Last Updated: 13 Sep 2018

Is blockchain technology the new internet?

The blockchain is an undeniably ingenious invention – the brainchild of a person or group of people
known by the pseudonym, Satoshi Nakamoto. But since then, it has evolved into something greater,
and the main question every single person is asking is: What is Blockchain?
By allowing digital information to be distributed but not copied, blockchain technology created the
backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, (Buy
Bitcoin) the tech community is now finding other potential uses for the technology.
Bitcoin has been called “digital gold,” and for a good reason. To date, the total value of the currency
is close to $112 billion US. And blockchains can make other types of digital value. Like the internet
(or your car), you don’t need to know how the blockchain works to use it. However, having a basic
knowledge of this new technology shows why it’s considered revolutionary. So, we hope you enjoy
this, What Is Blockchain Guide. And if you already know what blockchain is and want to become a
blockchain developer (2018 – currently in high demand!) please check out our in-depth blockchain
tutorial and create your very first blockchain.

What is Blockchain Technology?

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed
to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)
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How Does Blockchain Work?

Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then
imagine that this network is designed to regularly update this spreadsheet and you have a basic
understanding of the blockchain.
Information held on a blockchain exists as a shared — and continually reconciled — database. This
is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any
single location, meaning the records it keeps are truly public and easily verifiable. No centralized
version of this information exists for a hacker to corrupt. Hosted by millions of computers
simultaneously, its data is accessible to anyone on the internet.
To go in deeper with the Google spreadsheet analogy, I would like you to read this piece from a
blockchain specialist.

Blockchain as Google Docs

“The traditional way of sharing documents with collaboration is to send a Microsoft Word
document to another recipient, and ask them to make revisions to it. The problem with that scenario
is that you need to wait until receiving a return copy before you can see or make other changes
because you are locked out of editing it until the other person is done with it. That’s how
databases work today. Two owners can’t be messing with the same record at once.That’s how
banks maintain money balances and transfers; they briefly lock access (or decrease the balance)
while they make a transfer, then update the other side, then re-open access (or update again).With
Google Docs (or Google Sheets), both parties have access to the same document at the same time,
and the single version of that document is always visible to both of them. It is like a shared ledger,
but it is a shared document. The distributed part comes into play when sharing involves a number of
people.
Imagine the number of legal documents that should be used that way. Instead of passing them to
each other, losing track of versions, and not being in sync with the other version, why can’t *all*
business documents become shared instead of transferred back and forth? So many types of legal
contracts would be ideal for that kind of workflow.You don’t need a blockchain to share documents,
but the shared documents analogy is a powerful one.”
William Mougayar, Venture advisor, 4x entrepreneur, marketer, strategist and blockchain specialist
Blockchain Durability and robustness
Blockchain technology is like the internet in that it has a built-in robustness. By storing blocks of
information that are identical across its network, the blockchain cannot:
1. Be controlled by any single entity.
2. Has no single point of failure.
Bitcoin was invented in 2008. Since that time, the Bitcoin blockchain has operated without
significant disruption. (To date, any of problems associated with Bitcoin have been due to hacking
or mismanagement. In other words, these problems come from bad intention and human error, not
flaws in the underlying concepts.)
The internet itself has proven to be durable for almost 30 years. It’s a track record that bodes well
for blockchain technology as it continues to be developed.

“As revolutionary as it sounds, Blockchain truly is a mechanism to bring everyone to the highest
degree of accountability. No more missed transactions, human or machine errors, or even an
exchange that was not done with the consent of the parties involved. Above anything else, the most
critical area where Blockchain helps is to guarantee the validity of a transaction by recording it not
only on a main register but a connected distributed system of registers, all of which are connected
through a secure validation mechanism.”
– Ian Khan, TEDx Speaker | Author | Technology Futurist

Transparent and incorruptible

The blockchain network lives in a state of consensus, one that automatically checks in with itself
every ten minutes. A kind of self-auditing ecosystem of a digital value, the network reconciles
every transaction that happens in ten-minute intervals. Each group of these transactions is referred
to as a “block”. Two important properties result from this:
1. Transparency data is embedded within the network as a whole, by definition it is public.
2. It cannot be corrupted altering any unit of information on the blockchain would mean
using a huge amount of computing power to override the entire network.

In theory, this could be possible. In practice, it’s unlikely to happen. Taking control of the system to
capture Bitcoins, for instance, would also have the effect of destroying their value.
“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they
trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and
corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the
places where people are really rich. Blockchain’s opportunities are the highest in the countries that
haven’t reached that level yet.”
Vitalik Buterin, inventor of Ethereum

A network of nodes
A network of so-called computing “nodes” make up the blockchain.

Node
(computer connected to the blockchain network using a client that performs the task of validating
and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon
joining the blockchain network.

Together they create a powerful second-level network, a wholly different vision for how the internet
can function.
Every node is an “administrator” of the blockchain, and joins the network voluntarily (in this sense,
the network is decentralized). However, each one has an incentive for participating in the network:
the chance of winning Bitcoins.
Nodes are said to be “mining” Bitcoin, but the term is something of a misnomer. In fact, each one is
competing to win Bitcoins by solving computational puzzles. Bitcoin was the raison d’etre of the
blockchain as it was originally conceived. It’s now recognized to be only the first of many potential
applications of the technology.
There are an estimated 1600 Bitcoin-like cryptocurrencies (exchangeable value tokens) already
available. As well, a range of other potential adaptations of the original blockchain concept are
currently active, or in development.

“Bitcoin has the same character a fax machine had. A single fax machine is a doorstop. The world
where everyone has a fax machine is an immensely valuable thing.”
Larry Summers, Former US Secretary of the Treasury

The idea of decentralization

By design, the blockchain is a decentralized technology.
Anything that happens on it is a function of the network as a whole. Some important implications
stem from this. By creating a new way to verify transactions aspects of traditional commerce could
become unnecessary. Stock market trades become almost simultaneous on the blockchain, for
instance — or it could make types of record keeping, like a land registry, fully public. And
decentralization is already a reality.
A global network of computers uses blockchain technology to jointly manage the database that
records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central
authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The
forms of mass collaboration this makes possible are just beginning to be investigated.

“I think decentralized networks will be the next huge wave in technology.”

Melanie Swan, author Blockchain: Blueprint for a New Economy (2015)
Who will use the blockchain?
As web infrastructure, you don’t need to know about the blockchain for it to be useful in your life.
Currently, finance offers the strongest use cases for the technology. International remittances, for
instance. The World Bank estimates that over $430 billion US in money transfers were sent in 2015.
And at the moment there is a high demand for blockchain developers.
=The blockchain potentially cuts out the middleman for these types of transactions. Personal
computing became accessible to the general public with the invention of the Graphical User
Interface (GUI), which took the form of a “desktop”. Similarly, the most common GUI devised for
the blockchain are the so-called “wallet” applications, which people use to buy things with Bitcoin,
and store it along with other cryptocurrencies.
Transactions online are closely connected to the processes of identity verification. It is easy to
imagine that wallet apps will transform in the coming years to include other types of identity
management.

“Online identity and reputation will be decentralized. We will own the data that belongs to us.”
William Mougayar, author The Business Blockchain: Promise, Practice, and Application of the Next
Internet Technology (2016)

The Blockchain & Enhanced security

By storing data across its network, the blockchain eliminates the risks that come with data being
held centrally.
=Its network lacks centralized points of vulnerability that computer hackers can exploit. Today’s
internet has security problems that are familiar to everyone. We all rely on the
“username/password” system to protect our identity and assets online. Blockchain security methods
use encryption technology.
The basis for this are the so-called public and private “keys”. A “public key” (a long, randomly-
generated string of numbers) is a users’ address on the blockchain. Bitcoins sent across the network
gets recorded as belonging to that address. The “private key” is like a password that gives its owner
access to their Bitcoin or other digital assets. Store your data on the blockchain and it is
incorruptible. This is true, although protecting your digital assets will also require safeguarding of
your private key by printing it out, creating what’s referred to as a paper wallet.
A second-level network
With blockchain technology, the web gains a new layer of functionality.
Already, users can transact directly with one another — Bitcoin transactions in 2017 averaged
around $2 billion US per day. With the added security brought by the blockchain new internet
business are on track to unbundle the traditional institutions of finance.
Goldman Sachs believes that blockchain technology holds great potential especially to optimize
clearing and settlements, and could represent global savings of up to $6bn per year.

“2017 will be a pivotal year for blockchain tech. Many of the startups in the space will either
begin generating revenue – via providing products the market demands/values – or vaporize due
to running out of cash. In other words, 2017 should be the year where there is more
implementation of products utilizing blockchain tech, and less talk about blockchain tech being
the magical pixie dust that can just be sprinkled atop everything. Of course, from a customers
viewpoint, this will not be obvious as blockchain tech should dominantly be invisible – even as its
features and functionality improve peoples’/business’ lives. I personally am familiar with a
number of large-scale blockchain tech use cases that are launching soon/2017. This
implementation stage, which 2017 should represent, is a crucial step in the larger adoption of
blockchain tech, as it will allow skeptics to see the functionality, rather than just hear of its
promise.”
– George Howard, Associate Professor Brown University, Berklee College of Music and Founder
of George Howard Strategic

The Blockchain a New Web 3.0?

Indeed.com, one of the biggest job portals in the world, published some interesting statistics
regarding the rise of Blockchain jobs. It looks like the number of blockchain jobs increased from
December 2016 to December 2017 by a staggering 207%. But that’s not the end of it. According to
the stats, this number has increased by, a scarcely believable 631% since November 2015.
The blockchain gives internet users the ability to create value and authenticates digital information.
What will new business applications result?

• Smart contracts
Distributed ledgers enable the coding of simple contracts that will execute when specified
conditions are met. Ethereum is an open source blockchain project that was built specifically
to realize this possibility. Still, in its early stages, Ethereum has the potential to leverage the
usefulness of blockchains on a truly world-changing scale.
At the technology’s current level of development, smart contracts can be programmed to
perform simple functions. For instance, a derivative could be paid out when a financial
instrument meets certain benchmark, with the use of blockchain technology and Bitcoin
enabling the payout to be automated.

• The sharing economy

With companies like Uber and AirBnB flourishing, the sharing economy is already a proven
success. Currently, however, users who want to hail a ride-sharing service have to rely on an
intermediary like Uber. By enabling peer-to-peer payments, the blockchain opens the door to
direct interaction between parties — a truly decentralized sharing economy results.
An early example, OpenBazaar uses the blockchain to create a peer-to-peer eBay. Download
the app onto your computing device, and you can transact with OpenBazzar vendors without
paying transaction fees. The “no rules” ethos of the protocol means that personal reputation
will be even more important to business interactions than it currently is on eBay.

• Crowdfunding
Crowdfunding initiatives like Kickstarter and Gofundme are doing the advance work for the
emerging peer-to-peer economy. The popularity of these sites suggests people want to have a
direct say in product development. Blockchains take this interest to the next level,
potentially creating crowd-sourced venture capital funds.
In 2016, one such experiment, the Ethereum-based DAO (Decentralized Autonomous
Organization), raised an astonishing $200 million USD in just over two months. Participants
purchased “DAO tokens” allowing them to vote on smart contract venture capital
investments (voting power was proportionate to the number of DAO they were holding). A
subsequent hack of project funds proved that the project was launched without proper due
diligence, with disastrous consequences. Regardless, the DAO experiment suggests the
blockchain has the potential to usher in “a new paradigm of economic cooperation.”
 • Governance
By making the results fully transparent and publicly accessible, distributed database
technology could bring full transparency to elections or any other kind of poll taking.
Ethereum-based smart contracts help to automate the process.
The app, Boardroom, enables organizational decision-making to happen on the blockchain.
In practice, this means company governance becomes fully transparent and verifiable when
managing digital assets, equity or information.

• Supply chain auditing

Consumers increasingly want to know that the ethical claims companies make about their
products are real. Distributed ledgers provide an easy way to certify that the backstories of
the things we buy are genuine. Transparency comes with blockchain-based timestamping of
a date and location — on ethical diamonds, for instance — that corresponds to a product
number.
The UK-based Provenance offers supply chain auditing for a range of consumer goods.
Making use of the Ethereum blockchain, a Provenance pilot project ensures that fish sold in
Sushi restaurants in Japan has been sustainably harvested by its suppliers in Indonesia.

• File storage
Decentralizing file storage on the internet brings clear benefits. Distributing data throughout
the network protects files from getting hacked or lost.
Inter Planetary File System (IPFS) makes it easy to conceptualize how a distributed web
might operate. Similar to the way a bittorrent moves data around the internet, IPFS gets rid
of the need for centralized client-server relationships (i.e., the current web). An internet
made up of completely decentralized websites has the potential to speed up file transfer and
streaming times. Such an improvement is not only convenient. It’s a necessary upgrade to
the web’s currently overloaded content-delivery systems.

• Prediction markets
The crowdsourcing of predictions on event probability is proven to have a high degree of
accuracy. Averaging opinions cancels out the unexamined biases that distort judgment.
Prediction markets that payout according to event outcomes are already active. Blockchains
are a “wisdom of the crowd” technology that will no doubt find other applications in the
years to come.
The prediction market application Augur makes share offerings on the outcome of real-
world events. Participants can earn money by buying into the correct prediction. The more
shares purchased in the correct outcome, the higher the payout will be. With a small
commitment of funds (less than a dollar), anyone can ask a question, create a market based
on a predicted outcome, and collect half of all transaction fees the market generates.

• Protection of intellectual property

As is well known, digital information can be infinitely reproduced — and distributed widely
thanks to the internet. This has given web users globally a goldmine of free content.
However, copyright holders have not been so lucky, losing control over their intellectual
property and suffering financially as a consequence. Smart contracts can protect copyright
and automate the sale of creative works online, eliminating the risk of file copying and
redistribution.
Mycelia uses the blockchain to create a peer-to-peer music distribution system. Founded by
the UK singer-songwriter Imogen Heap, Mycelia enables musicians to sell songs directly to
audiences, as well as license samples to producers and divvy up royalties to songwriters and
musicians — all of these functions being automated by smart contracts. The capacity of
blockchains to issue payments in fractional cryptocurrency amounts (micropayments)
suggests this use case for the blockchain has a strong chance of success.

• Internet of Things (IoT)

What is the IoT? The network-controlled management of certain types of electronic devices
— for instance, the monitoring of air temperature in a storage facility. Smart contracts make
the automation of remote systems management possible. A combination of software, sensors,
and the network facilitates an exchange of data between objects and mechanisms. The result
increases system efficiency and improves cost monitoring.
The biggest players in manufacturing, tech and telecommunications are all vying for IoT
dominance. Think Samsung, IBM and AT&T. A natural extension of existing infrastructure
controlled by incumbents, IoT applications will run the gamut from predictive maintenance
of mechanical parts to data analytics, and mass-scale automated systems management.

• Neighbourhood Microgrids
Blockchain technology enables the buying and selling of the renewable energy generated by
neighborhood microgrids. When solar panels make excess energy, Ethereum-based smart
contracts automatically redistribute it. Similar types of smart contract automation will have
many other applications as the IoT becomes a reality.
Located in Brooklyn, Consensys is one of the foremost companies globally that is
developing a range of applications for Ethereum. One project they are partnering on is
Transactive Grid, working with the distributed energy outfit, LO3. A prototype project
currently up and running uses Ethereum smart contracts to automate the monitoring and
redistribution of microgrid energy. This so-called “intelligent grid” is an early example of
IoT functionality.

• Identity management
There is a definite need for better identity management on the web. The ability to verify
your identity is the lynchpin of financial transactions that happen online. However, remedies
for the security risks that come with web commerce are imperfect at best. Distributed
ledgers offer enhanced methods for proving who you are, along with the possibility to
digitize personal documents. Having a secure identity will also be important for online
interactions — for instance, in the sharing economy. A good reputation, after all, is the most
important condition for conducting transactions online.
Developing digital identity standards is proving to be a highly complex process. Technical
challenges aside, a universal online identity solution requires cooperation between private
entities and government. Add to that the need to navigate legal systems in different countries
and the problem becomes exponentially difficult. E-Commerce on the internet currently
relies on the SSL certificate (the little green lock) for secure transactions on the web. Netki
is a startup that aspires to create an SSL standard for the blockchain. Having recently
announced a $3.5 million seed round, Netki expects a product launch in early 2017.

• AML and KYC

Anti-money laundering (AML) and know your customer (KYC) practices have a strong
potential for being adapted to the blockchain. Currently, financial institutions must perform a
labour intensive multi-step process for each new customer. KYC costs could be reduced
through cross-institution client verification, and at the same time increase monitoring and
analysis effectiveness.
Startup Polycoin has an AML/KYC solution that involves analysing transactions. Those
transactions identified as being suspicious are forwarded on to compliance officers. Another
startup Tradle is developing an application called Trust in Motion (TiM). Characterized as an
“Instagram for KYC”, TiM allows customers to take a snapshot of key documents (passport,
utility bill, etc.). Once verified by the bank, this data is cryptographically stored on the
blockchain.

• Data management
Today, in exchange for their personal data people can use social media platforms like
Facebook for free. In future, users will have the ability to manage and sell the data their
online activity generates. Because it can be easily distributed in small fractional amounts,
Bitcoin — or something like it — will most likely be the currency that gets used for this
type of transaction.
The MIT project Enigma understands that user privacy is the key precondition for creating
of a personal data marketplace. Enigma uses cryptographic techniques to allow individual
data sets to be split between nodes, and at the same time run bulk computations over the data
group as a whole. Fragmenting the data also makes Enigma scalable (unlike those
blockchain solutions where data gets replicated on every node). A Beta launch is promised
within the next six months.

• Land title registration

As Publicly-accessible ledgers, blockchains can make all kinds of record-keeping more
efficient. Property titles are a case in point. They tend to be susceptible to fraud, as well as
costly and labour intensive to administer.
A number of countries are undertaking blockchain-based land registry projects. Honduras
was the first government to announce such an initiative in 2015, although the current status
of that project is unclear. This year, the Republic of Georgia cemented a deal with the
Bitfury Group to develop a blockchain system for property titles. Reportedly, Hernando de
Soto, the high-profile economist and property rights advocate, will be advising on the
project. Most recently, Sweden announced it was experimenting with a blockchain
application for property titles.

• Stock trading
The potential for added efficiency in share settlement makes a strong use case for
blockchains in stock trading. When executed peer-to-peer, trade confirmations become
almost instantaneous (as opposed to taking three days for clearance). Potentially, this means
intermediaries — such as the clearing house, auditors and custodians — get removed from
the process.
Numerous stock and commodities exchanges are prototyping blockchain applications for the
services they offer, including the ASX (Australian Securities Exchange), the Deutsche Börse
(Frankfurt’s stock exchange) and the JPX (Japan Exchange Group). Most high profile
because the acknowledged first mover in the area, is the Nasdaq’s Linq, a platform for
private market trading (typically between pre-IPO startups and investors). A partnership with
the blockchain tech company Chain, Linq announced the completion of it its first share trade
in 2015. More recently, Nasdaq announced the development of a trial blockchain project for
proxy voting on the Estonian Stock Market.
“2016 was the year in which blockchain theory achieved general acceptance, but remained
in theory, with the big players lingering around the hoop waiting to see who would take the
first shot. As the year comes to an end, blockchain technology is tantalizingly close to turning
the corner and entering the realm of small-scale commercial ability. Overall, 2017 is going to
be the year of the very well-considered and well-funded proof of concept, with a few projects
achieving revenue positive status. Venture investment is going to continue to be substantial
but less than we saw in 2016 and 2015. I’d predict one or two exits by acquisition.”
– Judd Bagley Director of Communications at Overstock.com and Chief Evangelist at t0.com