Blockchain - The Trust Protocol

The internet gave us email, www, social media, video platforms, big data, cloud computing and many life
altering technologies. But it has serious limitations for business and economic activity because we can’t
reliably establish a person’s identity or trust a user to transact money without validation from a third party like
a bank. Doing business on the internet requires a leap of faith. This limitation hindered the utility of internet in
many ways.

Computer scientist including cypherpunks are working to solve this problem since 1990s but none of them
succeeded at it. On 4th Jan 2009, Satoshi Nakamoto released a 9-page whitepaper on “Bitcoin – A peer to peer
electronic cash system”. Satoshi’s solution allowed, for the first time ever, value to be quickly transferred at
a great distance in a completely trust less way.

“A purely peer-to-peer version of electronic cash would allow online payments

to be sent directly from one party to another without going through a
financial institution. Digital signatures provide part of the solution, but the main
benefits are lost if a trusted third party is still required to prevent double-spending. We
propose a solution to the double-spending problem using a peer-to-peer network. The
network timestamps transactions by hashing them into an ongoing chain of
hash-based proof-of-work, forming a record that cannot be changed without redoing
the proof-of-work. The longest chain not only serves as proof of the sequence of
events witnessed, but proof that it came from the largest pool of CPU power. As long
as a majority of CPU power is controlled by nodes that are not cooperating to attack
the network, they’ll generate the longest chain and outpace attackers. The network
itself requires minimal structure. Messages are broadcast on a best effort basis, and
nodes can leave and re-join the network at will, accepting the longest proof-
of-work chain as proof of what happened while they were gone.”

With Bitcoin, Satoshi Nakamoto also introduced the concept of Blockchain – the trust protocol.
Blockchain created a ripple in computer science industry, it opened myriads of opportunities by
taking us from internet of information to internet of value.

The design principles of Blockchain offers many unpresented values which makes it the capable
of kickstarting the new era of internet of value. The key value that it offers is DATA INTEGRITY.

Integrity of a blockchain network is encoded in every step of the process and is distributed among all
participants of the network rather than in any single entity. On the internet people haven’t been able to do
transaction directly because money isn’t a price of information or someone’s intellectual property. The money
that I want to give you should go from my wallet to your wallet, it cannot exist in two places at the same time.
This is called double-spend problem and that’s the reason why we have so many intermediaries whenever we
are transacting our identity, money or anything that has value.

Satoshi solved this mechanism by using consensus-mechanism. A consensus is an algorithm using which every
network participant verifies the ‘information’ on which consensus is needed. The network commits the
‘information’ to blockchain only after all network participant agrees to the validity of information. There are
various types of Bitcoin uses a particular type of consensus mechanism called proof-of-work. It was inspired by
cryptographer Adam Back’s Hash Cash in 1997 to mitigate spams. Proof-of-work demands user to perform a
task with its resource (time, computing power, electricity …) and provide a proof that the user has actually
done the effort. This method removes any bad actor in the system.

For the first time ever, we have a platform that ensures trust in transactions/recorded information no matter
how the other party acts.
What does it mean?

- Data can be stored on blockchain without fearing that someone could modify it. Its simply
impossible to modify information. Only the rightful owner of the data can do so using the unique
private key.
- Also, it reliably establishes the identity of other party.

Another novel value that blockchain provides is DISTRIBUTED POWER. The power in a blockchain network is
distributed among all participants rather than vesting it with a single entity. Time and again we have seen that
such entities are willing to and able to restrict user’s right, analyse their data, share with other parties, respond
to government’s request. Single entity also suffers from possibility of corruption & attacks. Blockchain brings
the concept of democracy to internet, it allows people to control their data without fearing misuse or leak.

Unleashing the real potential

The real potential of blockchain was explored by a 19 yr old kid named Vitalik Buterin, who created the world’s
first decentralized smart contract platform. The Bitcoin blockchain is restricted to perform certain functions, its
not designed to perform general computation as intended by the user. Vitalik created a blockchain based
network and enabled virtual machine, in short it allowed people to execute programming commands on the
network. This open up the pandoras box for inventors and computer scientists. The USP of Ethereum is Smart
Contract, it’s a computer code running on top of a blockchain containing a set of rules under which the parties
to that smart contract agree to interact with each other. If and when the pre-defined rules are met, the
agreement is automatically enforced.

Ethereum soon became the choice of platform for raising funds for business using smart contract which gave
investors digital tokens in return of Bitcoin. A sum of $7.8billion was raised in digital currency by 1200+
companies in the year 2018.

Blockchain for enterprises

Two most important aspect for enterprises while considering blockchain are

1. Blockchains can be permissioned or permission-less, a permissioned blockchain is the one where the
user require consent from the creator of the blockchain to participate in the network. In a permission-
less network, user doesn’t require consent to join the network, they can join and leave at their will. A
permission-less network is often considered as truly decentralized but many enterprises are adopting
permissioned blockchain. Bitcoin is a permission-less network whereas J P Morgan’s JPM Coin is a
permissioned blockchain.

2. When the content of blockchain is kept open for access by the public then it’s a public blockchain. If
the content is masked or not allowed to be viewed by public then it’s a private blockchain. Bitcoin is a
public blockchain whereas J P Morgan’s JPM Coin is a private blockchain.

According to an estimate by World Economic Forum, around 10% of global GDP will be stored on the
blockchain by 2025. That means in next 5 years the world leaders are preparing for a huge shift and are ready
to embrace it for the next era of internet technology.

1. Government: Finland’s Central Union of Agricultural Producers and Forest Owners has implemented
blockchain based government applications such as education, public records and voting.
2. Identification: Zug in Switzerland, has developed a blockchain project in partnership with Uport to
register residents’ IDs, enabling them to participate in online voting and prove their residency.
 3. Licensing agreements: Spotify acquired blockchain startup Media chain Labs it was to help develop
solutions via a decentralized database to better connect artists and licensing agreements with the
tracks on Spotify’s service.
4. Supply chain: Tael is a blockchain based reward system for product authentication in Japanese
supermarkets. Customers can now track the origin of product along with detailed history.
5. Land Registration: The Government of Telengana uses blockchain based land registry system to
prevent frauds. Many Indian states have implemented this use case but very lisle information is
available on the technical specifications of blockchain.
6. Digital Certificates: Similar to digital identities, certificates like birth/death certificate, education
qualification records etc are being rapidly implemented in blockchain. States like Rajasthan,
Maharashtra, West Bengal are leading they way in terms of gamut of blockchain adoption.
7. Healthcare:

Ultimate value proposition of blockchain for Governments

1. Transparency:
2. Accountability
3. Zero Leakages
4. Low Cost
5. Decentralized Power