandwidth. This makes sense because there is no need for thousands of nodes scattered around the world to synchronize with the network every time the content changes. But this does not apply to blockchains. As a result, scaling has been the subject of fierce debate among blockchain developers for many years.

A number of different solutions have been proposed or implemented to mitigate some of the performance shortcomings of blockchains. However, at present, there is no clear best approach. Many different solutions will likely need to be tried until simpler answers to the scalability problem are found.

At a broader level, there is a fundamental question regarding scalability: should we improve the performance of the blockchain itself (on-chain scaling) or allow transactions to take place without bloating the underlying blockchain (off-chain scaling)?

Both can have obvious advantages. Solutions for on-chain scaling can be to reduce the size of transactions or even to optimize the storage of data in blocks. On the other hand, off-chain solutions involve batching transactions off the main blockchain and adding them later. Some of the more well-known off-chain solutions are called side chains and payment channels.

If you want to dive deeper into this topic, read the article "Blockchain Scalability - Sidechains and Payment Channels".

Why does blockchain need to scale?

If blockchain systems are to compete with their centralized counterparts, they must be at least as efficient as the latter. However, in reality, they will probably have to do even better to incentivize developers and users to move to blockchain-based platforms and applications.

This means that compared to centralized systems, using blockchains should be faster, cheaper and easier for both developers and users. This is not easily achieved while maintaining the main characteristics of blockchains that we discussed earlier.

What is a blockchain fork?

Like any software, blockchains need updates to fix problems, add new rules, or remove old ones. Since most blockchain software is open source, in theory anyone can propose new updates to add to the software that runs the network.

Keep in mind that blockchains are distributed networks. After a software update, thousands of nodes scattered around the world must be able to exchange data and implement the new version. But what happens if the participants can't agree on which update to implement? Usually, there is no organization with an established decision-making procedure. This results in a soft fork and a hard fork.

Soft fork

If there is general agreement on what the update should look like, it's a fairly simple matter. In such a scenario, the software is updated with backward-compatible changes, which means that the updated nodes can still communicate with the nodes that are not updated. However, in reality, almost all nodes are expected to be updated eventually. This is called a soft fork.

Hard fork

It will be more difficult with a hard fork. Once implemented, the new rules will be incompatible with the old rules. Therefore, if nodes running the new rules try to communicate with nodes running the old rules, it will be impossible. As a result, the blockchain is split into two parts - one running the old software, the other running the new rules.

After a hard fork, there are essentially two different networks running two different protocols in parallel. At the time of the fork, the balances of the native blockchain unit are cloned from the old network. That way, if you had a balance on the old network at the time of the fork, you will also have a balance on the new network.

See the article, "Hard forks and soft forks" for details.

Chapter 3. How is blockchain used?

Content

• Blockchain for supply chains

• Blockchain and the gaming industry

• Blockchain for healthcare

• Blockchain transfers

• Blockchain and digital identity

• Blockchain and the Internet of Things (IoT)

• Blockchain for management

• Blockchain for charity

• Blockchain for speculation

• Crowdfunding on the blockchain

• Blockchain and distributed file systems

Blockchain technology can have a wide range of uses. Let's go through some of them.

Blockchain for supply chains

Effective supply chains are at the heart of many successful businesses and involve the movement of goods from supplier to consumer. Coordinating multiple stakeholders in this field has traditionally been a difficult task. However, blockchain technology can provide a new level of transparency in many industries. A functional supply chain ecosystem revolving around an immutable database is exactly what many industries need to become more reliable.

If you want to learn more, read the article Blockchain Use Cases: Supply Chains.

Blockchain and the gaming industry

The gaming industry has become one of the largest entertainment industries in the world, and blockchain technology can greatly benefit it. As a rule, gamers are in the power of game developers. In most online games, gamers are forced to rely on the developers' server space and follow their ever-changing rule sets. In this context, blockchain can help decentralize the power, management and maintenance of online games.

However, the biggest problem may be that in-game items cannot exist outside of games, eliminating the chance of actual ownership and the existence of secondary markets. By using a blockchain-based approach, games could become more sustainable in the long term, and in-game items released as crypto-collectibles could gain real value.

If you want to learn more, read the article "Blockchain Uses: Gaming."

Blockchain for healthcare

Secure storage of medical records is vital to any healthcare system, and reliance on centralized servers makes sensitive information vulnerable. The transparency and security of blockchain technology make it an ideal platform for storing medical records.

By cryptographically securing records on the blockchain, patients can maintain their privacy while still being able to share their medical information with any healthcare facility. If all participants in the current fragmented healthcare system could connect to a secure global database, the flow of information between them would be faster.

If you want to learn more, read the article "Blockchain Uses: Healthcare".

Blockchain transfers

Sending money internationally is a challenge with traditional banking services. Mainly because of the tangled network of intermediaries, fees and settlement times make using traditional banks expensive and unreliable for urgent transactions.

Cryptocurrencies and blockchains eliminate this ecosystem of middlemen and can enable cheap and fast transfers around the world. While blockchains certainly sacrifice performance for some of their desirable properties, a number of projects are using the technology to provide cheap and near-instant transactions.

If you want to learn more, read the article "Blockchain Usage Options: Transfers."

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Blockchain and digital identity

Secure identity management on the Internet is in dire need of a quick solution. An extraordinary amount of our personal data is stored on centralized servers and analyzed by machine learning algorithms without our knowledge or consent.

Blockchain technology allows users to take responsibility for their data and selectively disclose information to third parties only when necessary. This type of cryptographic magic can ensure a smoother internet experience without compromising privacy.

If you want to learn more, read the article "Blockchain Uses: Digital Identity".

Blockchain and the Internet of Things (IoT)

An incredible number of physical devices are connected to the Internet, and this number will only increase. Some speculate that communication and collaboration between these devices could be greatly improved with the help of blockchain technology. Automated machine-to-machine (M2M) micropayments can create a new economy that depends on a secure, high-throughput database solution.

If you want to learn more, read the article "Blockchain Uses: The Internet of Things".

Blockchain for management

Distributed networks can define and apply their own forms of regulation in the form of computer code. Therefore, it is not surprising that blockchain may have a chance to eliminate middlemen in various governance processes at the local, national or even international level.

What's more, it could solve one of the biggest problems open source development environments are currently facing - the lack of a reliable funding distribution mechanism. Blockchain governance ensures that all participants can participate in decision-making and provides a transparent overview of what policies are being implemented.

If you want to learn more, read the article "Blockchain Uses: Governance".

Blockchain for charity

Charities are often hampered by restrictions on how they can accept funds. It is also unfortunate that the final destination of the donated funds is difficult to track precisely, which undoubtedly discourages many from supporting these organizations.

"Cryptophilanthropy" is engaged in the use of blockchain technology to circumvent these limitations. Building on the inherent properties of technology to enable greater transparency, global engagement and cost reduction, the new industry seeks to maximize the impact of charitable organizations. One such organization is the Charitable Blockchain Foundation.

If you want to learn more, read the article "Blockchain Uses: Charity".

Blockchain for speculation

Undoubtedly, one of the most popular applications of blockchain technology is speculation. Hassle-free transfers between exchanges, non-custodial trading solutions and a growing ecosystem of derivatives products make it an ideal playing field for all types of speculators.

Due to its inherent properties, blockchain is an excellent tool for those willing to take risks using this asset class. Some proponents even believe that once the technology and appropriate regulation mature, all global speculative markets could be tokenized on the blockchain.

If you want to learn more, read the article "Blockchain Uses: Prediction Markets".

Crowdfunding on the blockchain

Online crowdfunding platforms have been laying the foundation for the P2P economy for nearly a decade. The success of these sites shows that there is real interest in crowdfunding product development. However, these platforms act as custodians of funds, they can receive a significant part of them as commissions. In addition, each of them will have its own set of rules to facilitate agreement between the various participants.

Blockchain technology, or rather smart contracts, can provide more secure automated crowdfunding, where the terms of the deals are defined in computer code.

Another application of blockchain crowdfunding is Initial Coin Offerings and Initial Exchange Offerings (IEOs). In these token sales, investors raise funds in the hope that the network will be successful in the future and they will receive a return on their investment.

Blockchain and distributed file systems

Distributed file storage on the Internet has many advantages over traditional centralized alternatives. Most data stored in the cloud depends on centralized servers and service providers, which tend to be more vulnerable to attacks and data loss. In some cases, users may experience accessibility issues due to censorship by centralized servers.

From a user perspective, blockchain file storage solutions work the same way as other cloud storage solutions – you can upload, store and access files. However, what is happening in the background is quite different.

When you upload a file to a blockchain storage, it is distributed and duplicated among multiple nodes. In some cases, each node will store different parts of your file. In turn, the nodes will not be able to do anything with these pieces of data, but later you can request them to give you each of these pieces in order to combine them and get the complete file back.

Storage comes from members who donate their storage and network bandwidth. Typically, these participants are economically motivated to provide these resources and are penalized if they do not follow the rules or maintain and maintain the files.

You can think of this type of network as Bitcoin. However, in this case, the main purpose of the network is not to support money transfers, but to provide decentralized file storage protected from censorship.

Other open source protocols, such as the InterPlanetary File System (IPFS), are already paving the way for this new, persistent and distributed web technology. Although IPFS is a protocol and a P2P network, it is not exactly a blockchain. But it applies some of the principles of blockchain technology to improve security and efficiency.