Blockchain

It has been suggested that Blockchain-based database be merged into this article.
(Discuss) Proposed since April 2020.

Blockchain formation. The main chain (black) consists of the longest series of
blocks from the genesis block (green) to the current block. Orphan blocks (purple)
exist outside of the main chain.

Bitcoin network data

A blockchain,[1][2][3] originally block chain,[4][5] is a growing list of records,
called blocks, that are linked using cryptography.[1][6] Each block contains a
cryptographic hash of the previous block,[6] a timestamp, and transaction data
(generally represented as a Merkle tree).

By design, a blockchain is resistant to modification of the data. It is "an open,

distributed ledger that can record transactions between two parties efficiently and
in a verifiable and permanent way".[7] For use as a distributed ledger, a
blockchain is typically managed by a peer-to-peer network collectively adhering to
a protocol for inter-node communication and validating new blocks. Once recorded,
the data in any given block cannot be altered retroactively without alteration of
all subsequent blocks, which requires consensus of the network majority. Although
blockchain records are not unalterable, blockchains may be considered secure by
design and exemplify a distributed computing system with high Byzantine fault
tolerance. Decentralized consensus has therefore been claimed with a blockchain.[8]

Blockchain was invented by a person (or group of people) using the name Satoshi
Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency
bitcoin.[1] The identity of Satoshi Nakamoto remains unknown to date. The invention
of the blockchain for bitcoin made it the first digital currency to solve the
double-spending problem without the need of a trusted authority or central server.
The bitcoin design has inspired other applications,[1][3] and blockchains that are
readable by the public are widely used by cryptocurrencies. Blockchain is
considered a type of payment rail.[9] Private blockchains have been proposed for
business use. Computerworld called the marketing of such blockchains without a
proper security model "snake oil".[10]

Cryptographer David Chaum first proposed a blockchain-like protocol in his 1982

dissertation "Computer Systems Established, Maintained, and Trusted by Mutually
Suspicious Groups."[11] Further work on a cryptographically secured chain of blocks
was described in 1991 by Stuart Haber and W. Scott Stornetta.[6][12] They wanted to
implement a system where document timestamps could not be tampered with. In 1992,
Haber, Stornetta, and Dave Bayer incorporated Merkle trees to the design, which
improved its efficiency by allowing several document certificates to be collected
into one block.[6][13]

The first blockchain was conceptualized by a person (or group of people) known as
Satoshi Nakamoto in 2008. Nakamoto improved the design in an important way using a
Hashcash-like method to timestamp blocks without requiring them to be signed by a
trusted party and introducing a difficulty parameter to stabilize rate with which
blocks are added to the chain.[6] The design was implemented the following year by
Nakamoto as a core component of the cryptocurrency bitcoin, where it serves as the
public ledger for all transactions on the network.[1]

In August 2014, the bitcoin blockchain file size, containing records of all
transactions that have occurred on the network, reached 20 GB (gigabytes).[14] In
January 2015, the size had grown to almost 30 GB, and from January 2016 to January
2017, the bitcoin blockchain grew from 50 GB to 100 GB in size. The ledger size had
exceeded 200 GiB by early 2020.[15]

The words block and chain were used separately in Satoshi Nakamoto's original
paper, but were eventually popularized as a single word, blockchain, by 2016.

According to Accenture, an application of the diffusion of innovations theory

suggests that blockchains attained a 13.5% adoption rate within financial services
in 2016, therefore reaching the early adopters phase.[16] Industry trade groups
joined to create the Global Blockchain Forum in 2016, an initiative of the Chamber
of Digital Commerce.

In May 2018, Gartner found that only 1% of CIOs indicated any kind of blockchain
adoption within their organisations, and only 8% of CIOs were in the short-term
"planning or [looking at] active experimentation with blockchain".[17]

Structure
A blockchain is a decentralized, distributed, and oftentimes public, digital ledger
consisting of records called blocks that is used to record transactions across many
computers so that any involved block cannot be altered retroactively, without the
alteration of all subsequent blocks.[1][18] This allows the participants to verify
and audit transactions independently and relatively inexpensively.[19] A blockchain
database is managed autonomously using a peer-to-peer network and a distributed
timestamping server. They are authenticated by mass collaboration powered by
collective self-interests.[20] Such a design facilitates robust workflow where
participants' uncertainty regarding data security is marginal. The use of a
blockchain removes the characteristic of infinite reproducibility from a digital
asset. It confirms that each unit of value was transferred only once, solving the
long-standing problem of double spending. A blockchain has been described as a
value-exchange protocol.[21] A blockchain can maintain title rights because, when
properly set up to detail the exchange agreement, it provides a record that compels
offer and acceptance.

Blocks
Blocks hold batches of valid transactions that are hashed and encoded into a Merkle
tree.[1] Each block includes the cryptographic hash of the prior block in the
blockchain, linking the two. The linked blocks form a chain.[1] This iterative
process confirms the integrity of the previous block, all the way back to the
original genesis block.[22]

Sometimes separate blocks can be produced concurrently, creating a temporary fork.

In addition to a secure hash-based history, any blockchain has a specified
algorithm for scoring different versions of the history so that one with a higher
score can be selected over others. Blocks not selected for inclusion in the chain
are called orphan blocks.[22] Peers supporting the database have different versions
of the history from time to time. They keep only the highest-scoring version of the
database known to them. Whenever a peer receives a higher-scoring version (usually
the old version with a single new block added) they extend or overwrite their own
database and retransmit the improvement to their peers. There is never an absolute
guarantee that any particular entry will remain in the best version of the history
forever. Blockchains are typically built to add the score of new blocks onto old
blocks and are given incentives to extend with new blocks rather than overwrite old
blocks. Therefore, the probability of an entry becoming superseded decreases
exponentially[23] as more blocks are built on top of it, eventually becoming very
low.[1][24]:ch. 08[25] For example, bitcoin uses a proof-of-work system, where the
chain with the most cumulative proof-of-work is considered the valid one by the
network. There are a number of methods that can be used to demonstrate a sufficient
level of computation. Within a blockchain the computation is carried out
redundantly rather than in the traditional segregated and parallel manner.[26]
Block time
The block time is the average time it takes for the network to generate one extra
block in the blockchain. Some blockchains create a new block as frequently as every
five seconds. By the time of block completion, the included data becomes
verifiable. In cryptocurrency, this is practically when the transaction takes
place, so a shorter block time means faster transactions. The block time for
Ethereum is set to between 14 and 15 seconds, while for bitcoin it is on average 10
minutes.[27]

Hard forks
This section is an excerpt from Fork (blockchain) § Hard fork[edit]
A hard fork is a rule change such that the software validating according to the old
rules will see the blocks produced according to the new rules as invalid. In case
of a hard fork, all nodes meant to work in accordance with the new rules need to
upgrade their software.

If one group of nodes continues to use the old software while the other nodes use
the new software, a permanent split can occur. For example, Ethereum has hard-
forked to "make whole" the investors in The DAO, which had been hacked by
exploiting a vulnerability in its code. In this case, the fork resulted in a split
creating Ethereum and Ethereum Classic chains. In 2014 the Nxt community was asked
to consider a hard fork that would have led to a rollback of the blockchain records
to mitigate the effects of a theft of 50 million NXT from a major cryptocurrency
exchange. The hard fork proposal was rejected, and some of the funds were recovered
after negotiations and ransom payment. Alternatively, to prevent a permanent split,
a majority of nodes using the new software may return to the old rules, as was the
case of bitcoin split on 12 March 2013.[28]
Decentralization
By storing data across its peer-to-peer network, the blockchain eliminates a number
of risks that come with data being held centrally.[1] The decentralized blockchain
may use ad hoc message passing and distributed networking.

Peer-to-peer blockchain networks lack centralized points of vulnerability that

computer crackers can exploit; likewise, it has no central point of failure.
Blockchain security methods include the use of public-key cryptography.[4]:5 A
public key (a long, random-looking string of numbers) is an address on the
blockchain. Value tokens sent across the network are recorded as belonging to that
address. A private key is like a password that gives its owner access to their
digital assets or the means to otherwise interact with the various capabilities
that blockchains now support. Data stored on the blockchain is generally considered
incorruptible.[1]

Every node in a decentralized system has a copy of the blockchain. Data quality is
maintained by massive database replication[8] and computational trust. No
centralized "official" copy exists and no user is "trusted" more than any other.[4]
Transactions are broadcast to the network using software. Messages are delivered on
a best-effort basis. Mining nodes validate transactions,[22] add them to the block
they are building, and then broadcast the completed block to other nodes.[24]:ch.
08 Blockchains use various time-stamping schemes, such as proof-of-work, to
serialize changes.[29] Alternative consensus methods include proof-of-stake.[22]
Growth of a decentralized blockchain is accompanied by the risk of centralization
because the computer resources required to process larger amounts of data become
more expensive.[30]

Openness
Open blockchains are more user-friendly than some traditional ownership records,
which, while open to the public, still require physical access to view. Because all
early blockchains were permissionless, controversy has arisen over the blockchain
definition. An issue in this ongoing debate is whether a private system with
verifiers tasked and authorized (permissioned) by a central authority should be
considered a blockchain.[31][32][33][34][35] Proponents of permissioned or private
chains argue that the term "blockchain" may be applied to any data structure that
batches data into time-stamped blocks. These blockchains serve as a distributed
version of multiversion concurrency control (MVCC) in databases.[36] Just as MVCC
prevents two transactions from concurrently modifying a single object in a
database, blockchains prevent two transactions from spending the same single output
in a blockchain.[37]:30–31 Opponents say that permissioned systems resemble
traditional corporate databases, not supporting decentralized data verification,
and that such systems are not hardened against operator tampering and revision.[31]
[33] Nikolai Hampton of Computerworld said that "many in-house blockchain solutions
will be nothing more than cumbersome databases," and "without a clear security
model, proprietary blockchains should be eyed with suspicion."[10][38]

Permissionless
The great advantage to an open, permissionless, or public, blockchain network is
that guarding against bad actors is not required and no access control is needed.
[23] This means that applications can be added to the network without the approval
or trust of others, using the blockchain as a transport layer.[23]

Bitcoin and other cryptocurrencies currently secure their blockchain by requiring

new entries to include a proof of work. To prolong the blockchain, bitcoin uses
Hashcash puzzles. While Hashcash was designed in 1997 by Adam Back, the original
idea was first proposed by Cynthia Dwork and Moni Naor and Eli Ponyatovski in their
1992 paper "Pricing via Processing or Combatting Junk Mail".

In 2016, venture capital investment for blockchain-related projects was weakening

in the USA but increasing in China.[39] Bitcoin and many other cryptocurrencies use
open (public) blockchains. As of April 2018, bitcoin has the highest market
capitalization.

Permissioned (private) blockchain

See also: Distributed ledger
Permissioned blockchains use an access control layer to govern who has access to
the network.[40] In contrast to public blockchain networks, validators on private
blockchain networks are vetted by the network owner. They do not rely on anonymous
nodes to validate transactions nor do they benefit from the network effect.
[citation needed] Permissioned blockchains can also go by the name of 'consortium'
blockchains.[citation needed]

Disadvantages of private blockchain

Nikolai Hampton pointed out in Computerworld that "There is also no need for a '51
percent' attack on a private blockchain, as the private blockchain (most likely)
already controls 100 percent of all block creation resources. If you could attack
or damage the blockchain creation tools on a private corporate server, you could
effectively control 100 percent of their network and alter transactions however you
wished."[10] This has a set of particularly profound adverse implications during a
financial crisis or debt crisis like the financial crisis of 2007–08, where
politically powerful actors may make decisions that favor some groups at the
expense of others,[41][42] and "the bitcoin blockchain is protected by the massive
group mining effort. It's unlikely that any private blockchain will try to protect
records using gigawatts of computing power — it's time consuming and
expensive."[10] He also said, "Within a private blockchain there is also no 'race';
there's no incentive to use more power or discover blocks faster than competitors.
This means that many in-house blockchain solutions will be nothing more than
cumbersome databases."[10]

Blockchain analysis
The analysis of public blockchains has become increasingly important with the
popularity of bitcoin, Ethereum, litecoin and other cryptocurrencies.[43] A
blockchain, if it is public, provides anyone who wants access to observe and
analyse the chain data, given one has the know-how. The process of understanding
and accessing the flow of crypto has been an issue for many cryptocurrencies,
crypto-exchanges and banks.[44][45] The reason for this is accusations of
blockchain enabled cryptocurrencies enabling illicit dark market trade of drugs,
weapons, money laundering etc.[46] A common belief has been that cryptocurrency is
private and untraceable, thus leading many actors to use it for illegal purposes.
This is changing and now specialised tech-companies provide blockchain tracking
services, making crypto exchanges, law-enforcement and banks more aware of what is
happening with crypto funds and fiat crypto exchanges. The development, some argue,
has led criminals to prioritise use of new cryptos such as Monero.[47][48][49] The
question is about public accessibility of blockchain data and the personal privacy
of the very same data. It is a key debate in cryptocurrency and ultimately in
blockchain.[50]

Uses
Blockchain technology can be integrated into multiple areas. The primary use of
blockchains today is as a distributed ledger for cryptocurrencies, most notably
bitcoin. There are a few operational products maturing from proof of concept by
late 2016.[39] Businesses have been thus far reluctant to place blockchain at the
core of the business structure.[51]

Cryptocurrencies
Main article: Cryptocurrency
Most cryptocurrencies use blockchain technology to record transactions. For
example, the bitcoin network and Ethereum network are both based on blockchain. On
8 May 2018 Facebook confirmed that it would open a new blockchain group[52] which
would be headed by David Marcus, who previously was in charge of Messenger.
Facebook's planned cryptocurrency platform, Libra, was formally announced on June
18, 2019.[53][54]

Smart contracts
Main article: Smart contract
Blockchain-based smart contracts are proposed contracts that can be partially or
fully executed or enforced without human interaction.[55] One of the main
objectives of a smart contract is automated escrow. An IMF staff discussion
reported that smart contracts based on blockchain technology might reduce moral
hazards and optimize the use of contracts in general. But "no viable smart contract
systems have yet emerged." Due to the lack of widespread use their legal status is
unclear.[56][57]

Financial services
Major portions of the financial industry are implementing distributed ledgers for
use in banking,[58][59][60] and according to a September 2016 IBM study, this is
occurring faster than expected.[61]

Banks are interested in this technology because it has potential to speed up back
office settlement systems.[62]

Banks such as UBS are opening new research labs dedicated to blockchain technology
in order to explore how blockchain can be used in financial services to increase
efficiency and reduce costs.[63][64]

Berenberg, a German bank, believes that blockchain is an "overhyped technology"

that has had a large number of "proofs of concept", but still has major challenges,
and very few success stories.[65]
In December 2018, Bitwala launched Europe's first regulated blockchain banking
solution that enables users to manage both their bitcoin and euro deposits in one
place with the safety and convenience of a German bank account. The bank account is
hosted by the Berlin-based solarisBank.[66]

The blockchain has also given rise to Initial coin offerings (ICOs) as well as a
new category of digital asset called Security Token Offerings (STOs), also
sometimes referred to as Digital Security Offerings (DSOs).[67] STO/DSOs may be
conducted privately or on a public, regulated stock exchange and are used to
tokenize traditional assets such as company shares as well as more innovative ones
like intellectual property, real estate, art, or individual products. A number of
companies are active in this space providing services for compliant tokenization,
private STOs, and public STOs.

Video games
A blockchain game CryptoKitties, launched in November 2017.[68] The game made
headlines in December 2017 when a cryptokitty character - an in-game virtual pet -
was sold for more than US$100,000.[69] CryptoKitties illustrated scalability
problems for games on Ethereum when it created significant congestion on the
Ethereum network with about 30% of all Ethereum transactions being for the game.
[70]

CryptoKitties also demonstrated how blockchains can be used to catalog game assets
(digital assets).[71]

Energy trading
Blockchain is also being used in peer-to-peer energy trading.[72][73][74]

Supply chain
There are a number of efforts and industry organizations working to employ
blockchains in supply chain management.

Mining — Blockchain technology allows wholesalers, retailers, and customers to

track the origins of gems stones and other precious commodities. In 2016, The Wall
Street Journal reported that the blockchain technology company, Everledger was
partnering with IBM's blockchain-based tracking service to trace the origin of
diamonds to insure that they were ethically mined.[75]
Food supply — Blockchain technology is being used to allow consumers to track the
provenance of beef and other food products from their origins to stores and
restaurants.[76] Walmart and IBM are running a trial to use a blockchain-backed
system for supply chain monitoring for lettuce and spinach — all nodes of the
blockchain are administered by Walmart and are located on the IBM cloud.[77] One
cited benefit is that the system will enable rapid tracing of contaminated produce.
Fogo de Chao announced a partnership with HerdX that will allow that company's
blockchain-based technology that will enable suppliers, wholesalers, and diners to
trace the origins of the beef served in their restaurants.[78]
Blockchain software development — The Linux Foundation's blockchain initiative,
Hyperledger Grid develops open components for blockchain supply chain solutions.
[79][80] The goal of the project, said the foundation, was to "accelerate the
development of blockchain-based solutions to cross-industry supply chain problems."
Domain Names
Blockchain domain names are another use of blockchain on the rise. Unlike regular
domain names, blockchain domain names are entirely an asset of the domain owner and
can only be controlled by the owner through a private key.[81] Blockchain domains,
pave way to having sites that are more resistant to censorship and thus enabling
freedom of speech as there are no authorities or individuals that can intervene on
controlling a domain except the private key holder.[82][83] Again, they are a
better option to replace the traditional cryptocurrency wallet addresses as one can
easily memorize the domain and use it for receiving payments.[84]
Organizations providing blockchain domain name services include Unstoppable
Domains, Namecoin and Ethereum Name Services.[85]

Other uses
Blockchain technology can be used to create a permanent, public, transparent ledger
system for compiling data on sales, tracking digital use and payments to content
creators, such as wireless users[86] or musicians.[87] In 2017, IBM partnered with
ASCAP and PRS for Music to adopt blockchain technology in music distribution.[88]
Imogen Heap's Mycelia service has also been proposed as blockchain-based
alternative "that gives artists more control over how their songs and associated
data circulate among fans and other musicians."[89][90]

New distribution methods are available for the insurance industry such as peer-to-
peer insurance, parametric insurance and microinsurance following the adoption of
blockchain.[91][92] The sharing economy and IoT are also set to benefit from
blockchains because they involve many collaborating peers.[93] Online voting is
another application of the blockchain.[94][95] The use of blockchain in libraries
is being studied with a grant from the U.S. Institute of Museum and Library
Services.[96]

Other designs include:

Hyperledger is a cross-industry collaborative effort from the Linux Foundation to

support blockchain-based distributed ledgers, with projects under this initiative
including Hyperledger Burrow (by Monax) and Hyperledger Fabric (spearheaded by
IBM).[97]
Quorum – a permissionable private blockchain by JPMorgan Chase with private
storage, used for contract applications.[98]
Tezos, decentralized voting.[37]:94
Digital Asset Modeling Language (DAML) by Digital Asset Holdings is a smart
contract language based on Glasgow Haskell Compiler.
Proof of Existence is an online service that verifies the existence of computer
files as of a specific time.[99]
Types
Currently, there are at least four types of blockchain networks — public
blockchains, private blockchains, consortium blockchains and hybrid blockchains.

Public blockchains
A public blockchain has absolutely no access restrictions. Anyone with an Internet
connection can send transactions to it as well as become a validator (i.e.,
participate in the execution of a consensus protocol).[100][self-published source?]
Usually, such networks offer economic incentives for those who secure them and
utilize some type of a Proof of Stake or Proof of Work algorithm.

Some of the largest, most known public blockchains are the bitcoin blockchain and
the Ethereum blockchain.

Private blockchains
A private blockchain is permissioned.[40] One cannot join it unless invited by the
network administrators. Participant and validator access is restricted. To
distinguish between open blockchains and other peer-to-peer decentralized database
applications that are not open ad-hoc compute clusters, the terminology Distributed
Ledger (DLT) is normally used for private blockchains.

Hybrid blockchains
A hybrid blockchain has a combination of centralized and decentralized features.
[101] The exact workings of the chain can vary based on which portions of
centralization decentralization are used.
Sidechains
A sidechain is a designation for a blockchain ledger that runs in parallel to a
primary blockchain.[102][103] Entries from the primary blockchain (where said
entries typically represent digital assets) can be linked to and from the
sidechain; this allows the sidechain to otherwise operate independently of the
primary blockchain (e.g., by using an alternate means of record keeping, alternate
consensus algorithm, etc.).[104]