Table of Contents
1. How Blockchain Will Change the World: The Ultimate Guide to Blockchain Use Cases
2. 5 of the Best Smart Contract Platforms in the Blockchain and Cryptocurrency Space
3. How Theta will Revolutionize the Video Streaming Industry
4. VeChain Review: The Future of Supply Chain Management
5. A Blockchain Digital Identity: What You Should Know
6. What is a Decentralized Exchange (DEX)?
7. What are Oracles and why are they Important for Blockchains?
8. Why Chainlink is one of the Most Important Blockchain Projects
9. The Complete Beginner’s Guide to Consensus Mechanisms in Blockchain
10. A Simple Overview of Bitcoin’s Lightning Network
11. Understanding the Blockchain Scalability Trilemma
12. Decentralized Finance Made Simple: The Complete Guide to DeFi
13. What are Flash Loans in Decentralized Finance (DeFi)?
14. What are Decentralized Autonomous Organizations (DAOs)?
15. NFTs for Dummies: The Complete Beginner’s Guide
16. What are Stablecoins in Decentralized Finance (DeFi)?
17. Uniswap: An Overview of one of the Largest DEXs
18. How Blockchain Technology Will Revolutionize Healthcare
19. An Overview of How Blockchain Can Change the Music Industry
20. How Will Blockchain Transform the Real Estate Industry
21. Blockchain Will Improve Supply Chain Management
22. Smart Contracts for Dummies
23. Revolutionizing Social Media Using Blockchain Technology
24. The Complete Guide to Blockchain Gaming
25. Polkadot: The blockchain of blockchains
26. Polygon (MATIC): A Comprehensive Overview
27. Cardano: A Simple Overview for Beginners
28. Solana: The next Smart Contract Platform Giant
How Blockchain Will Change the World: the Ultimate Guide to Blockchain Use Cases
- Are you new to blockchain or just fed up with crazy cryptocurrency price predictions and scam coins?
- Here at OnTheBlocks we cut through the noise to provide you with the very best information on blockchain and its real-world uses.
- Read on to learn about the many ways in which blockchain will change the world.
Why blockchain is the future
The world is seeing exponential adoption of blockchain technology. Currently, the rate of uptake is double that of the Internet when it went through its meteoric rise in popularity. It is hard to internalize how massive this is and the sheer pace at which the space is moving.
As much as blockchain is the future, its technology is also changing our lives at this very moment.
Blockchain adoption will give rise to the greatest shift in power we have seen, where all participants are incentivized and rewarded for maintaining these decentralized networks. We will all be pulling in the same direction to benefit us all.
We will set the scene with a brief recap of what blockchain is, which we covered in more depth in our “Blockchain vs Cryptocurrency” article.
Blockchain is a decentralised public ledger, made up of ‘blocks’ of transactions. These blocks cannot be altered or deleted, and every single transaction is observable on the blockchain. There are many participants around the world that are financially incentivized to maintain the validity of the blockchain network.
This makes the network censorship-resistance, immutable, secure but most importantly, decentralized.
Decentralization vs centralization
Decentralization is at the core of what blockchain offers. This is far more desirable than a centralized database which is owned by a person, company, government or organization, managed in secret, susceptible to hacks, easily modified, open to corruption and represents a single point of failure.
How blockchain is changing the world
There are already so many industries that blockchain technology is revolutionizing. We like to split them up into DeFi (decentralized finance) and non-DeFi use cases and explore three examples of each. Blockchain use cases have one advantage in common over centralized alternatives – the blockchain allows transactions to occur all-day, every day and within seconds.
DeFi refers to blockchain’s involvement in changing the world of finance – removing the need for central banks and other third parties. In addition to operating in developed countries, DeFi will aid previously unbanked individuals in poorer countries.
There are many non-DeFi use cases (too many to fit in one article!) which we will also cover. It will soon become clear that blockchain will change everything.
DeFi use cases
Borrowing and lending: this is a staple of the traditional, centralised financial world and there are now DeFi alternatives. The concept is the same, lenders earn interest on deposited assets and borrowers take a loan and pay this interest. DeFi allows people to fully own their funds without banks taking custody of them and directly connect borrowers and lenders without third-party input. Smart contracts on blockchains such as Ethereum facilitate. Examples of lending/borrowing projects built on top of Ethereum are Aave and Compound.
Decentralized Exchanges (DEXs): Centralized exchanges such as KuCoin and Binance are massive companies with huge trading volume, however, have both been hacked. Hundred of millions of U.S. dollars have been lost to such hacks and so a decentralized alternative is much needed. DEXs do not have a central authority and rely on smart contracts to execute trades rather than an organization. DEXs allow you to have full custody of your crypto funds, trade crypto or U.S. dollars instantaneously peer-to-peer and often come with lower fees than centralized exchanges. No identity documentation has to be provided to DEXs. DEX projects exist on several smart contract platforms and include Uniswap, Curve and Pancakeswap.
Stablecoins: A stablecoins is a digital asset that has its price tied to a real world asset – commonly the U.S. dollar or Euro. This stabilizes the price and will allow you to keep money in the cryptocurrency market without pulling it and converting it all back to cash. Value can be transferred almost instantly around the world, at any time, on any day, with minimal fees, without any intermediaries and without coin price fluctuating. Popular examples are USDT, USDC and BUSD.
These are just some of the most popular examples of blockchain DeFi use cases. Yield farming deserves a special mention, but we will go into further detail on that elsewhere. There are many more innovative ideas emerging through use of smart contract technology that will continue to change the world.
Non-DeFi use cases
A lot of focus in the blockchain space is geared towards decentralizing finance. However, there is far more to blockchain that that. The following quote epitomizes this and was made recently by Ethereum founder, Vitalik Buterin:
“The vision for Ethereum, and much of crypto beyond Ethereum, has always been to take decentralization, trust minimization, and mechanism design experimentation far beyond finance.”
Social Media: Social media will be revolutionized by smart contracts on blockchains as today’s centralized platforms have many problems. Alternatives already exist/are in development for current popular platforms – such as theta (video streaming) and a new twitter alternative from Aave coming later this year. Interestingly, centralized social media organizations such as Twitter are showing interest in blockchain development. Co-founder and CEO, Jack Dorsey, is known to be ‘bullish’ on crypto and must recognise that the future is blockchain.
Supply Chain: There are many aspects of the supply chain both globally and within individual businesses that requires improvement. The nature of a blockchain ledger means that parts of the supply chain become transparent and easily traceable – reducing counterfeit products and allowing accurate tracking of materials. Immutable records of costs, supplies, locations and more will increase supply chain efficiency and management. The largest supply chain blockchain at present is VeChain.
Non-Fungible Tokens (NFTs): The hype surrounding NFTs is crazy at the moment, and there are many industries that NFTs could improve. Unlike other cryptos where coins or tokens are equal in value, NFTs are scarce, cryptographically distinct and differ in value. These unique digital assets exist in many industries – including gaming, music, art, identification, events and they are even used in DeFi. The possibility of NFTs are endless and the innovation utilizing them is extremely exciting.
This guide, although comprehensive, merely touches on the current and potential utility of blockchain technology.
Although DeFi gets the most attention when it comes to blockchain uses, this technology will absolutely revolutionize many real-world industries, some of which we touched on earlier.
Learn more about why blockchain is the future by using our educational resources, opening up the links within this article in a new tab, and subscribing to our email list to keep up-to-date with everything blockchain.
5 of the Best Smart Contract Platforms in the Blockchain and Cryptocurrency Space
- Blockchain technology is changing the world and will continue to change your life in years to come.
- The rate of adoption is mind-blowing – one study reported that “The global blockchain market size is expected to grow from USD 3.0 billion in 2020 to USD 39.7 billion by 2025”.
- Smart contracts are at the centre of this as they provide the functionality to decentralized applications (dApps) that are disrupting many real-world industries.
- Read on to learn more about smart contracts and 5 of the best smart contract platforms now and in the near-future.
What are smart contracts and how do they work?
A simple definition
Smart contracts are blocks of computer code written onto the blockchain that execute their function when specific conditions are met. These blocks of code are not controlled by a central authority but are distributed across the decentralized network of blockchain nodes (computers). Smart contract conditions are set in stone by the computer code and cannot be changed after the smart contract has been deployed. While innovation is advancing and use cases of smart contracts are becoming increasingly complicated, they often follow simple “if/when… then…” functions.
Smart contracts were first conceptualized by Nick Szabo in 1994, a computer scientist that created a digital currency called “Bit Gold” in the late ‘90s. His vision for smart contracts is consistent with what we have today – an automatic, computerized execution of a transaction between several parties upon satisfying the pre-determined conditions.
Advantages of smart contracts
There are some fantastic benefits of smart contracts over the traditional, manual method of filling in and exchanging documents for agreements.
Since smart contracts execute immediately and there is no need to complete documents manually, whatever process this agreement involves is faster.
There is no intermediary involved in smart contract execution – the code is immutable and transparent. This will save costs and create a trustless transaction between parties who can stay anonymous and unknown to each other.
Importantly, these autonomous smart contract programs are distributed across the full network, meaning there is no central authority in control of what happens.
Smart contracts will allow blockchain to change the world
Smart contracts are a feature of some blockchains and essentially give it functionality by allowing dApps (decentralized applications) to be built.
This feature will allow blockchain to change the world (link) in many industries – in terms of both decentralized finance (DeFi) and non-DeFi use cases.
The following blockchains support smart contracts:
Features of some of the biggest and best smart contract platforms
There are many smart contract blockchains out there that are competing to become the dominant force. Ethereum is the largest smart contract platform currently, however, there are other blockchains out there that have the potential to steal a sizeable portion of its market share.
We cannot cover every single smart contract platform, so we have picked 5 of our favourite blockchain networks that have (or eventually will have) successfully implemented the technology.
There are a few factors to consider when it comes to what makes a successful smart contract platforms – such as the user experience, the team behind it, costs, security, scalability and decentralization.
Ethereum was the first major smart contract blockchain, going live in 2015 following its creation by Vitalik Buterin. Buterin initially realised the potential utility of dApps and proposed that the Bitcoin blockchain should be used for such purposes – this was rejected which gave birth to Ethereum.
While the blockchain’s native Ether token is a very effective store of value and payment system, its primary utility is that it is used to power all of the dApps on the blockchain. Ethereum is the largest smart contract blockchain when it comes to both market capitalization and smart contract development. The network uses a programming language called Solidity to design smart contracts and hosts around 200,000 – making bugs easily-identifiable and allowing for limitless innovation.
The consensus mechanism that Ethereum uses is a modified proof-of-work (PoW) system, however, the network will be moving to proof-of-stake (PoS) as part of its ‘Casper’ update. There are several advantages to PoS over PoW and it should help with the network’s scalability.
Ethereum is the home of countless DeFi and non-DeFi projects that aim to change the world. However, as great as Ethereum is, vast usage of the network has caused performance and cost issues. When the network is bloated, transactions are slow and gas fees (transaction costs) can be very high. This can damage the user experience as the network TPS (transactions per second) is already relatively low at ~10-15TPS and high gas fees are obviously undesirable.
The should all be fixed by the upcoming Ethereum 2.0 which includes the conversion to a PoS blockchain and ‘Sharding’ – all of which could increase the network TPS to ~100,000.
Solana has been making massive strides in the smart contract space since it was founded in 2017 by a fantastic team of developers, including current CEO Anatoly Yakovenko.
Central to this fantastic network is its novel proof-of-history (PoH) consensus mechanism which is combined with PoS. This helps solves the problem of scalability and has allows Solana to clock a very impressive transaction throughput of ~65,000 TPS with very low transaction costs.
With Ethereum, miners have to sacrifice money to provide enough computing power to mine blocks and may charge a premium for processing your transactions to be in profit. Miners may just prioritize transactions with high fees – causing network bloat. Solana takes the opposite approach and aims to create a seamless flow of traffic through the network.
Their PoH mechanism acts as a decentralized clock, meaning that transactions are processed in order of when they occurred. Miners aren’t chasing high fees as it is a PoS mechanism which reduces costs and the PoH aspect speeds up the network.
Ethereum was actually co-founded by a developer named Gavin Wood, who then went on to create Polkadot and was also responsible for the Solidity language. The idea behind Polkadot is that it will become a decentralized Internet of blockchains, where different networks are interoperable with one another. It also aims to solve some typical blockchain issues – including scalability and governance.
Polkadot’s main blockchain is known as the ‘Relay Chain’ but it also has ‘parachains’ which are granted the same security and governance of the main chain but increase scalability and interoperability of the full network.
Other blockchains will connect alongside Polkadot to parachains using network ‘bridges’ which opens up the network’s nominated-PoS consensus algorithm for use. Why is this necessary?
Polkadot’s premise is that a lot of energy from developers is devoted to building of the blockchain foundations rather than useful dApps. Thus, Polkadot would allow people to build amazing dApps for many blockchains rather than a single network. The network currently runs at an impressive ~1000TPS, however, has the potential to rise to ~100,000TPS with parachains and multithreading.
Algorand is another very impressive smart contract platform that, like many other, aims to solve the blockchain trilemma. Put simply, this means achieving decentralization, scalability and security. Algorand was initially founded by well-renowned computer scientist, Silvio Micali and now has an extremely extensive team behind it with varied areas of expertise.
It utilises a ‘Pure’ PoS consensus mechanism meaning that it is highly democratized. The low staking requirements compared to, for example, the 32 ether in Ethereum 2.0, make it highly decentralized as the barrier to entry is low. However, there may be security issues given the lack of financial incentive for validators to behave in a mutually beneficial way.
Algorand is strong in terms of performance and scalability – facilitating 1,000-2,000TPS and almost-immediate transaction finality. Upcoming network changes to block size and block finalization could further increase the blockchain’s TPS to ~46,000.
Although smart contracts don’t officially exist on the Cardano network yet (official date of implementation is September 12th), we couldn’t refrain from mentioning this project. Founded by Ethereum co-founder, Charles Hoskinson, Cardano operate on some fundamental principles.
Their philosophy is science-based and they are huge on peer-reviewed academic research being central to their approach. This has meant that they are a bit late to the smart contract party, but they will likely reap the rewards of their robust development and testing protocols in the coming years.
This extremely exciting project aims to solve the blockchain trilemma by providing security, decentralization and scalability. They use a unique PoS-like consensus mechanism called Ouroborous to keep stakeholders close to the blockchain operations and maintenance – which is one of their core principles.
Not to get too technical, but Cardano use a layered approach to increase scalability – this second layer is called ‘hydra’. This layer communicates better with the first layer (main blockchain) than the various layers of Ethereum and it is theorised that the TPS could reach as high as 1millionTPS. Another underrated aspect of Cardano is its focus on interoperability with other blockchains and with the real-world. This is what we need for true worldwide adoption of blockchains and cryptocurrency.
It is important to note that these are just some of the smart contract platforms that exist in the world of blockchain technology. These, and many others, boast massive utility and differ in subtle but significant ways.
Although Ethereum is clearly the biggest dog at the moment, the work being done in some of the other projects is fantastic and the rate of innovation is spectacular.
It is likely for now that each platform will all continue to get a piece of the market capitalization pie, however, competition is fierce, and it is possible that any smart contract platform could take control and dominate the sector.
How Theta will Revolutionize the Video Streaming Industry
- The video streaming industry is massive and continues to grow at record pace. It has been
- There are many problems when it comes to the current centralized system of video streaming – including censorship of content, high costs and low-quality video feeds.
- Theta provides a decentralized solution to such problems. Read on to learn about the Theta protocol, its strong institutional backing and how it will change the world of video streaming.
What is Theta?
A Brief overview
Theta is a decentralized video streaming platform that will revolutionize the industry. It leverages blockchain technology to reward network operators and participants for operating and maintaining its performance and decentralization.
As of today, most video streaming platforms have centralised content delivery networks (CDNs) which receive content from creators and distribute it to viewers. Theta wants to cut out the middleman to create a more fair content delivery system where creator and consumer and connected peer-to-peer (P2P).
This centralized system is riddled with issues – so Theta outlined 3 problems that it is attempting to solve. We have included another significant problem that Theta solves that is crucial to the future of video streaming.
Much of today’s video streams are low-quality and buffer frequently. This is because current CDNs are inefficient and cannot cope with high network demand.
Centralized CDNs cannot provide enough data to cope with the increasing need to provide video content in 4K and 8K.
The centralized bodies in video streaming take a large portion of the revenue. Theta wants to funnel rewards to content creators, network users and network operators.
The decentralized nature of the underlying blockchain means that content cannot be censored. Censorship on centralized platforms has become an alarmingly common occurrence in recent years.
Meet the Theta team
Theta has a very strong team in terms of blockchain developers, media advisors and blockchain advisors. The project was founded by Mitch Liu and Jieyi Long. Previously, they both created THETA.tv while the former was also a cofounder of Gameview Studios and Tapjoy.
Interestingly, they have a large team of media advisers that boasts some intriguing members. It includes representatives from Sony, Microsoft and GFUEL. More peculiarly, it also includes Steve Chen (YouTube co-founder) and Justin Kan (Twitch co-founder).
You might initially think that Theta aims to replace streaming platforms like YouTube and Twitch, but that is clearly not the case, and the industry giants may look to work synergistically with the blockchain platform.
Theta investors and partners
Theta also boasts an impressive list of investors and partners – another feather in their cap.
Sierra Ventures, Samsung and Nirvana Capital are only a few examples of the many high profile names that are invested in Theta. In total, they have raised $113million over 5 rounds of funding. The most recent of which on 23rd March 2021 raised $100million of this, demonstrating the growing interest in the project.
Theta has two huge partners in the movie sector – MGM and Lionsgate – for whom they stream films. They also have a partnership with the World Poker Tour – streaming poker 24/7. Finally, they have an interesting partnership with NASA TV – streaming rocket launches, spacewalks and station dockings.
How does Theta work?
As we mentioned, the Theta network has its own blockchain, meaning it is not centralized but distributed around the world using ‘nodes’. These nodes are incentivized to cache and relay streams to consumers – Theta is able to send content to users who are closer to certain nodes – which makes this a very efficient system. This will contribute to higher quality and lower cost video streaming.
Theta’s blockchain operates on a dual-token model – whereby the THETA and TFuel tokens have independent functions. THETA is used for staking and governance on the blockchain and TFuel is used as a reward for staking and also covers transaction costs. Interestingly, as of June 30 2021, TFuel can also be used for staking for a specific node-type.
The three types of nodes on the Theta network are edge node, guardian node and enterprise validator node. Respectively, the minimum staking requirements are currently 10,000 TFuel, 1,000 THETA and a whopping 1million THETA to become a validatory – this is institutional level money). At the moment, there are 132,259 edge nodes, 3686 guardian nodes and only 16 validatory nodes.
These 16 validator nodes include Google, Binance, Samsung and Sony and are responsible for creating new blocks on the blockchain
Is this really decentralized then?
It is certainly not as decentralized as, say, Bitcoin. However, Theta introduced guardian nodes to offset this centralization. These are another layer of protection that check and finalize new blocks to prevent malicious behaviour.
How Theta will revolutionize the video streaming industry
Earn money by watching video streams…
This is an extremely exciting and potentially world-changing aspect of Theta. As an edge node, you become part of the ‘Theta Edge Network’. This is the decentralized web of computers that receive video streams, cache it and relay it to other people all around the world – all while getting paid in TFuel tokens!
This P2P system is revolutionary and removes centralized authority from stream distribution. Theta is ‘big dog’ in the blockchain video streaming market, with its 3 closest competitors combining for a market capitalization that is less than a third of Theta’s.
Theta smart contracts and dApps
In addition to being the largest decentralized video streaming platform, its blockchain also allows smart contract (link) deployment. The decentralized applications (dApps) that will be built on the Theta network will extend its use cases beyond video streaming and allow for major innovation.
Smart contracts could facilitate the distribution of TFuel awards to stakers in a predictable and fair way and also bring non-fungible tokens (NFTs) to the platform.
Given that major platforms such as Google (who own YouTube) are validator nodes, and a co-founder of YouTube is involved in the project, we think institutional adoption is right around the corner. The technology is unique – the higher quality streams and lower costs it provides could prove very useful for companies such as Netflix, YouTube and Twitch.
Theta has a fantastic value proposition and the fact it now hosts smart contracts makes it a project with endless potential. It solves major problems in video stream quality and operation costs, as well as the added benefits of censorship-resistance. It will be interesting to see how, if they adopt Theta’s technology, how major streaming platforms will feel about having no control over the content.
We believe that institutional adoption of the network will cause an explosion in popularity. This will allow Theta to capture a lot of the total video streaming market share from behemoths such as Netflix, Amazon, YouTube and Twitch.
While there are some concerns over validator node centralization, the number of guardian nodes will continue to grow. This should, over time, continue to offset this centralization and increase network security.
Overall, this is a fantastic project that represents one of many ways that blockchain technology will change the world.
VeChain Review: The Future of Supply Chain Management
- We know that blockchain has the potential to revolutionize the world. However, there are many industries that it could completely replace – the supply chain being one of them.
- Both the COVID-19 pandemic and Suez Canal blockage have highlighted vulnerabilities in an industry upon which billions of dollars rely.
- VeChain and its blockchain network are here to change the game – redefining supply chain management and forming some major institutional partnerships. Read this VeChain review to find out more about the project and how it is changing the world.
What is VeChain?
Currently, VeChain is the largest blockchain supply chain solution. VeChain was founded in 2015 and its network is based on the Ethereum blockchain. As with other blockchain technology, VeChain offers a decentralized alternative to centralized supply chain management systems. Using a combination of blockchain, RFID and QR codes, VeChain’s open source supply chain management system will boast superior efficiency, accuracy, transparency and traceability.
Meet the VeChain team
Sunny Lu is a co-founder of VeChain and is currently CEO of the company. He has years of experience working for major companies, spending 5 years at Louis Vuitton China as CTO then CIO. Jay Zhang, another co-founder, is currently listed as CFO despite suggestions that he had stepped down from his role after a hack that occurred in 2019. Despite this, he has fantastic prior experience, spending 12 years at PwC – 8 of which were as manager or senior manager.
In addition to the co-founders, they have assembled a very strong team of partners behind the technology which includes Jianliang Gu (Chief Technology Officer), Dr Peter Zhou (Chief Scientist) and Bin Qian (VP Chief Blockchain Architecture and Development).
It is hard to pin down the amount of funding that VeChain has accrued. However, major investors are publicly known and include Breyer Capital, Draper Dragon, PwC and Fenbushi Capital.
How does VeChain work?
VET AND VTHO tokens
Similar to Theta, the VeChain network is powered by a dual-token system using VET and VTHO. The blockchain is actually called ‘VeChainThor’. The VET token is used for staking and governance on the network, as well as acting as a store of value . VTHO is used to pay for transaction fees and is rewarded to the wallets of VET holders and to nodes on the network. In Ethereum, large transaction costs are an issue as they increase as the value of ETH increases. The dual-token system of VeChain fixes this.
They maintain stable transaction costs in a couple of ways:
- VeChain can alter the amount of VTHO required for transactions which lowers costs if necessary.
- VeChain can increase the amount of VTHO given out as rewards – increasing supply, lowering its price and lowering transaction costs.
Consensus mechanism: Proof-of-Authority (PoA)
The VeChainThor blockchain reaches consensus about the state of the blockchain by an PoA system – an improvement on Proof-of-Stake (PoS). VeChain is a distributed network and decentralization is one of its core values. However, it aims to optimize its performance by including some degree of centralization. PoA means that nodes have to approved by the VeChain foundation . They do this to avoid anonymous block producers (authority nodes) as enterprises that may adopt the technology are not a fan of this.
There are three types of nodes that are incentivized to maintain the network by validating and adding blocks on the blockchain. These are authority nodes, economic nodes and x-economic nodes.
With VeChainThor’s PoA consensus mechanism, you become a node by staking (locking up) certain amounts of VET in a wallet – no special equipment is necessary unless you want to become an authority node!
Authority nodes, of which there will only be 101, require a minimum stake of 25million VET. They validate transactions and add new blocks to the blockchain – which requires specialised equipment. Economic nodes require a stake of 1million VET do not take part in consensus but do provide stability to the blockchain. X-economic nodes can be thought of as VeChain’s ‘biggest fans’ that have been supporters since the start of the project. Like authority and economic nodes, they receive VTHO tokens but also additional rewards. These nodes cannot be created any more and have to be bought on the market.
Advantages of blockchain in supply chain
Blockchain is the future of supply chain management
Supply chain management systems can be extremely inefficient. This was evident at the start of the COVID-19 pandemic when medical supplies and basic goods were in short supply for long periods of time.
Bringing blockchain technology to the supply chain makes every stage of the process – from manufacturer to consumer – completely transparent. This grants instant access to accurate data regarding whereabouts and status of goods – increasing supply chain traceability. The record of transactions is immutable and cannot be tampered with. Understanding exactly where the supply chain is broken allows prompt action to be taken to increase efficiency, reduce waste and keep accurate records of events. Blockchains can also be used for data storage and usage with regards to documents, contracts shipping notes and barcodes. The process can be streamlined in many different ways.
The use of blockchain technology in supply chain management will revolutionize the sector – how is VeChain hoping to contribute to this?
VeChain will revolutionize supply chain technology
There are many cryptocurrencies out there with no real-world use case. VeChain provides one of the most desirable and important use cases of all cryptocurrencies and will be extremely valuable in the future. The supply chain management market (SCM market) was valued at $23.2billion in 2020 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 10.3% to $41.7billion by 2027. If VeChain continues to eat into the SCM market, the sheer number of transactions required will cause a meteoric rise in VET demand.
Central to the utility of the VeChainThor blockchain in SCM is its smart contract functionality (link). The fact that smart contracts ensure that certain conditions must be met vastly improves the reliability of supply chain processes in terms of quality control and overall management.
One obvious function of VeChain is the tagging of products to allow traceability. They produce a ‘VeChain ID’ (VID) using RFID, QR codes, barcodes, image recognition and other methods. This system in conjunction with the blockchain brings countless benefits – data storage, authentication, billing and settlements, monitoring and VID management.
Examples of VeChain’s utility
Their ‘Blockchain-as-a-Service’ infrastructure will look to improve supply chain in many industries.
Take food and drink, the blockchain can validate every single stage of the supply chain from ingredient sources, to manufacturing processes and to storage conditions during distribution. Ensuring food and drink are of adequate quality is essential and VeChain joined the China Animal Health And Food Safety Alliance (CAFA).
We have seen recently that some vaccinations require storage at freezing conditions to maintain their efficacy. The VeChainThor blockchain can ensure that these conditions were met as materials were passed through the supply chain. They also aim to store health records on their blockchain which comes with the benefits of immutability and instant accessibility.
VeChain’s tagging also allows for proof of authenticity – combating counterfeit goods. In 2018, counterfeit goods cost the global economy roughly $323billion and many enterprises are very keen to employ such systems that prevent fakes of their products.
The Sync 2 wallet
The smart contracts on allows decentralized applications (dApps) to be built on the VeChainThor blockchain. The problem is that dApps are not as easy to use as ‘traditional’ web-based applications.
VeChain aims to fix this problem through their Sync 2 wallet. It is accessible through all major browsers and is extremely simple and user-friendly. This is one of the first times in the blockchain industry where dApps are truly accessible and is vital if we want global adoption of blockchain technology.
VeChain are notorious for boasting prolific partnerships across both the West and in Asia. Some of the major players that are partnered with VeChain include:
BMW, PwC, Haier, Louis Vuitton and BYD
While many companies want to make use of VeChain’s blockchain to improve SCM and avoid counterfeit goods, their partnership with Chinese car manufacturer BYD represents another interesting use case. VeChain have a ‘Digital Carbon Ecosystem’ which is a platform focused on carbon reduction. Carbon reduction credits act as an incentive for consumers to reduce carbon emissions. These credits can be used in other ecosystems or even financial service providers.
With its real-world value, VeChain is one of the most exciting cryptocurrencies in terms of blockchain adoption.
The immutable, traceable and transparent nature of the blockchain is ideal for streamlining and improving supply chain management systems. Institutional adoption of the platform is already impressive but has much more room to grow.
The dual-token system and Sync 2 wallet, maintaining low transaction costs and increasing accessibility of dApp usage, are fantastic aspects of VeChain. Projects like this will drive mass adoption of blockchain technology. So, although there is some centralization in terms of authority node selection, we are big fans of the project and expect it to be a great success.
A Blockchain Digital Identity: What You Should Know
- A blockchain digital identity solves many of the problems associated with the current management of identity.
- Providing an alternative to inefficient and centralized identity management systems is just one of the ways that blockchain will change the world (link).
- Read on to find out how a blockchain digital identity would work, the benefits of this, use cases and ongoing projects in this field.
What is identity?
Identity is essentially a set of claims about who you are or what something else. This may be a name, date of birth, place of residency or biometric details and are often compiled into physical documents. These documents, such as a passport or birth certificate, are used to verify peoples’ identities in the real-world.
A centralized body such as the government registers these claims and provides certificates for verification – storing all data on a central database.
There are many problems with the current system. Blockchain technology will revolutionize digital identity management and fix many of the major problems to improve the lives of many people all over the world.
Problems with centralized identity management
When we analyse concepts and projects at OnTheBlocks, decentralization is of utmost importance. As a population, we need to move away from centralized authorities controlling our identity information and strive for self-custody.
Of a global population of around 7.8billion, a staggering 1billion do not own legal forms of identification (ID) and around 3.4billion have legal ID but are unable to use it digitally. Around 66% of the global population cannot verify their ID online – restricting their ability to act freely in today’s world.
(Digital) ID is necessary for so many purposes – including basic necessities like education, banking and shopping. The world is going digital at an increasingly fast pace, and we cannot afford to leave billions of people behind.
This is an obvious one – our personal data is at the mercy of central authorities who can alter or even monetize your data. Furthermore, large central databases represent a single point of failure and the level of security, compared to that of blockchain, is lacklustre. Indeed, 2.8billion people’s personal data were exposed in 2018 at a cost of more than $654billion.
The lack of security of information opens the door to identity theft. If someone knows enough about you, they will be able to be you. Also, it is easy to fake documents which can pass as ID verification in today’s system – such documents have no integrity. A blockchain system would provide completely accurate and trustworthy information – we will touch on how it does this shortly.
There is no set standard for exchanging and verifying identity across organisations. Blockchain sets the standard and allows seamless verification of data that you want to share. For example, an employer wants to know for sure that you graduated with a particular degree from a particular University. Rather than relying on certification or centralized information that can be tampered with, they can gain accurate information from the blockchain.
Benefits of decentralized identity management
Blockchain technology solves many of these problems. In essence, you will have a ‘digital wallet’ of ID credentials that you and ONLY YOU can access. No central authority controls your data as it is stored on all the distributed nodes of the blockchain and cryptographically secured.
Distribution and cryptography radically improve security. It is not financially viable for a hacker to hack every node to gain enough data that makes it worthwhile. Furthermore, anyone with an internet connection can have their own digital identity, allowing them access to fundamental banking and educational systems.
Your personal details cannot be tampered with by anyone else and you decide what is displayed to others as only you have access to your ‘wallet’.
So, blockchain identity management mimics the current system in a more accessible, secure and trustworthy way.
How would a blockchain digital identity work?
We are going to keep it very simple here. You have a private key, which ONLY you have and a paired public key, which anyone can view on the blockchain. Think of this private key as a password that only you know and that cannot be guessed by anyone else. Thus, only you can access and see all the details of ID credentials in your ‘wallet’. Again, even nodes that your data is distributed to don’t have access to your private key.
If no one else can access your ID details, then how can anyone verify your ID. In other words, how can the employer mentioned above know for sure that you have the degree that you claim? The answer lies in hashing and smart contracts.
Trust and Reputation
Using hashing and smart contract, blockchain can show undisputable proof that something has happened without revealing any details about it – which is amazing.
Smart contracts operate in a way whereby condition HAVE to be met in order for them to execute. So, a University degree is only added to a person’s digital identity when they have graduated – at which point a smart contract executes and an accurate and trustworthy record is kept. As Bernd Lapp said in his TEDx talk: “Identity is the sum of your reputation”. So your actions (i.e. graduation or opening and transacting on a bank account) accumulate to form your reputation, which forms your identity.
Given that the code of smart contracts is open-source, they can be relied upon to produce accurate information.
Say that you need to complete online Know Your Customer (KYC) verification on a cryptocurrency exchange, blockchain ID management would allow you to do so without revealing specific details. Hashing is verification that information exists on the blockchain without revealing it as unique identifiers are specific to your private key.
Blockchain digital identity use cases
A blockchain digital identity has use cases in both the online and offline worlds.
Online use cases:
- Efficient verification of KYC requirements.
- Monetization of your own data – the value of personal data is increasing, and you should benefit from this at your own discretion.
- Another use case of blockchain technology is social media. A blockchain digital identity could be used as a unique identifier to log in to all decentralized platforms. No more forgetting password and hacked accounts!
- The ability to have accurate information on the credentials of people you interact with online (i.e. as an employer or colleague) – creating more trust.
- Online banking, education and shopping – particularly useful if a pandemic happens to initiate a global lockdown.
Offline use cases:
- Your private key can be used to prove identity and allow you access to a building.
- Verification of many forms of certification (i.e. driving certificate, graduation and contractual documentation).
- Proof of a Doctor’s prescription without revealing specific details of medication or health issue.
- Banking currently unbanked people will greatly contribute to the global economy.
- In any situation which required ID verification (i.e. buying a house or car, taking out insurance, borrowing money etc.), you won’t have to worry about losing or bringing the wrong physical ID credentials ever again. Blockchain will allow for near-instant proof of ID across organisations using data that you are in full custody of.
The adoption of blockchain is growing exponentially and a blockchain digital identity is one of the most exciting use cases of the technology.
It is also one of the most important as we want to move all of our personal data away from central authorities who can manipulate and censor information at will. Blockchain provides a decentralized alternative to the legacy system – boasting greater security, efficiency, accuracy and importantly, self-custodianship.
What is a Decentralized Exchange (DEX)?
- Decentralized finance (DeFi) is one of the most popular and exciting use cases of blockchain technology. The DeFi market capitalization, as of today, sits at around $115billion.
- One aspect of DeFi is the idea of a decentralized exchange (DEX), which uses blockchain to improve upon centralized exchanges (CEXs).
- Read on to learn about what a DEX is, how it works, and the pros and cons it has in relation to CEXs.
Decentralized vs centralized exchange (DEX vs CEX)
A crypto CEX takes custody of your crypto and facilitates trades. They are a single authority that owns your private keys and assigns balances using their liquidity pool.
Popular beginner-friendly CEXs include Binance, Coinbase, Gemini and many, many more. While providing a good user experience, they make large profits from operating centralized exchanges.
A crypto DEX uses blockchain to distribute transactions across nodes around the world in a decentralized network. The major difference is that trades occur on the blockchain rather than within a CEX. Furthermore, users have full-custody of their private keys and so actually own their crypto.
Users are able to trade tokens peer-to-peer (P2P) in a transparent and trustless way rather than go through a third-party. A transaction between a buyer and seller occurs simultaneously, whereby tokens swap wallets in what is called an ‘atomic swap’.
There are huge amounts of both locked up capital and volume being traded on some of the largest DEXs – which include PancakeSwap (V2), Uniswap (V3), dYdX and 1Inch Exchange.
Pros and cons
Given that in relative terms, blockchain and crypto are in their infancy, there are both pros and cons to using DEXs over CEXs.
One major advantage of using a DEX is that you have full custody of your crypto and exchange with other people directly. This is in contract to a CEX, where a company owns your crypto and essentially conducts transactions on your behalf. There is no need to trust an intermediary when using a DEX as smart contracts execute a transaction automatically.
There have been many large-scale losses of money through hacks of CEXs. Some famous examples include Mt. Gox ($460million), Coincheck ($534million), BitGrail ($195million) and even Binance lost more than $40million worth of Bitcoin in 2019. While CEXs may be more vulnerable to hacks than DEXs, the latter may still be exposed to malicious behaviour through smart contract bugs and liquidity pool hacks (more on liquidity pools later).
Privacy and Accessibility
Unlike with a CEX, you do not have to provide KYC /AML (Know Your Customer/Anti-Money Laundering) verification to use them. This means that you don’t have to worry about data leakage or lacking appropriate documentation to use the platform – increasing privacy and accessibility.
CEXs often don’t list many tokens, particularly more exotic alt-coins. These are available on DEXs given that there is liquidity.
This is one area wherein CEXs excel compared to DEXs. Login details can be recovered easily, unlike with DEXs whereby losing your seed phrase means your crypto is gone. DEXs also have slippage, whereby the price can change in the time you make a transaction and it actually being executed. This is not an issue with CEXs. Finally, while fees can be a problem on both DEXs and CEXs, they tend to be higher on DEXs, particularly when the blockchain is busy.
How does a decentralized exchange work?
Some DEXs use an order book system, whereas others make use of liquidity pools and automated market makers (AMMs).
Order book model
In this model we have a buyer and a seller, who want to buy for as cheap as possible and sell for as much as possible, respectively. For a trade to occur, they have to agree to pay more or receive less than they intended to.
If this fails to happen, ‘market makers’ supply liquidity which allows traders to buy and sell. This model has some limitation in a decentralized setting. Firstly, given that the current home of DeFi, Ethereum, has a TPS of 12-15 and a block time of 10-19s, the system is slow compared to centralized alternatives. The upcoming Ethereum2.0 could solve this problem. Other than lack of speed, gas fees (transaction costs) make it unfeasible for market makers as when the network is busy and fees are high, profit will be limited. Many of the most popular DEXs utilise liquidity pools and AMMs.
Liquidity pools and automated market makers (AMMs)
Liquidity pools are essentially pools of tokens that are locked inside a smart contract that can be used to facilitate trading on DEXs. More specifically, they hold a pair of tokens, which creates a market for that pair (e.g. DAI/ETH).
Liquidity providers supply tokens to this pool and are incentivized to provide quantities of each token that are equal in value. So liquidity providers can keep control of their assets, they receive ‘LP tokens’ in return that is proportional to the tokens they supplied to the pool. A provider can withdraw their initial liquidity along with earned transaction fees by burning their ‘LP tokens’.
So, the liquidity pool provides tokens that can be traded by people on the DEX. Every time a trade is made, and the pool is altered, AMMs adjust the prices of the tokens in that pool using an algorithm. For example, in our DAI/ETH pool, if somebody buys ETH, the ETH supply of the pool goes down which causes an increase in ETH price and a decrease in DAI price as the ratio of DAI:ETH increases.
What is great about this model is that there is no centralized order book and no reliance on market makers to provide liquidity.
The money flowing into DeFi projects is staggering and is only going in one direction. DEXs are one the main blockchain DeFi use cases that are locking up capital and facilitating billion of dollars of trading volume every day.
The main issue with DEXs, compared to CEXs is the throughput performance and general usability of them. However, projects like Uniswap provide an extremely easy-to-use interface that is extremely simple compared to most CEXs.
While there are still tweaks to be made to optimize DEXs, the rate of blockchain innovation suggests that they are only going to get better with time.
What are Oracles and why are they Important for Blockchains?
Smart contracts will allow blockchain technology to change the world through transparent and trustless execution of code.
However, blockchains only have access to data on the network and not the outside world. How can blockchains find out what is going on in the real world to influence it?
Oracles are the answer. Read on to learn about oracles, how they work and why they are so important to blockchains.
What is a blockchain oracle?
A blockchain oracle can be thought of as the bridge between a blockchain and the outside world. Without access to real-world data, blockchains lack any real utility as they can only use data that already exists on the network. This bridge is fundamental to most blockchain real-world use cases.
Oracles speak to smart contracts on blockchains to give them the information they need to fulfil their function. This off-chain information unlocks the full potential of smart contracts and allows them to revolutionize real-world industries.
The oracle itself doesn’t provide data, but verifies information received before feeding it to smart contracts.
What are oracles used for?
There is a near-infinite amount of uses of blockchain technology and the majority rely upon oracles. That being the case, there are too many to list them all, so here are a few specific examples of their importance…
Supply chain. Say a payment is to be initiated between companies when source products (eg. fresh meat) arrive at a manufacturer, an oracle is necessary for a smart contract to complete this transaction. There may be a thermometer that ensures correct storage temperatures or a physical sensor that detects the presence of a delivery vehicle. The oracle collects and verifies information from these devices and feeds it to the smart contract which can then facilitate the payment.
Betting. If you have a bet with a friend or through a decentralized company, the only way the blockchain can know the results is through an oracle. A smart contract will transfer funds based on the result reported by the oracle.
Insurance. A smart contract can only issue insurance when the conditions are met in the real world. For example, the oracle can verify online data from a medical institution to allow ab insurance payout.
Interoperability is they key component to increasing blockchain adoption. Oracles are absolutely essential for this as they allow communication between two completely separate worlds.
How do oracles work?
Not all oracles are made equal and different types can perform very different functions. They can be categorised by whether they receive or transmit information from a software or hardware source in a centralized or decentralized manner.
Oracles, and the people that run the networks, are incentivized to provide accurate information and risk financial loss if they fail to do so.
Types of blockchain oracles
This is when an oracle takes data from the physical world, an example being the supply chain scenario mentioned above. This could be from a sensor, scanner, scale, laser, camera or any other device that collects real-world information. An oracle will verify the integrity of this data, translate it into a digital language and feed it to a smart contract on the blockchain.
Such an oracle will collect and verify data from a software source, including databases and online servers. The ability of oracles to instantly broadcast live data to oracles is vital for use cases such as trading and betting.
Other oracle features
We mentioned that oracles can also be categorised by their direction of information transmission and degree of centralization.
Unsurprisingly, inbound oracles send information from outside the blockchain to smart contracts and outbound oracles broadcast data from the blockchain externally.
Decentralized oracles go hand-in-hand with the blockchain ethos as they do not rely on a single source of truth. Distributed information validators are asked to verify data to ensure that it is actually true. The opposite is true for a centralized oracle which represents a single source of truth and single point of failure. Such systems are very vulnerable to malicious behaviour, exposing smart contracts to potentially unreliable information.
There is one more type of oracle to cover – human oracles. A trusted individual with a particular area of expertise can cryptographically verify their identity and become a human oracle.
In line with the role of an oracle, they can verify information before it is fed to smart contracts to ensure its reliability before a transaction on the blockchain occurs.
What is the blockchain ‘oracle problem’?
One of the main reasons behind blockchain adoption is decentralization, whereby there are no single points of failure and transactions are completed in a transparent and trustless manner.
Oracles hold a lot of power, and many executions of smart contract transactions are totally reliant on oracle information being accurate. Inaccurate information or dishonest behaviour within an oracle will completely compromise smart contracts and their intended function.
This is known as the blockchain ‘oracle problem’ and oracle projects are attempting to solve it. For example, the largest oracle in the world of cryptocurrency and blockchain is called Chainlink – a fantastic project that attempts to do so.
The key to increasing blockchain adoption in the real-world is improving the systems of communication. Blockchains and smart contracts will only revolutionize real-world industries when they can receive accurate data from both hardware and software sources and complete transactions based on this information.
Given the power that oracles would have on the blockchain, it is vital that the services used are decentralized and utilize a robust mechanism. If we want to live in a more decentralized world, we need extremely reliable oracles to bridge the gap between blockchains and the real world.
Why Chainlink is one of the Most Important Blockchain Projects
- Blockchain oracles (link) are vital to the real-world adoption of blockchain technology.
- They allow blockchains to communicate with the outside world, which is necessary if blockchain is to change the world.
- Chainlink is the largest oracle solution – read on to learn more about this amazing project.
What is a blockchain oracle?
A blockchain oracle connects the blockchain world to the real world. It acts as a bridge that verifies information from the outside
What is Chainlink?
Blockchains and smart contracts need to know what is going on outside of their own network – Chainlink is a decentralized oracle solution that solves this. If information from the outside world is received from a centralized system, data is not tamper-proof or reliable. Chainlink, on the other hand, can be trusted to provide accurate information to a much greater extent.
Chainlink aims to be the number one oracle service in the cryptocurrency ecosystem. Currently, it is the best and most widely-adopted oracle, with a market capitalization larger than its closest competitors combined.
At the heart of Chainlink’s operations is trust – the service collapses if the information it provides cannot be trusted. It achieves this through decentralization and an incentive structure which creates a set of high-quality, reliable nodes.
What does Chainlink do?
Chainlink provides a decentralized network of trusted nodes, making up a tamper-proof and reliable system of information verification. It retrieves data from any API (Application Programming Interface), verifies information, and is able to integrate with and send data to any blockchain.
By providing accurate information, Chainlink unlocks the potential of smart contracts which can then provide utility in the real-world.
Without Chainlink, smart contracts would be blind to the outside world and essentially rendered useless outside of the blockchain network. Interestingly, Chainlink also facilitates off-chain computation, mitigating centralization while maintaining the security that the blockchain provides. Furthermore, the project strives to improve blockchain interoperability – a lasting problem that Chainlink wants to solve by allowing blockchains to ‘talk’ to one another.
Meet the Chainlink team
Chainlink was founded by smart contract whiz, Sergey Nazarov, who is the current CEO. He has years of experience of developing on blockchain platforms and is one of the best minds in crypto. The Chainlink whitepaper was co-authored by two fellow developers and significant contributors to the project – Steve Ellis (CTO) and Dr. Ari Juels (advisor).
Chainlink has a large community of developers, researchers and users that are highly motivated to improve the project and aid in its adoption. They have various grant programs if you want to get involved with the project.
How does Chainlink work?
Chainlink is powered by the LINK token which provides financial incentive for oracle nodes to feed accurate information to smart contracts and behave in a mutually beneficial manner.
Oracle nodes have to provide what is essentially collateral in the form of LINK tokens. This ensures up-time and reliable data provision as malicious behaviour can result in a node having their staked LINK taxed. LINK tokens are also used by smart contract operators to pay Chainlink nodes when they require off-chain information.
Node reputation and complexity/importance of task dictate the amount that nodes will be paid for there services. This, the fact that there is a fixed supply of 1billion LINK tokens and the lock-up of ‘collateral’ by nodes drives demand for the token which has deflationary features.
Smart contracts and Chainlink nodes
Let’s dive into a bit more detail of how the protocol works…
If a smart contract needs accurate data from outside its blockchain, it will out a request for information. Chainlink sees this and forms a ‘master’ smart contract on the blockchain which in turn generates three sub-contracts. These are called a Chainlink Reputation Contract, a Chainlink Order-Matching Contract, and a Chainlink Aggregating Contract.
Vitally, each oracle node has a reputation, based on its previous performance, that is immutable, transparent and accurate. Based on their service and the market value, nodes set the price that a smart contract operator will have to pay for their data.
The Reputation Contract analyses nodes and removes ‘bad eggs’ by looking at previous performance and also the amount of staked LINK. A node’s stake somewhat represents their commitment to a thriving network. The Order-Matching Contract takes bids from nodes and selects an appropriate selection. Finally, the Aggregating Contract pools data from selected oracle nodes and validates them to provide accurate data. This validation is absolutely pivotal to the integrity of Chainlink’s services and there are some complex and innovative systems in place to ensure reliability.
Chainlink is the ‘middleman’
Chainlink takes the smart contracts request and translates so real-world systems can understand it. Once data has been collected, Chainlink works in the opposite direction and translates data so the Aggregating Contract can understand it.
What is Chainlink used for?
Currently, Chainlink services over 500 smart contracts and dApps and over 120 price feeds and fully-accessible datasets. They also hope to be major players in the realm of blockchain operability.
Indeed, both the current and potential use cases of Chainlink are vast and extremely exciting. There are many sources of real-world information that Chainlink can really to smart contracts – software and hardware.
These may relate to the physical environment such as environmental sensors (thermometer, scales, lasered sensors), weather, traffic and countless other data sources. Blockchain supply chain management (link) is an industry that such data could prove very useful in.
Chainlink can also fetch data from databases and servers, providing market data (for trading, betting etc.), any sort of records (health, education, etc.) and facilitating payments for major companies.
Indeed, Chainlink already has some extremely significant partners within their ecosystem across a broad range of real-world industries.
The Chainlink ecosystem is extremely strong and is improving the operation of some massive companies. These include:
Google Cloud – helping developers through cloud data accessibility.
PayPal – integration of crypto on the payment platform
Ethereum – The main oracle solution for the blockchain.
Binance – helps facilitate sharing of Binance’s data with other blockchains.
These are just some of the major partners that Chainlink boasts – the entire ecosystem is vast and impressive.
Oracles are essential to the global adoption of blockchain technology, and Chainlink is the most likely candidate to be the dominant service.
It has the team, platform and ecosystem to be the powerhouse of providing reliable off-chain information to blockchains. This will allow smart contracts to operate based on accurate data and have real utility.
The LINK token is likely to perform very well. As Chainlink’s adoption increases, more smart contract operators will need LINK to pay oracle nodes and more oracle nodes will be necessary, increasing the amount of LINK ‘locked up’ as a stake. If Chainlink’s adoption explodes, demand for the token will be sky-high!
The Complete Beginner’s Guide to Consensus Mechanisms in Blockchain
- We all love talking about the vast array of real-world use cases that blockchain technology has, however, there are some basic underlying mechanisms that are important to understand.
- For example, decentralization is great, but how are decisions made on a distributed network of nodes? The answer lies in consensus – whereby the state of the blockchain is determined by consensus mechanisms/algorithms.
- Read on to learn what consensus means on a blockchain and some of the basic mechanisms used across the cryptoverse.
What is consensus in blockchain?
As a reminder, a blockchain can be thought of as a database of transactions that is distributed across various computers, rather than exist on a central system. Consensus is simply the process that decides on the state of the blockchain. For example, before a transaction of a coin/token changes the state of the blockchain, agreement has to be reached between the distributed nodes.
In centralized systems, such as a database of medical records, a central authority has the ability to update information with ease. While this is simple and fast, centralized consensus is not trustless, transparent, decentralized, immutable and data security is lacking. Blockchain solves these issues of centralization ,however, it makes consensus more complex.
Blockchain consensus mechanisms
Consensus mechanisms are how distributed blockchains decide on a single source of truth (consensus) of the state of the network. This system has to be fault-tolerant, whereby every node has to have an identical copy of the blockchain. Otherwise, accurate consensus cannot be reached as different nodes have a different copy of the blockchain.
The most common consensus mechanisms in cryptocurrency and Proof of Work (PoW) and Proof of Stake (PoS), and some variations that come with them. There are some other consensus mechanisms that exist, but we will focus on the most popular that a beginner should know.
At the core of consensus mechanisms is a financial incentive for block producers (blocks contain transactions) to maintain the blockchain and not act maliciously. Bad behaviour from block producers can cost them their money/resources and good behaviour is financially rewarded.
Proof of Work (PoW)
PoW is the consensus mechanisms used in Bitcoin and it involves ‘miners’ producing blocks containing transactions to update the blockchain. A miner can produce a block after solving a complex mathematical function called a hash – a series of random numbers and letter. This hash is unique to ever block on the blockchain.
Miners use special hardware (ASICs) to solve this puzzle and compete with one another to generate the right hash by guessing it first. There is no strategy other than to provide as many inputs as possible. The large amounts of electricity used, and the vast costs of mining equipment means that mining blocks is very expensive. Furthermore, on a massive platform such as Bitcoin’s blockchain the sky-high hash rate creates stiff competition for block mining.
What if a miner tries to act dishonestly by including a transaction where they spend more than they have? Well, while blocks are very difficult to mine, it is very easy for the rest of the nodes to verify that the correct block has been mined and that transactions within blocks are valid. This simple verification is possible using public-key cryptography and is absolutely pivotal to reaching accurate consensus on a PoW blockchain.
When a miner produces a block, there are often rewarded with transaction fees that users pay and tokens/coins native to the blockchain. So, there are strong incentives in PoW for miners to behave appropriately. Acting dishonestly is very expensive as equipment and electricity come at high costs, while acting honestly is profitable as fees and coins/tokens will be rewarded.
Proof of Stake (PoS)
PoS was conceptualized as an alternative to PoW that does not require special equipment or computing power. It uses another incentive framework to ensure the integrity of the blockchain. PoS consensus involves ‘validators’ instead of ‘miners’ , a change that the Ethereum Casper update is going to implement.
To become a block validator, you have to stake a certain number of coins on the blockchain that cannot be touched for as long as you are a validator. There is often a minimum stake requirement that makes becoming a validator impossible for the average person. When a validator stakes this minimum number of coins, they can now be selected to produce blocks.
The amount staked is somewhat proportional to the likelihood that a particular validator is chosen to add a block to the blockchain. However, to avoid centralization whereby the richest nodes validate all the blocks, there is often randomization involved. For example, ‘Randomized Block Selection’ considers nodes with a low hash value and high stake for selection. Additionally, ‘Coin Age Selection’ is a randomization feature that considers the time that tokens/coins have been staked for multiplied by the staked amount. This ‘Coin Age’ resets to zero once a node has validated a block – meaning they have to wait some time to forge another block.
When a node is selected through a combination of the above processes, it verifies that transactions within a block are valid and adds it to the blockchain. The node will receive transaction fees if they forge a valid block which, like in PoW, is easy-to-check. This financial incentive to act honestly maintains the security and validity of the blockchain. Furthermore, dishonest behaviour can lead to burning of a node’s stake, repelling malicious behaviour.
Blockchain-powered systems provide amazing benefits over their centralized counterparts, however, reaching consensus is more difficult. This is unsurprising given that the whole point in blockchain is distributing decision making processes.
PoW and PoS are the two major consensus mechanisms that have been conceptualized to reach an acceptable agreement between all nodes of a distributed network. Both mechanisms facilitate vastly greater levels of decentralization, trust, transparency and accuracy than centralized decision-making processes. These, along with other consensus mechanisms, are central to the ways in which blockchain technology will change the world (link).
A Simple Overview of Bitcoin’s Lightning Network
- Bitcoin has established itself as the largest and most recognisable cryptocurrency on the planet.
- Despite this, Bitcoin lovers aren’t content. They want to take the adoption and utility of Bitcoin further than just being one of the highest appreciating assets ever.
- For Bitcoin to reach such heights, its blockchain needs some help – enter the Lightning Network. Read on to learn about what the Lightning Network is, how it works and why it is so important.
The future of Bitcoin
Bitcoin has been coined as ‘digital gold’, however, it has the potential to become more than just a store of value. While Bitcoin is one of the greatest assets to ever exist in terms of price appreciation, the Bitcoin community believe it is the future of money.
There is a school of thought that Bitcoin will, one day, completely replace and improve upon today’s currency system by virtue of decentralization and blockchain technology.
Why do we need the Lightning Network?
Currently, the Bitcoin blockchain is able to execute around 5 transactions per second (TPS) and a new block is added to the chain approximately every 10 minutes. If Bitcoin wants to become the currency of the world, the network needs to perform significantly better than this.
Take Visa for example, their payment processing system facilitates around 4000TPS and can handle up to 65000TPS when network activity is high. How can we get the Bitcoin blockchain to facilitate enough transfers to become the global digital currency – the answer is the Lightning Network.
What is the Lightning Network?
Bitcoin’s Lightning Network is a layer-2 scaling solution, meaning that it operates ‘on top’ of the Bitcoin blockchain rather than altering the network itself. It is essentially its own network of nodes that relieves the load on the main Bitcoin blockchain by grouping transactions off-chain and executing this group as a single transaction on-chain.
The Lightning Network makes the Bitcoin blockchain a more likely candidate to replace current payment systems by offering many benefits in…
Scalability is clearly an issue with the current Bitcoin blockchain, however, the Lightning Network solves this. Through methods that we will later explain, the number of transactions that will be able to be executed per second is not limited by anything other than broadband speed.
When you want to execute a single transaction on the current Bitcoin network, you have to pay a fee and when a network is busy, miners may only choose to include transactions with high fees in the next block. This makes transacting on the blockchain slow and expensive. In the real world, fees could be more expensive than the cup of coffee you buy using Bitcoin.
The Lightning Network facilitates such micropayments and will reduce unsustainably high fees on the network.
A Satoshi is currently the smallest unit of Bitcoin – representing 100millionth of one full coin. The Lightning Network could facilitate micropayments even less that one Satoshi. This is very important for a global payment as many purchases could be a fraction of a fraction of one Bitcoin. Furthermore, it is important that transaction fees do not exceed the price of micropayments.
For Bitcoin to execute payments every second of every day around the world, the speed of transactions has to be rapid. As we mentioned previously, Bitcoin block creation is slow, and transactions are only confirmed at least every 10 minutes if they are selected by miners for a block. The grouping of transactions on the Lightning Network off-chain allows to be completed in milliseconds.
The Lightning Network adds an element of privacy to transactions on the blockchain. Nodes on the Lightning Network can see transactions occurring cross their channel without necessarily knowing the destination or source. Furthermore, specific details of payments that occur off-chain in the ‘group’ are not displayed on the main Bitcoin blockchain.
How does the Lightning Network work?
The Lightning Network involved payment channels opening between individual entities, for example, you and your friend might open a channel between one another. Initially, you and your friend will deposit a specific amount of Bitcoin into a safe, that requires unique signatures from both you and your friend to open, called a multisignature address. Importantly, this occurs off-chain, meaning that you can complete 100,000s of transactions between one another almost instantaneously without having to wait for blocks to be mined. Records (contracts) are constantly updated within this safe, which you both have to sign, to keep track of who owns what funds.
Either you or your friend can close the channel at any point, broadcasting the latest contract to the main blockchain after both of you have signed it. Miners then validate this and distribute funds accordingly on-chain.
So, while 100,000s of transaction may occur between you and your friend, the blockchain only executes two transactions – one to open and one to close the payment channel. This facilitates the increase in transaction throughput while maintaining network speed, privacy and low fees.
However, we are looking at creating a global payment system, so how does a payment channel between you and your friend allow for this? The answer is in routing.
Say your friend has a payment channel with a shop, from which you want to buy a T-shirt. You can send funds to the shop via your friend, without them seeing details of the purchase. In a vast network of distributed nodes on the Lightning Network – it will send funds from the source to the destination through the shortest and cheapest route.
This routing gives the Lightning Network the potential to become a global payments system as it can indirectly connect millions of people and businesses by routing transaction through payment channels. Remember, this occurs off-chain – keeping a record of where funds are and only executing a transaction on-chain when appropriate signatures have been gathered and the channel is closed.
A potential disadvantage of this routing system is that problems can arise with liquidity. Remember earlier when we said that upon opening a payment channel – you specify a Bitcoin capacity that does inside the multisignature address ‘safe’. Well saying you want to send a payment of 5 BTC to the shop via your friend, but you and your friend have a BTC capacity of 1 BTC, you will not be able to send 5 BTC to the shop. Payment channels have to enough capacity to facilitate routing of large transactions.
Can it prevent malicious behaviour?
Yes, the Lightning Network has mechanisms in place to stop people trying to cheat the system. The mechanism is named hash timelock contracts (HTLCs) – which combines hashlocks and timelocks. Without going into too much detail, HTLCs prevent individuals from taking out more BTC than they are due.
The Bitcoin blockchain, by itself, will not be able to facilitate a global payment system. However, the Lightning Network may provide the solution and has made impressive strides since its 2018 launch.
The improvements in transaction throughput, network speed, fees, privacy and the ability to complete micropayments make the Lightning Network a very valid solution.
The technical proficiency required to participate in the Lightning Network is rather high, at the moment. However, innovation in crypto (specifically in wallets) should make it easier for regular people to become part of what could be the future of the world’s currency system.
Understanding the Blockchain Scalability Trilemma
- Blockchain has the potential to change the world (link) in a variety of industries.
- While blockchain adoption is rising, there is some way to go before we see true global adoption.
- This will require blockchains to be extremely effective in terms of scalability, security and decentralization. Read on to learn about the blockchain scalability trilemma and why optimizing for these three features is not so easy.
What is the blockchain scalability trilemma?
The term ‘scalability trilemma was coined by Ethereum co-founder, Vitalik Buterin, when describing the development of a Proof-of-Work (PoW) blockchain. Specifically, he noted the difficulty of achieving high levels of scalability, decentralization and security at the same time on a blockchain.
Scalability is the ability of a blockchain to support massive amount of acitivty while maintaining usability, decentralization is when the blockchain network is controlled by many nodes rather than a central source, and security is obviously the systems in place to protect the network from bad actors.
The problem here is that these three features are central to the benefits of blockchain technology compared to current, centralized systems.
Fear not. The scalability trilemma describes the difficulty of achieving high levels of scalability, decentralization and security – but this doesn’t mean it is impossible. Using ‘old-school’ blockchain technology makes it extremely difficult, however, new solutions are emerging that could provide this ‘holy grail’ and allow for global blockchain adoption.
Why is it hard to achieve scalability, decentralization and security?
The theory is that optimizing for one out of three of scalability, decentralization and security means that you sacrifice advantages from the other two.
Take Bitcoin and Ethereum, they are only able to complete, on average, 5 and 16 transactions/sec (TPS), respectively. There is a distinct lack of scalability here. To see global adoption of the Bitcoin and Ethereum networks for global payments, DeFi, gaming etc., they will need to be able to handle at least 10,000s of TPS.
A simple example
Take a hypothetical blockchain that has a large number of distributed nodes that run the network. This highly secure blockchain lacks scalability, as many nodes have to validate transactions which takes longer.
If a blockchain implements increased block sizes to increase scalability, the greater computational requirements will cause nodes to drop out. Having a small number of miners and nodes would increase scalability but decrease security and decentralization.
It is clear that hitting the trifecta ‘sweet spot’ is difficult for PoW blockchains. We will touch on solutions shortly, however, why are scalability, decentralization and security so important?
Scalability, decentralization and security
We mentioned that in order for blockchains to be adopted globally for use in all industries, they must be extremely scalable. This means a massive number of TPS, fast block times and low fees.
Increasing scalability would, in turn, allow the blockchain to handle huge traffic volumes without fees increasing uncontrollably and prevent network congestion.
However, scalability is very difficult to achieve for PoW blockchains.
Decentralization is the hallmark feature of blockchain technology. Blockchain isn’t really blockchain without it. Therefore, it is vital that decentralization isn’t sacrificed in the quest for performance improvement.
Fortunately, decentralization is the easiest feature to achieve on the blockchain network – requiring a distributed network rather than one that is centralized.
Decentralization means there is no central authority which can influence the network at will, power is distributed across nodes, security is increased, the blockchain cannot be altered as immutable records are stored across nodes and everyone has a input into governance and decision making.
In a way, security is the bedrock feature and is necessary or decentralization and scalability to even be possible. Without security, bad actors would have complete access to the distributed database and be free to alter the network to completely invalidate its utility.
In a PoW blockchain, security somewhat comes hand-in-hand with decentralization. However, there is slightly more to it as the open-source code must be checked to ensure its robustness.
Security is primarily sacrificed when increasing the blockchain’s scalability. This means that if the scalability trilemma was set in stone, we either wouldn’t have a working blockchain due to hackers, or blockchain will never be widely adopted.
Fortunately, the level innovation in the space is fantastic, and many clever developers have proposed solutions to the blockchain trilemma.
Solutions to the scalability trilemma
Without going into too much detail, these are just some of the layer-1 (on-chain) and layer-2 (off-chain) solutions that have been/will be implemented on blockchains.
Ethereum 2.0 will include several new, very interesting features. Specifically, this will see the Ethereum network become Proof of Stake (PoS) and introduce both sharding and side chains. This will likely solve the scalability trilemma.
So, from the above point, PoS and sharding are layer-1 mechanisms that can help solve the scalability trilemma.
A side chain is a layer-2 solution which is a blockchain that operates beside the main blockchain of the network it is aiding. They use their own mechanisms to handle large groups of transactions in a rapid and scalable manner. Security is maintained by the main blockchain.
State channels are another layer-2 scaling solution. Scalability is increase by opening channels between individuals within which 1000s of transaction can occur almost immediately as they are not limited by the speed of the main blockchain. Routing of funds can occur when various channels are involved in moving said funds from one person, through a network of people, to another. An example of this is the payments channels that make up Bitcoin’s Lightning Network (link).
The concept of the blockchain scalability trilemma is interesting and has plagued blockchain development since its inception.
We want to see blockchain reach new heights in terms of global adoption. However, we need to see vast improvements in blockchain scalability while maintaining security and decentralization.
Although difficult, promising solutions are emerging that solve the scalability trilemma that will be implemented and further developed to ensure that blockchain is able to truly change the world.
Decentralized Finance Made Simple: the Complete Guide to DeFi
- Decentralized finance (DeFi) is one of the most exciting and well-known use case of blockchain technology.
- It aims to change the world (link) of finance by removing intermediaries and forming a more accessible and decentralized financial system.
- Read on to learn about what DeFi is, why it is so important, its benefits and the many services it provides.
What is DeFi?
DeFi is simply a set of financial services that utilises blockchain, cryptography and smart contracts to produce a completely separate financial system. This system currently co-exists with traditional finance, however, could fully replace it in the future.
The vast majority of traditional financial services can already be found on DeFi platforms such as Ethereum – including borrowing/lending, insurance, stablecoins, derivatives and decentralized exchanges (DEXs) (link).
While Ethereum is currently home to most DeFi applications, other smart contract platforms (link) such as Cardano, Solana and Polkadot are hot on their heels. As a reminder, smart contracts are bits of code on the blockchain that execute when conditions are met. This occurs automatically, without input from any authority, in a trustless manner that is extremely reliable.
The primary feature of DeFi is its provision of a permissionless, trustless, and fully transparent system of financial dApps (decentralization applications) on top of the blockchain. Smart contract code execution within dApps means that DeFi has no intermediaries and facilitates P2P (peer-to-peer) interactions. This makes DeFi far more accessible than traditional finance, and the distributed nature of blockchain means it has no central points of authority/failure.
We will cover the vast array of benefits of DeFi shortly, however, why is DeFi so important and potentially life-changing for much of the human population?
Why is DeFi important?
According to a report by the World Bank, as of 2017, 1.7billion adults are unbanked. At the time, this represented a staggering 31% of people that do not have access to basic financial services. The majority of these unbanked individuals will reside in developing countries as people in these areas can’t provide intermediaries with the profit they desire.
This is an abject failure by the traditional finance system. There needs to be far greater accessibility to financial services to help improve the quality of life of many individuals – DeFi may be the solution. Rather than trying to become banked through corrupt institutions, DeFi merely requires an Internet connection to participate and will allow people access to every dApp on whatever blockchain they want.
Benefits of DeFi
Clearly, the fact that the only barrier to entry is having access to an Internet connection makes DeFi extremely accessible to the vast majority of adults. Cutting out intermediaries means that far less fees are incurred which is also more inclusive for poorer individuals.
One of the key benefits to removing intermediaries is that full ownership of funds lies with the actual owner, not a ‘middleman’. Decisions are made by code that is open-source and tamper-proof, creating a trustless and permissionless system. This is in contract to banks which have the capacity to freeze funds and regulate their customer’s financial activity.
The user experience of DeFi is a double-edged sword. On one hand, blockchains are currently slower than centralized systems and accessing DeFi dApps requires technical competency. On the other, costs are much less, the blockchain operates every second of every day and cross-border payments can occur much faster.
Decentralization, security and immutability
Other benefits of DeFi are inherent in utilisation of blockchain technology (link). Decentralization is the hallmark of blockchain and DeFi and means that instead of a centralized server storing and altering data, these tasks are distributed across many nodes all around the world. This means there is no central point of authority/failure, decision making is spread out throughout the network participants, and it is extremely difficult to censor or shutdown the network.
Immutability means that a record of transactions on the blockchain will exists forever, and the past can’t be changed. This is important as it creates a fully transparent ledger which can’t be manipulated without ringing alarm bells. A node that decides to go rogue risks financial loss, either via burning of their stake in Proof of Stake (PoS) or via electricity costs in Proof of Work (PoW).
DeFi use cases
Given that DeFi aims to replace the traditional financial system, it is natural that it will offer the same services and more. There are many, many use cases of DeFi, and here are some of the most well-known:
Lending and borrowing: this a classic financial service that is already very popular in the world of DeFi. People can earn interest on digital assets that they provide or use these supplied assets as collateral for borrowing other assets. Compared to old finance, DeFi lending and borrowing platforms are cheaper, faster, more accessible and leverage smart contract technology to create a trustless system.
Stablecoins: stablecoins are a form of crypto that utilise smart contracts (link) to peg their price to a real-world asset. They are often pegged to a fiat currency such as USD, GBP or EUR. This can be done in a decentralized way via clever algorithms to keep the price stable or having centralized companies that do not use algorithms but have the real-world value of their stablecoin on-hand. These can be used on lending and borrowing platforms to earn interest, provide liquidity on other platforms or used as a stable crypto investment vehicle without totally exiting the market
Decentralized exchanges (DEXs) (link): When you use a centralized exchange, you don’t have full custody of your crypto assets, always remember: not your keys, not your coins. The exchange owns the private keys to your crypto while you keep it on there. A DEX allows you to exchange crypto assets without a middleman, whereby you retain full custody of your assets and trade in a trustless, permissionless way as dictated by the smart contract code.
Insurance: Insurance in DeFi works the same way as in old finance – providing guarantees of compensation upon paying a premium. Guarantees may be for on-chain events such as protection against smart contract faults or relate to real-world events. This may include compensation guarantees if a farmer in a developing loses his crop to drought – something many people in such regions have never had access to.
If DeFi completely takes over the traditional finance system, greedy intermediaries such as banks will become obsolete. Exponential adoption of DeFi in the coming years will absolutely revolutionize the lives of many people.
Knowledge of crypto and blockchain is increasing – which will lead to continued adoption. We need to continue to preach about the wonders of blockchain and why, if individuals switch over to the DeFi system, they will be far, far better off.
What are Flash Loans in Decentralized Finance (DeFi)?
- DeFi is one of the hottest topics in the blockchain and crypto community at the moment.
- Creating a transparent, accessible and decentralized financial system is just one of the ways that blockchain technology will change the world (link)
- Innovators in the space are replicating aspects of the traditional financial system, but are also coming up with some amazing, unique ideas. One of these is flash loans – read on to learn about this very special type of loan.
Regular loans – a brief reminder
A loan is when you borrow some money from a person/institution with the expectation that you will pay it back at some point in the future. Often, you owe more by the time you back the loan than you initially borrowed due to interest. Interest rates can vary and increase the amount that you have to pay back. Institutions also require that you show them your credit score (track record), proof of income
Another aspect of regular loans is that the lender often requires that you put forward collateral. Collateral is just something of value that the lender gets if you fail to pay back the loan – an insurance policy of sorts. Collateral can include anything – from property, to your car, to valuable items you possess. A loan without collateral is an unsecured loan, whereas one that does require collateral is a secure loan.
What is a flash loan?
Now that the basics are out of the way, what exactly is a flash loan?
The name is pretty appropriate as the process of you borrowing and paying back happens in a flash. In other words, you receive a flash loan from a DeFi dApp on a smart contract platform (link) such as Ethereum, do what you want with it, and pay it back INSTANTLY in the same transaction.
If any stage of the process breaks down and adequate funds can’t be returned, the entire transaction is terminated, and the smart contract does not allow for movement of funds. This is the beauty of smart contracts – trustless and automatic execution/lack thereof based on very specific conditions. Therefore, there is very little risk for both lender and borrower.
Importantly, this means that loans do not require any collateral as there is no chance that the money cannot be paid back. Either the loan is issued, used, and paid back in the same transaction, or the transaction does not happen at all. This means that flash loans are unsecured loans – as there is no reason for them to be collateralized.
This is a very unique and creative idea that blockchain developers have come up with – with projects such as Aave and dYdX providing flash loans and gaining much attention in recent times. As of September 2021, Aave have given out over $4.5 billion in flash loans.
Why would someone want to take out a flash loan and why are platforms like Aave and dYdX so popular? The short answer is to use the borrowed money to flip a profit and pay the original loan back in the same transaction – keeping the difference.
Flash loan use cases
The primary use of flash loans is in arbitrage – where cryptocurrencies are traded about within the same transaction that the loan is borrowed and paid back in.
You may spot a small discrepancy in the price of crypto between decentralized exchanges (DEXs) (link) and to get some nice profit from this, a flash loan gives you massive amount of money to do so. Flash loan platforms can give you enough money to become a whale for a few seconds – with the largest flash loan payment on Aave clocking in at $200 million. Again, you borrow this money, use it to trade other cryptocurrencies which differ in price between exchanges and pay it back in an instant – pretty cool, right?
Furthermore, this process comes with very little risk for both the lender and borrower as for the smart contract to execute, the lender HAS TO receive back the loan and the borrower HAS TO make profit or at least even out.
Flash loan attacks
Critics of flash loans say that they are not particularly safe and are ripe for exploitation. They have a point as there have been some massive flash loan attacks, despite the concept only being around for a few years.
For example, a hacker was able to take a flash loan from the Ethereum-based bZx protocol and simultaneously manipulate the price of the crypto they borrowed. This meant that bZx thought they were receiving the full loan back when in reality, it was a temporary price change and the hacker bagged $1 million worth of ether.
Another example from February 2021 involved a hacker that was able to exploit the Cream Finance protocol and make a staggering $37 million.
Up to now, many of these flash loan exploits can be explained by poor oracle (link) design and the flash loan itself isn’t the issue. Oracles fetch off-chain data, often from the real-world, so the blockchain can receive data from outwith its own network.
Flash loans are an extremely interesting concept that would never be possible in the traditional world of finance. They open up a cool opportunity to temporarily become a crypto whale to flip a profit, without any downside risk for the borrower or lender!
There are many fantastic innovators in the blockchain space – we need to make use of them for a couple of reasons. Firstly, to devise more use cases for flash loans and make them more accessible to the layman, and secondly, to beef up security to prevent huge exploits in smart contract code or protocol deficiencies.
What are Decentralized Autonomous Organizations (DAOs)?
- Decentralized Autonomous Organizations (DAOs) are an extremely exciting use case of blockchain technology (LINK).
- Basically, they aim to replace centralized organizations which adopt a hierarchical structure with a decentralized system of governance that relies on computer code rather than people.
- Read on to learn about what DAOs are, how they work, positives and negatives of them and the wealth of current and potential DAO use cases.
What is a DAO?
A DAO is a type of organization that exists on top of a smart contract blockchain platform such as Ethereum.
It is DECENTRALIZED in that it is governed by a distributed network of people and not a centralized core of individuals, AUTONOMOUS in that it operates by itself and is self-sustainable and an ORGANIZATION in that it has its own set of rules that are it must follow.
How do DAOs work?
Instead of a hierarchy of individuals controlling an organization, DAOs use smart contracts whereby computer code dictates operations. This means that once DAOs are deployed on the blockchain, they can run by themselves without human intervention. Ethereum founder, Vitalik Buterin, described DAOs as having automation at the centre and humans on the periphery.
This smart contract code is open-source, meaning anyone can view it and allows for a trustless, self-sustaining organization. This is extremely innovative and gives rise to a new model of business, whereby its function is conducted automatically in a fully decentralized manner.
The unique system of governance of DAOs sets them apart from the top-down decision making processes in most centralized organizations. DAOs employ a bottom-up governance approach whereby the full community contributes to decision making.
The value of their ‘vote’ is established through various mechanisms including quadratic voting, reputation and the number of native tokens they have ‘staked’. As well as deciding what happens in the DAO, its community are distributed revenue that it generates in proportion to their stake.
DAOs vs traditional organisations
Compared to centralized organisations, DAOs are permissionless and anyone can create one on a blockchain rather than being state-granted, and governance is on-chain rather than intermediated by lawyers. DAOs have some pros and cons compared to their centralized counterparts.
They are trustless and fully sustainable over time. This means that humans are not required for the DAO to perform its function and there is no need to trust intermediaries.
DAOs are censorship-resistant, meaning that they cannot be ‘banned’ by governments if they are truly decentralized.
The smart contract code is open-source, meaning anyone can view it, verify its security and suggest improvements.
DAOs are on the blockchain which has no borders, meaning there are no territorial restrictions to collaboration.
DAOs introduce some novel and exciting methods of fundraising.
Although the open-source code is an advantage, it means that hackers are able to view it to plan and practice attacks – leaving DAOs somewhat vulnerable to security issues.
Smart contracts may have bugs in them that can be exploited, however, employing competent developers and stress-testing teams can mitigate this risk.
DAOs are extremely useful in various sectors of blockchain. For example, DAOs are used in venture investing, grants and DeFi (decentralized finance). DAOs within DeFi are particularly exciting as they aim to replace corrupt organizations that act as intermediaries in the current, traditional financial system.
Uniswap – a decentralized exchange (DEX) (LINK) on the Ethereum blockchain that allows individuals to exchange crypto while retaining full custody of their coins.
Decentraland – a virtual world on the Ethereum blockchain. The Decentraland DAO is essential for decision making within this virtual reality.
Aave – a decentralized lending and borrowing protocol that facilitates a novel concept in DeFi called ‘flash loans’ (LINK) and allows individuals to earn interest on their crypto.
The DAO – was launched in 2016 as one of the first DAOs. It was an investor-directed venture capital fund which would go towards project development. Investors would receive revenue from projects that were funded, however, a code bug allowed a hacker to steal $60 million worth of Ether.
Future DAO use cases
When it comes to the future of DAOs and their real-world use, the space is ripe for innovation. There are many ways in which DAOs can revolutionize the world:
Governance: DAOs can completely revolutionize the ways businesses work – promoting a decentralized, trustless, self-executing system that is governed by the community. The same people who care for the DAO and have a stake reap the financial rewards. This community-owned organization can cater to many differing interests and beliefs, withy all members financially incentivized to govern in a mutually beneficial manner.
Start-up businesses: it will be much easier to create a business using DAOs. There are creative ways to fundraise significant sums of capital and there is no financial or physical burden of creating infrastructure – increasing entrepreneurial accessibility.
A futuristic outlook: although it sounds crazy, DAOs could replace some of the largest companies in the world. For example, an Uber-like service whereby DAOs accept payments from customers and driverless cars automatically provide transport according to smart contract execution. Washing the cars, maintaining them and supplying fuel could all be controlled by a DAO – no humans are required! A similar future could be envisioned for a company like Amazon, whereby every step of receiving goods, storing them, preparing them and delivering them could be controlled by smart contract technology within a DAO. Currently, this seems unrealistic, but there is no telling what the future holds!
DAOs are one of the most interesting applications of blockchain technology and have the potential to revolutionize real-world industries.
The radical shift in governance of DAOs to a community-based, bottom-up structure fits the ethos and primary aim of blockchain and crypto: to empower the people.
NFTs for Dummies: The Complete Beginner’s Guide
- NFTs (non-fungible tokens) represent unique assets on a blockchain.
- This is an exciting and world-changing technology that is disrupting many industries by leveraging the advantages of blockchain technology (LINK)
- Read on to learn about what NFTs are, how they work, why they have value and the extremely interesting array of use cases they have.
What are NFTs and how do they work?
NFTs are unique tokens on smart contract blockchains, such as Ethereum and Solana, that represent a digital- or real-world asset. In real life, despite not having any intrinsic value, rare pieces of art and trading cards become extremely valuable based on human perception. This is no different in the world of NFTs, which introduce scarcity to the world of crypto through non-fungibility.
Fungibility is when the individual units of an asset and indistinguishable and can be exchanged. In crypto, most tokens and coins are fungible, meaning that they are equal in value to other tokens and coins of the same type. For example, a single bitcoin is equal in value to another bitcoin – meaning they are fungible. Similarly, in the real world, a $5 bill is interchangeable with another $5 bill.
Non-fungible tokens (NFTs) are cryptographically unique and allow assets of different value to live on the blockchain – this is extremely useful for many use cases, including art, collectibles, music and gaming. Information on a blockchain is immutable, meaning that the entire ownership history of an NFT can be viewed all the way back to when it was minted (created) on the blockchain. Therefore, we can say with 100% confidence that a particular NFT is the original and not a fraudulent replica.
The decentralized nature of blockchains also means that there is no central service that owns and exchanges NFTs – NFT owners have full custody of their asset and can conduct P2P (peer-to-peer) trades without involvement of intermediaries.
Why do NFTs have value?
Just like a $5 bill, an NFT (for example, a piece of digital art) doesn’t have inherent value. Value is ascribed by humans and there are many factors that influence people’s perception of how valuable something is.
For example, CryptoPunks are a collection of 10,000 unique characters represented as digital art. Following their creation in 2017, they were claimable for free on the Ethereum blockchain and are now worth $100,000s. A collection of 9 Punks was sold at an auction house for $16.9m in May 2021, with one particularly rare Punk bought for $11.8m in June 2021.
Another example of a hype-driven NFT collection is the Bored Ape Yacht Club, which includes artwork of 10,000 unique ‘Bored Apes’. In recent months, the prices of these pieces of digital art have sky-rocketed as Ape ownership not only entails ownership of the original art but also provides access to a special members club (Yacht Club) and a merchandise store.
The value in such cases is derived from cultural demand, the involvement of and promotion by major celebrities and influencers, and institutions such as VISA purchasing such digital art. The potential for price appreciation is vast, however, new investors must be careful as NFTs are likely a bubble waiting to burst.
NFT use cases
Digital art and crypto-collectibles
Anyone can create a copy of a CryptoPunk, however, NFTs and blockchain mean that it is very easy to verify authenticity. Ownership is also undisputable and so the value of a particular NFT is specific that exact token. Collectibles outside of digital art also exist on the blockchain and include digital trading cards, like NBA Top Shot (https://nbatopshot.com/), or social media moments, such as a viral tweet.
Blockchain and NFT technology is already used for many games, presenting some amazing benefits to gamers. In-game items differ in rarity and the introduction of digital scarcity provided by NFTs means that gamers can have full custody over their items and trade P2P with other gamers at external marketplaces. Therefore, instead of a central server hosting a game and owning user’s in-game items, gamers have complete power and can monetize their gaming! This could majorly revolutionize the gaming industry as who wouldn’t want to be paid to play games?
Axie Infinity, Decentraland and CryptoKitties are famous examples of blockchain-based games. Gaming NFTs earned from playing can be bought, swapped and sold at the user’s discretion and they often have in-game utility which contributes to their perceived value.
NFTs can also hold audio, which could have major implications for the music industry. Again, NFTs mean particular tokens with attached audio are more valuable than ‘copies’ due to their originality. Music artists often don’t earn much from platforms such as YouTube and Spotify. However, distributing their music as NFTs will allow musicians to receive a larger share of royalties and have more control over their work.
While digital art, real estate and collectibles exists as NFTs on the blockchain, real-world versions of these assets could also become digitized. For example, the ownership of a house could be stored on the blockchain and easily transferred to another individual. An NFT could represent true ownership of a real-life, rare trading card that could only be sold if the seller owned the digitized NFT version of the card. This use case is more speculative and attempts to have property represented as an NFT have proven to be legally complex. However, NFTs could truly transform the future way in which we authenticate ownership and authenticity of real-world assets using trustless and frictionless blockchain technology.
There are several other use cases that we didn’t cover here. These include having utility in DeFi as collateral and in insurance, digital identity, certificates and fractional ownership of assets.
Best NFT marketplaces
NFT marketplaces are a user-friendly way of exchanging (and sometimes creating) NFTs for tokens native to the blockchain that the NFT was minted on. For example, Ether can be used to buy CryptoPunks at a marketplace like OpenSea as these NFTs were minted on the Ethereum blockchain.
If you are interested in dipping your toe into the world of NFTs, these are some of the most popular NFT marketplaces:
Despite astronomical increases in popularity and prices, the NFT space is still relatively new and brimming with opportunities.
The range of industries in which NFTs are involved is exciting as they are decentralizing the ownership of normal peoples’ assets. Innovation in the blockchain space is impressive and will allow NFT technology to continue to revolutionize digital and real-world industries. The future is bright for NFTs.
What are Stablecoins in Decentralized Finance (DeFi)?
- Stablecoins are an interesting innovation that has emerged from the world of DeFi in recent years.
- They are an interesting combination of traditional financial tools and decentralized concepts that have exploded in popularity. At the end of July 2021, the total market capitalization for all stablecoins was a staggering $114.8 billion.
- Read on to learn more about stablecoins, why they are so important in the emerging real of DeFi and some very interesting examples of use cases.
What are stablecoins?
Stablecoins can be thought of as a bridge between the traditional world of finance and DeFi.
They are digital currencies that have their value pegged to a real-world asset, usually the US dollar. Through various mechanisms that we will cover shortly, a stablecoin is able to maintain a value reflective of the real-world asset it represents. In addition to being pegged to the US dollar, some stablecoins are pegged to the price of commodities (i.e. gold) and other fiat currencies (i.e. the Euro).
What is the point of a stablecoin?
Blockchain technology will change the world (https://ontheblocks.io/how-blockchain-will-change-the-world/) and there will be many industries that it will revolutionize. However, blockchain and crypto are still relatively small compared to their centralized counterparts and as a result, crypto prices are wildly volatile. While this represents a great opportunity to take advantage of long-term price appreciation, large changes in price make payment processing and value transfer difficult, for the time being anyway.
Stablecoins, given their stability in value, allow for value transfer without large swings in price between the times of users sending and receiving payments.
Most importantly, they are also able to leverage the benefits of blockchain technology. Payments can be made by any one person (given the accessibility of stablecoins on a blockchain) to any other person in the world.
Thanks to blockchain, this can occur at any time of day, at near-instant speeds, on a very secure network and for extremely low fees. This is in stark contract to the restricted opening hours, accessibility and high fees of centralized financial institutions.
How do stablecoins work?
There are different ways that stablecoins maintain a value pegged to a real-world asset. Often, these are classified as collateralized and non-collateralized but there is slightly more to it than that.
More specifically, we can categorise stablecoins as being fiat-collateralized, crypto- collateralized or algorithmic. Each have advantages and disadvantages and importantly, varying degrees of decentralization. Let’s dive a bit deeper…
In this example, there is a central authority which possesses enough fiat currency that every stablecoin is backed up with the real-world equivalent. So, for every $1 of stablecoin, there is $1 of fiat currency in reserve.
This is the most common type of stablecoin, with popular examples including USDC (USD Coin), Gemini Dollar, and USDT (Tether).
Despite their vast utility, the fact that a central authority holds the reserves backing the stablecoin raises issues of centralization and counterparty risk.
Unsurprisingly, this type of stablecoin uses cryptocurrency as collateral. To receive these stablecoins, a user has to ‘lock up’ their crypto in a smart contract which then issues stablecoins, which are subsequently paid back (plus interest) before the original crypto collateral is released back to the user from the smart contract.
There are game theory and algorithmic mechanisms that keep the stablecoin price pegged to the asset it represents. Popular examples of a stablecoin that uses such mechanisms are DAI and WBTC (Wrapped Bitcoin).
Given that there is no central reserve, crypto-collateralized stablecoins are more decentralized than those backed by fiat currency. This also means that there is no external audit of reserved and since it is fully based on the blockchain, transactions are much more simple and rapid. However, the integrity of the stablecoin is extremely reliant on there being crypto supplied as collateral.
These are often referred to as non-collateralized stablecoins as they do not need to be fully back by fiat currency or crypto. However, this is not entirely true as algorithmic stablecoins often have some collateral in the case of major market volatility.
Given that these do not require collateral to operate normally, they utilise an interesting method of stabilizing price. They make use of algorithmic and smart contract technology to maintain the stablecoins value. They manipulate the circulating supply of the stablecoin based on price fluctuations. In accordance with basic supply and demand principles – a stablecoin price lower than the pegged asset will cause a reduction in coin supply, and if the price rises higher than the real-world asset, supply increases. A reduction in circulating supply will increase price and an increase in supply will reduce the price of the stablecoin.
Examples of algorithmic stablecoins are Frax and Empty Set Dollar.
Stablecoin use cases
We touched on the utility of stablecoins in making fast, cheap global payments, however, they have other use cases in the world of DeFi.
They can be used by investors as a hedge for the volatility characteristic of the crypto market. They can be traded into to ‘lock in gains’ earned by more speculative cryptos without leaving the market entirely. Instead of withdrawing capital as fiat, converting earnings into stablecoins allows funds to be kept on the blockchain, ready to be moved into a new position.
Furthermore, stablecoins can be used to earn interest on various lending platforms such as Celsius, Aave, dYdX and BlockFi. The interest earned is often far in excess of what a centralized banking service would offer in traditional finance.
Stablecoins are an extremely important aspect of DeFi as they provide stability in a an otherwise volatile market. With current fluctuations in crypto prices, they are vital for transferring value around the world outside of the legacy financial system. Doing so allows users to use a digital version of fiat currency while leveraging the many advantages of blockchain technology.
The financial freedom afforded by stablecoins extends to thoroughly impressive interest rates that can be earned using decentralized applications on different blockchains. Despite concerns over decentralization and counterparty risk with fiat-backed stablecoins, crypto-back and algorithmic stablecoins provide exciting alternatives.
The persistent flow of innovation in the blockchain world will likely give rise to new and improved stablecoins that will improve DeFi and contribute towards the financial freedom of many more people around the world.
Uniswap: An Overview of one of the Largest DEXs
- Uniswap is a decentralized exchange (DEX) that operates on the Ethereum blockchain.
- It allows people to exchange tokens in a decentralized manner, rather than via a centralized exchange.
- Read on to learn more about one the best DEXs in crypto, how it works and why it is such a fantastic protocol!
What is a decentralized exchange?
DEXs are one of the most exciting and popular use cases of blockchain in the world of DeFi.
They facilitate a permissionless and trustless P2P (peer-to-peer) transactions of cryptocurrencies between individuals without the need for a ‘middleman’. Users retain full-custody of their crypto and don’t give it up to a centralized exchange (CEX) who conduct transactions on their behalf.
In addition to differences in custodianship, CEXs often require high fees, are not as accessible, have less tokens available to trade and are often subject to regulation.
What is Uniswap?
Uniswap is a DEX that operates on top of the Ethereum blockchain (https://ontheblocks.io/blockchain-vs-cryptocurrency/) that allows users to swap ERC-20 tokens. ERC-20 is simply an Ethereum standard that allows for smart contracts to create and exchange tokens on the blockchain.
It makes use of smart contracts which essentially act as a set of rules for the protocol, without the need for humans to act as a third party in the exchange of tokens. This smart contract code is open-source, meaning anyone can view it. The protocol is also high decentralized and censorship-resistant, meaning it cannot be regulated, users keep hold of their crypto at all times, and anyone can use the service.
Put simply, you can access the Uniswap application (https://app.uniswap.org/#/swap), which has an extremely simple and easy-to-use interface, to seamlessly exchange ERC-20 tokens on the Ethereum blockchain.
Meet the Uniswap team
Uniswap was created and launches back in 2018 by Ethereum developer, Hayden Adams, although the original idea was conceptualized by Ethereum founder, Vitalik Buterin.
The team is not very large, but also includes software engineer, Ian Lapham and engineering lead, Connor McEwen.
How does Uniswap work?
As we mentioned previously, smart contracts are central to Uniswap’s functionality. The protocol uses smart contract technology to deploy Automated Market Makers (AMMs) and Liquidity Pools.
Traditional exchanges use an ‘orderbook model’ which determines token prices and matches buyers and sellers, relying on market makers to supply liquidity. However, most DEXs use AMMs and liquidity pools.
Uniswap has no orderbook and uses liquidity pools. These can be thought of a big pots of token pairs (i.e. DAI/ETH) that can be used to facilitate swaps on the DEX. Liquidity providers contribute tokens to this pool and receive rewards in return – these are in the form of transaction fees paid by users and UNI tokens. The Uniswap team does not make any money from transaction fees.
AMMs are mathematical algorithms that determine the price of tokens on DEXs based on the relative amount of each token in liquidity pools. Uniswap uses an AMM called Constant Product Market Maker Model – represented by the formula X*Y=k. In other words, the amount of ETH available multiplied by the amount of DAI available in the DAI/ETH liquidity pool will always equal a constant. Thus, the price of a token swap is determined by the amount you want to buy. The amount of DAI a swap costs will increase for every ETH token you want.
What is UNI?
The UNI token is a governance token, meaning that people who hold them are involved in the decision-making process of what happens to the protocol. These decisions may include software upgrades, platform changes and transaction fee structure – meaning that the power is in the hands of the applications users. Users with more UNI tokens have more voting power .
The initial distribution of UNI tokens was to members of the community and a gradual release to the team, advisors and investors.
Liquidity providers can also put UNI tokens forward into a liquidity pool and earn rewards in the form of transaction fees and UNI tokens. This demand for UNI tokens has led to explosive price appreciation since its release.
Currently, the recently upgraded and most popular version of the protocol is Uniswap V3. Let’s wander down Memory Lane to see, very simply, how Uniswap has evolved since its creation.
Uniswap V1: allowed the exchange of any ERC-20 token to ETH and vice-versa.
Uniswap V2: ERC-20 tokens could be directly exchanged with each other without the need to convert to ETH.
Uniswap V3: made slight changes to trading efficiency and how lucrative liquidity providing is.
Uniswap is a revolutionary protocol that allows people to trade their tokens, while retaining full custody of their crypto, in a decentralized and permissionless manner. Given the centralized nature of CEXs which are vulnerable to hacks and controlled by a central authority – DEXs are an extremely appealing concept.
Uniswap is currently one of the most popular options and its accessibility and user-friendly interface make it easy for people to switch over from centralized financial applications. This enhanced usability is key if blockchain technology is to change the world as many applications are inaccessible unless individuals are tech-savvy.
How Blockchain Technology Will Revolutionize Healthcare
- Our healthcare systems are plagued with problems and inefficiencies that may be irreconcilable using the current technology.
- Blockchain offers a promising solution to many of these problems, specifically in medical record storage, data monetization, supply chain management and remote health tracking.
- Read on to learn about how blockchain technology could revolutionize healthcare to create a more patient-centric and effective healthcare system.
What is a blockchain?
Blockchains are distributed ledgers that essentially act as a database. The main difference (compared to centralized systems) is that the network is decentralized – whereby the blockchain exists and is operated by many ‘nodes’, rather than a central authority.
Each ‘block’ that is added to the blockchain contains transactions that are validated by the many nodes all over the world. The nature of this decentralized network means that data on the blockchain is immutable, transactions are fully transparent, the system is censorship-resistant, and it is fully accessible to anyone in the world with an Internet connection.
Transactions on the blockchain occur P2P (peer-to-peer) – removing the need for a ‘middleman’ or a third party – which significantly reduces fees and delays in processing data.
Blockchains in healthcare
The healthcare sector is extremely fragmented, with large, separate silos of data making the process of sharing information between institutions very inefficient. When it comes to the health of individuals, it is essential that we have a streamlined flow of data that maximises the chance of positive outcomes.
Blockchain is the perfect candidate! Although some countries (in particular, Estonia) utilise the technology in healthcare to great effect, there is much more room for implementation and innovation.
Let’s take a look at how blockchain could revolutionize healthcare to improve the lives of many people…
Blockchain medical records
One of the primary use cases of blockchain healthcare is in the process of managing and sharing medical records.
The idea here is that instead of having different silos of data, healthcare records are kept on a global blockchain and can be easily and rapidly accessed by healthcare providers. Otherwise, these silos provide an incomplete image of previous health history. Shockingly, it was reported in 2016 that in the United States, the third leading cause of death was medical errors.
If you are seeing a specialist at a private hospital about a health problem, it is not guaranteed that they will be able to access records from your GP due to opening times or use of different operating systems. If this problem reoccurs and immediate treatment is required, A&E may not have accurate records of previous illness and treatment procedures again, due to different IT systems and opening hours. This lack of interoperability and centralized data silos are clearly detrimental to the efficiency and quality of patient care.
Your data could be securely stored on a blockchain to which only you have the private key. In other words, the ACTUAL data is not on the blockchain, but a cryptographic hash that only your private key can decode to view the data.
This key can be given to any healthcare professional so they can access the information they need to provide care. Following visits to any healthcare institution, any diagnoses, prognoses or treatments can be added to your medical record and stored on the blockchain as individual transactions. This represents a completely accurate, immutable, up-to-date and accessible source of truth.
Advantages of using blockchain for medical records
Better patient care – efficiency and interoperability
Using a blockchain for medical records removes large silos of data that are not easily or efficiently shared between medical institutions. This universal, decentralized database will vastly enhance interoperability between institutions and improve the robustness of records.
This gives care providers the complete picture as to what your health history is and will enable them to administer the appropriate treatment that optimizes health outcomes and avoids adverse reactions.
Decentralization, data security and censorship-resistance
Between 2009 and 2017, there were over 176 million breaches of healthcare data – this does not reflect well on the current system of centralized databases. Indeed, increased data security is one of the many advantages of decentralization.
Given that unlike centralized servers, distributed blockchains do not have a single point of failure as the network is run by mane nodes all around the world. Thanks to consensus mechanisms, if a malicious node tries to push through dodgy transactions, this is very easy to spot and this bad behaviour, thanks to game theory, is extremely expensive and unsustainable. The fact data exists across many nodes means that it is almost impossible to shut the network down – which is extremely important for a healthcare system. In addition, immutability of data means that previous records cannot be altered but only updated given the permission of a patient.
Finally, security is bolstered by cryptography as your health records will not be publicly viewable. The only way to ‘unlock’ them is using the private key that only you have, and you can decide who else uses the private key to access your data.
Smart contracts are pieces of code that can be deployed on the blockchain to make decentralized applications (dApps) which can provide major utility. One such use case in healthcare is using smart contracts and dApps to manage insurance contracts.
Accurate medical records prevent insurance disputes and so blockchains allow for a more streamlined and trustworthy process of claiming insurance.
Self-custodianship and data monetization
Another of the major advantages of blockchain and cryptocurrency in general is that users own their own private keys to wallets, mean they have full custody over their data/crypto. This is in stark contract to traditional systems where centralized bodies essentially own your data and money.
If you have full custody over your healthcare data, you are the only individual that can decide who is able to access it. This can only be done with your unique private key.
Another exciting aspect of this is the ability to monetize your own data, rather than large corporations doing so behind your back. You could grant access to your data to research groups within big pharma, which involves a payment to you every time you share data. Alternatively, in addition to monetary payments, sharing data could provide you with discounts or other privileges with regards to healthcare.
This may be particularly desirable in the field of genomic research where the study of an individual’s genome requires ethical consent. Seamless, trustless P2P transactions between individuals and research groups can occur at a very large scale – benefiting the integrity of research as scientists receive large quantities of up-to-date data. Importantly, it gives you the right to benefit from decisions made about your own data.
Blockchain in supply chain management
Improving supply chain management is one of the major use cases of blockchain technology. This is the problem that projects such as VeChain are trying to solve.
At the start of the COVID-19 pandemic, we saw medical supply shortage – owing to inefficiencies in current supply chain management systems.
Bringing blockchain technology to the supply chain makes every stage of the process – from manufacturer to consumer – completely transparent. This grants instant access to accurate data regarding whereabouts and status of goods – increasing supply chain traceability. The record of transactions is immutable and cannot be tampered with.
Understanding exactly where the supply chain is broken allows prompt action to be taken to increase efficiency, reduce waste and keep accurate records of events. Blockchains can also be used for data storage and usage with regards to documents, contracts, shipping notes and barcodes. The process can be streamlined in many different ways.
In recent times, we have seen that some vaccinations and medications require storage in very specific conditions to maintain their efficacy. The transparent and immutable nature of blockchain make verification of storage conditions very simple.
Blockchain and the IoT in healthcare
Remote healthcare is an area of medicine that is growing, whereby sensors measuring patients’ vital signs are connected to the Internet so medical experts can track their health. Changes in, for example, heart rate and blood pressure can be detected early, and an appointment arranged, or treatment prescribed to ‘get ahead of’ health scares.
Where does blockchain come into this? Well, this area of science overlaps with some of the previously mentioned use cases. IoT-based monitoring could vastly improve health outcomes, however, data security is of utmost importance when it comes to such sensitive information.
Blockchain provides a decentralized database whereby data is encrypted and only viewable using your private key, very secure, censorship-resistant, immutable and can keep an accurate record of many individual physiological readings. Such information is extremely personal and should only be seen by the individual and other professionals that they trust to provide care based on readings.
Blockchain will be vital in implementing such technology on a wider scale as there are too many risks and inefficiencies associated with storing such data on centralized systems.
Healthcare is just one of the industries that blockchain will revolutionize in years to come.
Compared to current medical data systems, a decentralized blockchain provides many benefits in security, accessibility, data-ownership, censorship-resistance, interoperability and general efficiency.
Together, this will create a patient-centric model of healthcare whereby data is accurate, reliable, easily transferable between institutions and fully owned by the individual. Not only will this improve patient care, but it will allow individuals to benefit from the ability to keep their data secure and monetize it at their own discretion.
An Overview of How Blockchain Can Change the Music Industry
- The growth in adoption of blockchain technology has seen it infiltrate many industries – including music.
- The many advantages of blockchain networks over centralized systems can and are being leveraged to improve the lives of people involved in the music industry.
- Read on to learn about how blockchain can revolutionize music and why this will majorly benefit both artists and listeners.
What is a blockchain?
Blockchains are distributed ledgers that essentially act as databases. The main difference (compared to centralized systems) is that the network is decentralized – whereby the blockchain exists on and is operated by many ‘nodes’, rather than a central authority.
Each ‘block’ that is added to the blockchain contains transactions that are validated by many nodes all over the world. The nature of this decentralized network means that data on the blockchain is immutable, transactions are fully transparent, the system is censorship-resistant, and it is fully accessible to anyone in the world with an Internet connection.
Transactions on the blockchain occur P2P (peer-to-peer) – removing the need for a ‘middleman’ or a third party – which significantly reduces fees and delays in processing data.
Blockchain in music – why is it necessary?
There are many problems with the way in which the music industry currently operates.
For example, there is no single database that records ownership of songs, copyrights and any other potentially relevant metadata such as contributors and equipment used. Using blockchain as a universal, decentralized database will keep a permananent and accurate record to streamline use of musical content and increase transparency.
Furthermore, music royalties are unfairly distributed in the current system, with many contributors often receiving inappropriate payment years late. There are also many copyright issues that artists are not able to control and a lack of incentive for listeners to continue to support artists. These issues primarily come down to the presence of many intermediaries in music – all of whom take a large slice of the pie of success.
Advantages of blockchain in music
Blockchain aims to solve many of the above issues by virtue of its decentralized nature – removing intermediaries and creating a trustless, P2P line of communication directly between artists and fans.
The idea is that blockchain gives power back to the people that matter (artists and listeners) – improving financial outcomes and creating a vastly more streamlined process. There are several other benefits to using blockchain in music such as creating additional revenue streams and allowing the use of NFTs for very creative innovations that we will also cover.
Removes intermediaries and gives power to artists
A blockchain-based trustless system will allow for decentralized management of registries, transactions and negotiations within the industry. This global registry of music will make music creation and provision much easier for all involved – benefitting artists and listeners.
In essence, blockchain allows for a direct connection between artists and fans. There are no ‘middlemen’ involved and creators can create a much more intimate relationship with their followers.
Use of blockchain will allow fairer distribution of music royalties. Although music streaming follows a Pareto distribution (whereby a small number of top artists are streamed the most), blockchain can improve the landscape for up-and-coming creators. Promotion from large music institutions, such as Spotify, play a large role in the success of artists. Blockchain could eliminate the need for such intermediaries and allow for greater opportunities for small artists.
According to the IBM Blockchain Blog, there is an estimated USD 250 million of royalty money earned but not distributed to its rightful payees.
However, we should not forget about the other people involved in song production. Blockchain can track every individual that contributes to a song so they receive their fair share of royalties, almost immediately. This includes producers, sound engineers, the artist(s) and any other person that has input.
Smart contracts will allow for automatic distribution of royalties to the appropriate people. This overcomes a major problem in the music industry, whereby contributors receive poor compensation after months or sometimes years.
Simplifying the process
Blockchain also allows for a simple and streamlined process of uploading music and earning royalties. When music is uploaded to the decentralized database, the artist has more control over its distribution and the blockchain opens up a direct channel between artist and listener. Furthermore, the immutable records on the blockchain provide a single source of truth. This mitigates disputes in music rights holder and copyright issues as documents are accurate and completely transparent.
Certain blockchain projects may allow artists to receive 100% of generated revenue in sales, streams and tips from fans. This system is considerably better than using 3rd parties as transactions can be settled near-instantly, anywhere in the world, with low fees and at any time of day. This is in contrast to centralized systems which may impose international borders, require high fees and have closing times.
Listeners could profit
Blockchain platforms often reward network participants for contributing to and maintaining the network. Financial incentives are often in the form of the blockchain’s native token, which may be a governance token that allows users to be involved in the blockchain’s decision-making processes. Alternatively, tokens tend to appreciate in price and so users are financially rewarded for involvement in the network.
Other revenue streams
Using blockchain in music also opens up the opportunity for artists to have additional revenue streams. Smart contracts could allow instant, automatic revenue distribution to appropriate parties involved in merchandise sales, live performances and licensing. Smart contracts enforce the terms of contracts without the need for a intermediary.
NFTs (non-fungible tokens)
The rate of innovation in the blockchain world is mind-blowing, and NFTs are the basis of many new ideas that we could see come to the music industry.
Ownership of particular NFTs, as decided by artists, may allow the most loyal fans special access to exclusive services such as a merchandise store and online/offline gatherings.
NFTs could also be used to represent concert tickets, preventing reselling and empowering artists and their fans. Token prices can be set and limitations on the ability to resell at particular prices included. Even if reselling is allowed, distribution of revenue can be pre-determined.
The music industry is just one area that blockchain will revolutionize in years to come.
By removing intermediaries and creating a decentralized, trustless network of P2P interactions, we give power back to artists and listeners. Blockchain will give artists a fair shot at spreading their music and earning what they are worth.
The process of delivering music will also be made much easier, as a blockchain systems that are open all day, accessible from anywhere in the world and cheap to use is far more frictionless than centralized alternatives.
A fairer and more streamlined system will benefit many people at the heart of the music industry, from artists, to instrumentalists, to sound engineers, and to fans and listeners.
How Will Blockchain Transform the Real Estate Industry?
- Blockchains are revolutionizing many real-world industries, including music, supply chain and finance.
- Real estate is another area of life that could benefit from implementing blockchain technology.
- Read on to learn about how blockchain can vastly improve real estate using smart contracts to create a more streamlined system that will benefit both buyers and sellers.
What is blockchain?
Blockchains are distributed ledgers that essentially act as databases. The main difference (compared to centralized systems) is that the network is decentralized – whereby the blockchain exists on and is operated by many ‘nodes’, rather than a central authority
Each ‘block’ that is added to the blockchain contains transactions that are validated by many nodes all over the world. The nature of this decentralized network means that data on the blockchain is immutable, transactions are fully transparent, the system is censorship-resistant, and it is fully accessible to anyone in the world with an Internet connection.
Transactions on the blockchain occur P2P (peer-to-peer) – removing the need for a ‘middleman’ or a third party – which significantly reduces fees and delays in processing data.
Blockchain in real estate – why is it necessary?
Real estate is a complex industry, and many people are naïve to the process of buying and selling property. Thus, people go through intermediaries that incur large fees and are representatives of centralized entities.
Blockchain allows for decentralization and trustlessness at every level of real estate. This permanent, single source of truth comes with many benefits for all parties involved in real estate in terms of transactions, removal of intermediaries, document management, liquidity, low fees and tokenization of assets.
Let’s pick apart all of the major benefits of using blockchain in real estate…
Smart contracts in real estate – no need for intermediaries!
Smart contract functionality can make many processes within real estate extremely efficient compared to centralized alternatives.
For example, leases or sales are executed automatically according to the pre-determined rules of the contract, with payments released to the appropriate parties instantly. Smart contracts connect buyers and sellers directly without the need for a ‘middleman’ – which is advantageous for everyone involved.
Firstly, lack of intermediary fees means sellers profit and buyers save more money. Additionally, the blockchain runs 24/7, meaning there are no closing times during which business cannot be done. There are also no international restrictions and cross-border transactions can occur seamlessly.
The blockchain is transparent and completely trustless, meaning that funds are only transferred when smart contract conditions, that all parties are happy with, are met. This decentralized system of payments using smart contracts will make buying and selling cheaper, streamlined, accessible and trustworthy.
Tokenized real estate investments
One of the most significant uses of blockchain in the real estate industry is the ability to tokenize assets.
This simply refers to the digitization of real estate assets, whereby tokens on the blockchain can represent fractional ownership of a single asset. This makes the real estate market much more accessible to smaller investors as the barrier to entry is much lower.
Tokenization also makes it easy to view transaction history of assets on the blockchain and facilitates streamlined trades between buyers and sellers. This takes us to a major advantage of tokenization – liquidity.
Real estate assets are traditionally illiquid as the process of selling is arduous and can take a long time. Fractional shares are cheaper, much more easily tradeable, and so increase the liquidity of the real estate market. As we will cover shortly, contractual agreement and identity/financial verification is also much smoother on the blockchain. This, and the fact that a whole property does not need to be sold makes buying and selling real estate significantly easier, more efficient and more accessible.
There is a wealth of important information in real estate that the blockchain could be a secure home to as records are reliable and cannot be altered.
Land titles are often kept offline, however, blockchain could act as a digital land registry which stores ownership documents, signed by digital signatures that are unique to every individual. The blockchain can also act as a single source of truth as to who owns particular assets, avoiding disputes given the fact that every single action someone takes on-chain is time-stamped, permanently recorded and fully transparent.
Sensitive information that is necessary to buy real estate can also be securely stored on the blockchain and through cryptography, only your unique private key can unlock this data vault. This may include credit checks, identity information, income documents and contracts. Storing and being able to verify such information on the blockchain is vastly more practical as documents can be lost, damaged or fraudulently manufactured. This single repository of data contracts the current data silos that clog up verification processes and will improve efficiency of verification, negotiation and deal settlements.
Blockchain has the potential to have a positive impact on real estate.
One of the main advantages is the absence of intermediaries, as transactions can be made P2P( peer-to-peer) in a trustless and transparent way though automatic smart contract execution.
Importantly, the ease and efficiency of buying and selling could be drastically improved by aggregating data silos into a single, decentralized database and allowing for reliable and fast verification of relevant details.
Blockchain could also increase the accessibility to small investors who, through tokenization of assets, will be able to participate in a new market to increase the diversification of their portfolios.
Blockchain Will Improve Supply Chain Management
- Supply chains are in disarray and solutions are required to fix the inefficient, centralized systems we currently have in place.
- Blockchain has the potential to improve many aspects of the supply chain, and iron out kinks that have appeared in recent times.
- Read on to learn about why blockchain should be central to supply chain management and the many benefits of doing so.
What is blockchain?
Blockchains are distributed ledgers that essentially act as databases. The main difference (compared to centralized systems) is that the network is decentralized – whereby the blockchain exists on and is operated by many ‘nodes’, rather than a central authority
Each ‘block’ that is added to the blockchain contains transactions that are validated by many nodes all over the world. The nature of this decentralized network means that data on the blockchain is immutable, transactions are fully transparent, the system is censorship-resistant, and it is fully accessible to anyone in the world with an Internet connection.
What is supply chain management?
Supply chain management can be thought of as the processes in place that allow a particular product to make its way from one point to another and ultimately, to a consumer. There are many parties that make up a supply chain, including the raw materials, manufacturers, distributers, retailers and consumers.
It is vital that every party contributes to a streamlined process so as to avoid consumer dissatisfaction and wasting time and/or money.
Managing a supply chain is difficult given the independent operations of the involved parties, however, effective management systems are essential to keep the world going round.
Why do we need blockchain in the supply chain?
The COVID-19 pandemic has highlighted many issues with current supply chain management systems. Throughout the pandemic, right up until today, we have seen stock shortages – from food, to water, to basic house utilities.
Supply chains are often very inefficient, lack transparency, have outdated data management procedures, are cost-inefficient and do not prevent fraud very effectively.
Blockchain can revolutionize this real-world industry by solving the problems mentioned above by virtue of a transparent, accessible, decentralized ledger of information.
A large portion of low-level supply chain management is done manually and shifting such processes onto a blockchain will vastly improve overall efficiency. By moving documentation, transactions, supplier details, location tracking, contracts and any other relevant data onto a blockchain, supply chains can have a single source of truth that is easily accessible, extremely reliable and immutable.
Large, complex transactions can occur on-chain without the need for intermediaries – which is both time- and cost-effective compared to manual handling of business with third party involvement. Smart contracts will allow for trustless transactions between parties, with funds instantly released upon matching the conditions set out in the smart contract code.
Let’s take a food supply chain, which has found a new large-scale supplier of fresh meat. Smart contracts can facilitate the transfer of payments upon receival of produce, rather than manually handling financial transactions that are prone to human error and time-consuming.
Details of this new supplier could also be stored on the blockchain and fetched very easily, again, removing time and cost requirements of having humans keep such records. Data stored on the blockchain is extremely secure, reliable and up-to-date, as every action the supplier takes in the supply chain process is recorded (permanently) on-chain.
A single, decentralized repository of data that is highly reliable and transparent allows compliance of retail and manufacturing standards to be verified as every step of the supply chain is visible and auditable.
Increased supply chain transparency
Increased supply chain transparency and traceability are closely related to overall improvements in efficiency that blockchain can bring.
Since every step of the supply chain is visible, it is easy to track product whereabouts to identify points of inefficiency in the chain. Identifiers such as barcodes and RFID tags mean that supply chain managers can track every single product from the start to the ned of the supply chain. This allows managers to easily identify the point at which products may have become damaged or lost.
As we mentioned previously, records on the blockchain are immutable, so parties involved in the supply chain cannot manipulate data. Those responsible for each part of the supply chain are held fully accountable for their contribution or lack thereof.
Trust can be established
Trust is vital in supply chain for many different reasons between many different parties. For example, the consumer needs to trust the retailer that a product is what it purports to be. A manufacturer has to trust suppliers that materials meet safety standards and conform to regulations. Retailers have to trust distributors that products have been transported and stored appropriately.
Blockchain allows for this trust to be formed at every level of the supply chain as data cannot be falsified or altered.
Let’s take a particular medication that has specific manufacturing and transport requirements. The raw materials exists on the blockchain and are visible to verify. Information on the manufacturing procedure and final product can be verified. During transport, the blockchain can communicate with temperature sensors to ensure appropriate storage, often at sub-zero °C temperatures. This ability of blockchain to communicate with and verify real-world events is possible thanks to oracles (https://ontheblocks.io/what-are-oracles-and-why-are-they-important-for-blockchains/). Blockchain may also communicate with other sensors to track delivery vehicles, or the weight of a particular object. Together, the benefits to supply chain managers are vast as they can trust that certain events have actually happened.
Information can be fed back to smart contracts which then deal with payment processing, contractual negotiations or issue reports to parties involved in the supply chain. This is an easy way to allow for streamlined communication between supply chain managers and those on the ground to convey their requirements.
Prevents fraud and counterfeit goods
In 2018, counterfeit goods cost the global economy roughly $323billion and many enterprises are very keen to employ such systems that prevent fakes of their products.
Again, the ability to prevent fraud and counterfeit goods is a result of the increased transparency that blockchain brings to the supply chain. This is a particularly beneficial feature of blockchain for sellers of high-value good such as cars and diamonds.
The ability to track goods and materials across every part of the supply chain without any manipulation of data makes spotting counterfeits much easier than in today’s system.
Supply chains are vital to many industries…
Supply chains are vital to many industries, some of which would reap massive rewards by implementing blockchain technology,
Food supply chains are behemoths. It is important that supply chain managers can be honest to consumers about the content of food and where they were sourced from. This extends worldwide as, for example, coffee beans are produced on other continents and transported over. Transparency over their source and processing procedures increases consumer confidence, with companies benefitting financially from evergreen sales.
Medical supply chains are also extremely important with regards to equipment, drugs and pharmaceuticals. At the start of the pandemic, there were shortages in PPE equipment – a blockchain system may have prevented such inefficiencies. As we mentioned, blockchain tracking allows transparency over the appropriate manufacturing processes and transport conditions.
Food and medical supply chains would be the most obvious beneficiaries of blockchain technology. However, there are many other industries that could benefit from implementing this revolutionary technology:
- Cars and transport
- Any retailer
Blockchain could revolutionize many real-world industries by improving their supply chains.
There are projects that aim to do so, and although they have seen significant adoption, there is a long way to go before blockchain is at the centre of most supply chain management systems.
Blockchain would improve supply chain efficiency by digitizing many manual tasks (which has both time- and cost-based benefits), increase transparency and traceability at every level, and prevent fraud and counterfeit goods which can cost industries billions of dollars every year.
Smart Contracts for Dummies
- Smart contracts are one of the most important features of blockchain technology.
- It is important to understand smart contracts as they underly most of the utility that blockchain can provide to real-world industries.
- Read on to learn about what smart contracts are, how they work, why they are so great and some examples of blockchains that support them.
What are smart contracts?
In their simplest form, smart contracts are pieces of code that sit on top of a blockchain that outline conditions and execute a function.
This smart contract code is used to created dApps on the network – these are central to the utility that blockchain can provide to real-world and digital industries.
Smart contracts are deployed on the blockchain and exist on every node of the network – this decentralization allows for censorship-resistance of smart contracts. Once code is deployed on-chain, its function is executed once pre-determined conditions are met. There is no need for human input as code execution is automatic and so intermediaries and middlemen become obsolete.
Smart contract features are very unique, come with many benefits and open the door to many potential use cases in both the physical and digital worlds.
How do smart contracts work?
The smart contract code outlines a set of conditions, often using “if/when… then…”, that is run on the distributed blockchain network.
Users of the blockchain interact with smart contracts to meet these conditions and complete some form of transaction. A very basic example: you are buying a digital concert ticket off of your friend. A smart contract will only execute a transaction when it has proof that the payment and tokenized ticket are available. If you withdraw crypto and lack the adequate funds to pay for the ticket, the smart contract will terminate the transaction.
This represents a very safe, trustless, fast and cheap system of transacting.
Once smart contracts are deployed on the blockchain, the code is set in stone and cannot be altered. In other words, it is immutable (unless the code includes a self-destruct function). This smart contract code is usually open-source and completely transparent.
Benefits of smart contracts
This unique technology, although simple, could significantly benefit many different industries for various reasons. Most importantly, smart contracts are:
Decentralized: smart contracts exists on every node of the network and so there is no single point of failure that could censor or shut down the code.
Trustless: The smart contract code is publicly available to view and there is no involvement of intermediaries. This means that users can enter a smart contract agreement with someone they don’t know without the need to trust them or any third party. By checking the code, they also know the exact conditions and outcomes associated with the smart contract. Thanks to blockchain validators and the lack of a central authority, data used in smart contracts is extremely reliable and accurate.
Automated: As we covered, the code executes automatically, without the need for human input beyond designing the smart contract. The makes transactions faster, more accessible to those across the world without access to financial services, and cheaper as there are no third parties (i.e. banks) who may demand a large fee.
Flexible: The innovative nature of dApps that have been and will be designed using smart contracts is mind-bending. For example, smart contract have been used to design completely novel financial instruments in the world of DeFi (decentralized finance). Such dApps are providing life-changing opportunities to EVERYONE – even those in third-world countries without access to banking. The rate of innovation in the space is fantastic and smart contract capabilities are providing the platform from which world-changing applications are being built.
Immutable: The smart contract code itself is immutable and can be thought of as tamper-proof. In addition, every smart contract transaction is permanently stored on the blockchain and cannot be altered. This is very useful in, for example, enforcing contractual agreements and avoiding financial disputes.
Smart contract limitations
There are two primary problems with smart contracts which are not necessarily specific to this technology.
Given that humans design the smart contract code, there will always exists the possibility that a bug exists that a hacker can exploit. However, reputable dApps and smart contract platforms go through rigorous testing procedures to avoid hacks.
Another issue is the adoption and usability of dApps. While this is increasing, centralized systems are somewhat more convenient for most industries. We need to make dApps easy-to-use to allow for global adoption of decentralized smart contract technology.
Smart contract use cases
Despite their limitations, smart contracts are being used extensively in the digital world and increasingly in real-world industries, too. There are also some extremely exciting potential use cases that could change the landscape of how industries operate and even how we live our lives…
We like to split smart contract functionality into DeFi and non-DeFi use cases.
DeFi use cases
- Crypto wallets
- Borrowing/lending protocols
- DEXs (decentralized exchanges)
Non-DeFi use cases
- Social media
- Supply chain
- DAOs (decentralized autonomous organizations)
- Real estate
The following blockchains support smart contracts…
There are a range of smart contract platforms that have their own ecosystem of dApps that are becoming increasingly popular, particularly in the DeFi realm. These platforms include:
Although the idea of smart contracts has been around since the 1990s, their implementation on blockchains has only taken off in recent years.
While the total market capitalization of smart contract platforms is extremely high (around $660 billion as of the beginning of October 2021), there is much more room to grow.
Smart contracts will continue to change the digital and physical worlds through decentralization, trustlessness and automation. The rate of innovation in the space is staggering and will continue to bring about new DeFi and non-DeFi use cases that will change the lives of many people.
Revolutionizing Social Media Using Blockchain Technology
Despite astronomical adoption in the last decade, social media platforms are plagued with issues.
Censorship, data security and content quality are just some of the issues with today’s centralized social networks.
Read on to learn about how blockchain and decentralized social media platforms can revolutionize the industry to benefit those that matter – the users.
What is blockchain?
Blockchains are distributed ledgers that essentially act as databases. The main difference (compared to centralized systems) is that the network is decentralized – whereby the blockchain exists on and is operated by many ‘nodes’, rather than a central authority.
Problems with the social media industry
The main problem with the social media industry is that large, centralized corporations have a huge influence on today’s society and their behaviour is often inappropriate considering this level of power.
They have full control of the information that we all consume, which influences how we see and act in the world. There are many high-profile cases of individuals and pieces of content that have been permanently banned from social media, whereby users have no say in the matter. This era of censorship of individuals and content that social media companies deem ‘dangerous’ is a slippery slope. User also get little say when it comes to their own data, and it is often sold by these companies for financial gain.
In the hope of preserving free-speech and giving more power to users, blockchain-based social media applications have been developed.
How exactly can such dApps (decentralized applications) solve the problems of the social media industry?
Benefits of using blockchain in social media
The distributed nature of blockchain means that the entire social network will be stored on many computers (nodes) around the world and not one, centralized system.
Having a centralized system means that there is a single point of failure, and the network is at risk of being shut down by malicious actors. Using blockchain would make social media platforms more censorship-resistant in that it is almost impossible to shut the blockchain down.
The decentralized nature of blockchain also means that both content and individuals cannot be banned or censored from the network. There is no small group of people with specific agendas and financial incentives to dictate the fate of the network, but a democratic governance system (more on this shortly).
While maintaining free speech is the main advantage of blockchain social media, the ability of anyone to post anything obviously gives rise to the problem of truly inappropriate content being posted. This is a problem that dApp developers have to consider, however, this problem is not exclusive to decentralized social media as malicious posts/interactions can happen on centralized platforms and in-person.
This refers to the fact that once something happens on the blockchain, it cannot be undone, and a permanent record is kept.
This is particularly useful for content and ties in with censorship-resistance. Content cannot be deleted and is publicly available to view forever. This means that no central authority can deem content that does not subscribe to their political/philosophical/religious beliefs as ‘dangerous’.
Data security and custodianship
Centralized social media companies have a massive repository of your data which is vulnerable to an attack and is sometimes used unethically by companies for profit.
In contract to a single point of failure/control, the blockchain’s decentralized ledger stores data across many nodes all over the world.
Firstly, the cryptography associated with blockchain technology keeps your data and interactions with other users much safer, with a greater degree of privacy. Secondly, YOU have full custody over your own data, rather than it being controlled by a central body. So, instead of companies selling your data without your permission, you can monetize your own data at your own discretion.
In addition to monetization of your own data, blockchain-based social media platforms would also allow for users to earn money just by using the application!
More specifically, contributing to the network can earn users rewards in the form of the network’s native cryptocurrency.
Given the amount of time that people spend on social media, it is essentially an alternative reality that most of us live in.
Like any other reality, we would benefit from democratic decision-making processes, rather than a central authority dictating the fate of the network. Decentralized blockchain platforms allow for community governance, whereby the users who use the platform and hold the native cryptocurrency are involved in decision making.
Open-source code on the blockchain is vital for transparency – allowing users to inspect the mechanisms determining the content that they consume.
This creates an ecosystem of trust, whereby the code can be viewed to confirm that a blockchain social media platform is what it purports to be.
Social media needs major renovations, and blockchain definitely has the tools to do so.
The agendas apparent within centralized organizations is plaguing the industry with the feeling that free speech is being restricted. One body should not be able to decide what is ‘mis/disinformation’ and worth of censorship. Instead, a community-governed approach is vastly more in keeping with the values of modern democracies.
The fact that blockchain will allow such governance, protect data privacy, empower users with their own data, stop censorship and be resistant to shutdown makes it an extremely strong candidate for revolutionizing the industry.
The Complete Guide to Blockchain Gaming
- Of the real-world industries that blockchain will disrupt (https://ontheblocks.io/how-blockchain-will-change-the-world/), gaming is quite far along the road and is reaping the benefits of implementing this revolutionary technology.
- Although blockchain is already improving the user experience for millions of gamers around the world, it still has a lot of room to grow before we see true, global adoption.
- Read on to learn about how gaming can revolutionize the gaming industry, the amazing benefits to gamers and some examples of very popular crypto games.
What is blockchain?
Blockchains are distributed ledgers that essentially act as databases. The main difference (compared to centralized systems) is that the network is decentralized – whereby the blockchain exists on and is operated by many ‘nodes’, rather than a central authority.
The gaming industry is a behemoth – how does blockchain fit in?
According to a report by techjury, the global gaming industry is set to be valued to $256.97 billion by 2025 and currently, over 2.5 billion people around the world play games.
When considering global blockchain adoption, gaming could be the straw that breaks the camels back and cause an explosion in usage of the technology. Given the advantages of using blockchain in gaming, it is entirely possible that blockchain and crypto capture a large portion of the gaming market capitalization.
In the scenario – everyone wins! Gamers benefit enormously from Play-to-Earn, owning their in-game items and having a say in game development, while the rest of the crypto community can enjoy floods of new money and potential investors entering the market.
Blockchain is set to send shockwaves through the entire gaming industry with some of its amazing features. After considering the following benefits of crypto games, the question really becomes: why wouldn’t someone rather game on the blockchain?
Games built on blockchain platforms often allows users to benefit financially from participation in the network. Financial incentives come in two forms: earning crypto through gameplay and making money from NFTs that represent in-game items.
Through a combination of the above income streams, some gamers have been able to earn a full-time income – all they needed to do was play and collect items!
NFTs and in-game items
Let’s start with some basics – what are NFTs? NFTs, or non-fungible tokens, introduce scarcity to the world of crypto as they are unique. Unlike 2 Bitcoins which are equal in value, are cryptographically distinct and can differ in value.
This means that NFTs can be used to represent in-game items that gamers collect over time. Blockchain allows the projection of value onto these intangible assets.
The immutability of blockchain means that a game might limit the number of a specific collectible – this is set in stone and such a restricted supply evokes scarcity. Thanks to cryptography, an item cannot be faked, and it is easy to verify whether it is an original or not. This inability to create fraudulent replicas means that the demand for and lack of supply of original items can lead to impressive price appreciation of the NFTs.
Immutability also refers to the permanent record of ownership that is stored on-chain which cannot be manipulated. The decentralized nature of blockchain allows for every action taken on the network to be immortalized in a fully transparent and accurate manner – there can be no disputes over NFT ownership.
Most importantly, however, you have full custody over your NFT in-game items. This is in contrast to traditional games which store your items on a centralized server. In effect, they own the items that you invested time or money to attain. So, not only is there a single point of failure that threatens your hard-earned items, but you also have very little control over what you can do with them.
In comparison, in-game items in the form of NFTs can be stored in personal crypto wallets which are extremely secure and allow individuals to trade them on the blockchain at their own discretion. Smart contracts (https://ontheblocks.io/smart-contracts-for-dummies/) allow trustless exchange of in-game NFTs for crypto between individuals that do not need to know one another. They just have to meet the conditions of a smart contract which automatically executes transactions.
Interoperability of crypto games
Interoperability is vitally important in blockchain and crypto, particularly in the decentralized gaming space.
If a game shuts down, you would still have your NFT in-game items, and they would likely be interoperable with other blockchain games. Given that your wallet stores your NFTs, you are free to conduct transactions on different blockchains.
Game development and user input
Centralized systems employ a top-down governance approach, where a single authority is responsible for decision-making. Contrarily, blockchain governance is bottom-up as the users of a network/dApp, who own the native tokens, are involved in determining the fate of it. Thus, developers and users can have an open relationship, whereby gamers can provide valuable feedback as to how games could be improved.
Ideas can be proposed and the community, who have the game’s best interests at heart, collectively decide whether changes are implemented.
Crypto games have massive potential
As of the start of October 2021, the blockchain gaming market capitalization is a staggering $14 billion. However, the massive value in ‘traditional’ gaming that could migrate into crypto suggests the potential for an explosive growth in adoption.
There are so many gamers (and games) worldwide that could benefit from moving onto the blockchain. Mass adoption would have an additional, interesting effect on blockchain platforms. Games require an enormous number of transactions to occur for them to function and given the need for the blockchain’s native token to pay for transaction fees, we could see massive demand for such tokens. Consequently, there would likely be significant price appreciation for the tokens of the blockchains upon which games are built.
Extremely popular examples include Axie Infinity, Decentraland and The Sandbox which, collectively, are host to hundred of millions of dollars of volume every day.
Although blockchain gaming is a multi-billion-dollar industry already, the potential market is relatively untapped.
Although mass adoption of blockchain platforms for game development has indirect benefits for holders of the blockchain’s token, the major beneficiaries would be gamers.
At the end of day, why wouldn’t gamers opt for Play-to-Earn games, whereby they are monetizing their time, rather than having it controlled by a central authority? We all need to spread the word to facilitate this mass adoption that would see blockchain completely change the gaming landscape forever.
Polkadot: The Blockchain of Blockchains
- Interoperability between blockchains is going to be vital for the global adoption of this technology, however, at present, most projects operate independently.
- Polkadot provides a solution to this. The project aims to provide the foundation for a decentralized web of blockchains that will significantly benefit everyone involved.
- Read on to learn about what Polkadot is, how it works and why it is so important for the future of blockchain and crypto.
What is Polkadot?
Polkadot was first conceptualized in a white paper published in 2016 and eventually led to a project called Kusama in 2019. Kusama was a pre-cursor for the Polkadot network, which was first launched in May 2020.
Polkadot can be referred to as “the blockchain of blockchains” as it aims to create a decentralized web of blockchains that can interact with one another. Thus, interoperability is at the heart of Polkadot’s ambition as it aims to facilitate an Internet of blockchains, instead of having independent networks that can’t talk to each other.
Polkadot is a multi-chain network that provides a solid, secure foundation that will act as a platform upon which developers can build innovative dApps (decentralized applications) with ease. Rather than developers creating and building on competing blockchains, Polkadot would increase their time- and cost-efficiency by acting as the blockchain standard.
Their ultimate aim is to decentralize our data, removing the need for centralized authorities that represent a single point of failure. This network will be fully controlled by its users and bring forth a trustless means of interacting cross-chain to remove the corruption of large institutions from our lives.
Meet the Polkadot team
The Polkadot team is extremely impressive. It was founded by Dr. Gavin Wood, Robert Habermeier and Peter Czaban. The most notable name here is Gavin Wood, who co-founded was the CTO of Ethereum before leaving in 2016. Dr. Wood is an impressive individual and pioneer within the blockchain space – inventing the Solidity smart contract programming language, Proof of Authority consensus mechanism and Whisper.
Polkadot is the primary project of the Web3 Foundation, which was formed by Wood shortly after he left Ethereum. The Web3 Foundation provides grants for development of applications within the ecosystem and aims to facilitate the decentralized web that they are striving towards. Wood, alongside former Ethereum employee Jutta Steiner, also formed Parity Technologies which is involved in Polkadot’s development.
How does Polkadot work?
What is the Polkadot Relay Chain?
The central chain that holds the keys to the kingdom. It is responsible for all vital processes, which include maintaining security, reaching consensus (https://ontheblocks.io/smart-contracts-for-dummies/) and facilitating cross-chain interoperability. The relay chain is maintained by validators who stake the native DOT token and reach consensus through a “Nominated Proof of Stake” (NPoS) mechanism. More on this shortly.
What is a Polkadot Parachain?
Parachains are separate to the main Relay Chain and are basically blockchains that run parallel to the Relay Chain. Despite this, they connect to the Relay Chain and can utilize its security and consensus-reaching features. So, any blockchain that decides to connect with Polkadot operates beside the Relay Chain as a Parachain. In order to participate in the Polkadot system, they have to lease a slot on the Relay Chain through what is called a Parachain slot auction.
Say we have an extremely congested road that happens to require a lot of money to be spent on gas (or in blockchain, transaction fees). Parachains can be visualised as separate roads that ease congestion, vastly improve how many cars can pass through and make it much cheaper to travel.
The great thing about Polkadot is its flexibility. Parachains can have their own governance structures, PoS consensus mechanism and also carry out any specific ‘job’ they want. For example, a Parachain could solely provide smart contract functionality, focus on identity management or serve a range of other purposes. Vitally, Polkadot allows blockchains to specialize in a particular function, rather than having to lose functionality by making trade-offs as they develop their own infrastructure.
Parathreads are extremely similar to Parachains but operate slightly differently. For example, rather than leasing a slot on the Polkadot network, they subscribe to a pay-as-you-go model.
Blocks that a Parachain produce have to be able to be understood by the Relay Chain. Collator nodes are the delivery drivers that transfer blocks from Parachains to the Relay Chain and are extremely important to the functionality of Polkadot’s “blockchain of blockchains”. When blocks are delivered to the Relay Chain, it standardizes the data so everyone in the system can understand it.
Interoperability is Polkadot’s USP, and it is made possible by bridges. These allow Polkadot to connect with and talk to other networks such as Bitcoin and Ethereum, which are usually stand-alone systems. Again, this interoperability between blockchains will be central to global adoption of the technology. Given that blockchains will have specialized functions, these bridges are truly revolutionary and allow for innovative services through combining blockchain capabilities.
Together, this bedrock that blockchains can build on forms a fantastically efficient system that could revolutionize the space. Parachains take the functional stress off the Relay Chain, which can maintain security, in a decentralized and scalable manner. In fact, it is thought that Polkadot could eventually conduct up to 1,000,000 TPS – WOW!
The DOT token
Polkadot’s DOT token has three functions: staking, governance and bonding.
The consensus mechanism that Polkadot uses is a variation of PoS called Nominated PoS. When DOT holders stake their tokens, they are responsible for validating transactions from Parachains to keep the network secure. Nominated PoS allows stakers to pick (or nominate) the validators they trust to process blocks. This differs slightly from delegated PoS in that nominators can also lose their stake – this game theory incentivises nominators and validators to maintain network reliability and security.
DOT holders are involved in the network’s community-driven governance. Rather than a centralized, top-down decision-making framework, blockchain networks such as DOT deploy a bottom-up, democratic approach. Thus, DOT holders, who have the projects best interests at heart, are responsible for decision making regarding software upgrades, fee structures and any other operational process.
Finally, DOT tokens can be used for “bonding”. This is when DOT holders can add new Parachains to the network
Before wrapping up, we had to mention Kusama – the experimental blockchain for Polkadot. Kusama was originally used to test for major issues prior to launch of the mainnet. Now, with its low barriers to entry, it has become the testing ground for Polkadot – allowing the developers to perfect any implementations before launch.
Polkadot is one of the most exciting smart contract platforms in all of blockchain. The team have devised a novel and potentially revolutionary concept that is constantly growing in terms of adoption.
Polkadot could be the key to global adoption of blockchain technology. Interoperability between blockchains is essential to allow communication between networks, increase the rate at which innovative dApps can be developed, and offer unique services through combining the functionality of these chains.
Polygon (MATIC) – Ethereum’s Internet of Blockchains
- For blockchain to become globally adopted, interoperability between networks and scalability are essential. The community would be best served if protocol worked together harmoniously, instead of fighting for dominance.
- In simple terms, Polygon provides a solution to such problems as it allows blockchains to talk to each other (interoperability) and increases the speed of transactions (scalability).
- Read on to lean about what Polygon is, how it works, the function of the MATIC token and why the project is a game-changer in the blockchain space.
What is Polygon (and Matic)?
Polygon was originally called Matic Network and was a layer-2 scaling solution for the Ethereum blockchain. As use of the Ethereum blockchain exploded, gas fees became so expensive to the point where the network was unusable for many people. Additionally, the network has become clogged over time, with an enormous demand for transaction execution that far exceeds the average throughput of around 15 on Ethereum.
It was at this point in 2017 that the Matic Network came along to solve these issues. They deployed a protocol that utilised two methods to increase transaction throughput. These were the Matic PoS (Proof of Stake) side chain and Plasma chains. These process transactions away from the Ethereum blockchain, easing the load on it and increasing transaction speed while reducing transaction fees.
After over 2 years of development, the Matic mainnet was launched in 2020, which was extremely convenient as transaction fees were starting to sky-rocket even higher.
Despite the success of the Matic Network, in 2021, they decided to expand their protocol and rebranded themselves as Polygon. Instead of solely acting as an Ethereum scaling solution, Polygon would provide the platform for building blockchains and scaling solutions that are compatible with Ethereum.
Polygon described themselves as a “Swiss army knife for Ethereum scaling and infrastructure development” and we believe it will fundamentally revolutionize the Ethereum ecosystem. Not only will make the creation and implementation of scaling solutions very easy, but it will allow Ethereum-compatible blockchains to communicate.
This provides individuals with a much more pleasant user experience. Furthermore, it is simple to deploy popular Ethereum dApps (decentralized applications) on Polygon, which provide the same functionality but are cheaper and quicker. Polygon also hosts some dApps, such as QuickSwap, that do not exist on Ethereum.
Meet the Polygon team
Polygon was founded by Jaynti Kanani, Sandeep Nailwal, Anurag Arjun and Mihalio Bjelic.
Polygon also has an advisory board that boasts some prolific names in the blockchain world. These include Anthony Sassano (co-founder of EthHub), Pete Kim (Head of Engineering for the Coinbase Wallet) and Ryan Sean Adams (Founder of Mythos Capital).
How does Polygon work?
We mentioned that Polygon provides the framework for Ethereum-compatible blockchains and scaling solutions but more specifically, these are grouped into stand-alone chains and secured chains. These represent two different ways through which transaction throughput can be increased. You can have sidechains that run parallel to Ethereum, or layer 2 scaling solutions that run on top of Ethereum.
Stand-alone chains are their own blockchain, with separate security and governance structures to Ethereum. An example of this is the Matic PoS blockchain, which is also known as the Polygon sidechain (for Ethereum). This sidechain uses a PoS consensus algorithm (https://ontheblocks.io/the-complete-beginners-guide-to-consensus-mechanisms/) , which is different to the PoW mechanism used by the Ethereum network. This means that the Polygon chain has its own validators that produce blocks and maintain the network’s security, rather than relying on Ethereum’s infrastructure.
Secured chains utilise the security and general infrastructure of the Ethereum blockchain but lack the flexibility in function that a stand-alone chain has. These include layer 2 scaling solutions such as Plasma chains, ZK rollups, and Optimistic rollups – all of which Polygon aims to support.
Plasma chains is a separate ‘child chain’ that is anchored to the main Ethereum chain, but offload transactions from the main chain to process them off-chain.
ZK rollups also take transaction off-chain but create a bundle of them. They then utilise a mechanism called zero-knowledge proofs which is a cryptographic proof presented to the main Ethereum chain to allow for validation of transactions. ZK rollups are somewhat limited to more simple types of transactions.
Optimistic rollups are slightly different do not perform computation by default, but utilise a ‘challenge period’ which means that although they are more scalable, withdrawal takes longer than ZK rollups. Optimistic rollups can, however, execute smart contracts and more complex transactions
The Polygon architecture can be thought of as a sandwich, which has four different layers, each with a different function. First we have the Ethereum layer which is responsible for finalizing transactions, staking and connecting the main chain to chains on Polygon. We then have the security layer which, unsurprisingly, provides security to the chains on Polygon. These layers are optional, however, there are two mandatory layers. The first of these is the Polygon networks layer which is the entire ecosystem of chains that Polygon hosts. Finally, we have the execution layer, which is the part of Polygon that makes it interoperable with the Ethereum Virtual Machine (EVM).
This architecture provides the coveted interoperability that Polygon brings to the table – hence the term ‘Ethereum’s Internet of blockchains’. It allows messages to be passed between all the connected blockchains and Ethereum itself.
So, in addition to providing an ecosystem of blockchains with less fees and greater transaction speed, it creates an open network of networks, where dApps can combine functionality to provide novel services to users.
The MATIC token
Despite the rebranding and expansion from the Matic to Polygon Network, the MATIC token is still the native currency that fuels the network.
In technical terms, it is used for staking to maintain network security, as a staking reward, for paying transaction fees, and for governance whereby holders can vote on Polygon Improvement Proposals (PIPs).
Polygon (MATIC) staking
To become a network validator and receive MATIC token rewards, tokens are staked, and there is no minimum requirement, meaning the barrier to entry is extremely low. Holders can delegate their tokens to validators and still take part in staking and receive rewards.
Staking rewards are dependant on several conditions, such as the total MATIC that is staked and the cumulative amount of MATIC collected from transaction fees. 12% of MATIC’s supply of 10 billion tokens are available for staking rewards for the first five years – plenty to go round!
Polygon, or Matic, was already a successful layer 2 scaling solution for Ethereum, however, its expansion into the Polygon network is even more exciting.
The ease at which Ethereum-compatible projects can just plug into the Polygon ecosystem and experience improved transaction speed, lower fees and interoperability with other chains is truly revolutionary.
This ability of blockchains and their native dApps to communicate effectively will truly drive the adoption of blockchain and crypto technology to the next level.
Cardano – a Simple Overview for Beginners
- Despite being the largest and most popular cryptocurrencies, Bitcoin and Ethereum do have problems that may limit global adoption.
- Cardano is a smart contract platform, like Ethereum, that aims to solve these issues.
- Read on to learn about what Cardano is, what it aims to solve, how it works, and why it has many people in the blockchain space very excited.
What is Cardano?
Bitcoin and Ethereum are first- and second-generation cryptocurrencies, respectively. They both have scalability issues which could act as a barrier to global adoption as blockchains would be required to process 100,000s of transactions per second. Furthermore, Bitcoin lacks the functionality afforded to blockchains by smart contracts.
As a result of Bitcoin and Ethereum’s shortcomings, Cardano have declared themselves as the first third-generation cryptocurrency. Founded in 2015, it aims to provide an open blockchain that can support global adoption of cryptocurrency.
According to a tweet from Cardano founder, Charles Hoskinson, in 2020: “Cardano is an open platform that seeks to provide economic identity to the billions who lack it by providing decentralized applications to manage identity, value and governance”
To fulfil this ambition, the team behind Cardano aim to create a decentralized smart contract platform that is scalable, interoperable and sustainable. Their strategy differs from most other projects, however. Rather than producing a whitepaper and developing their concept immediately, peer-reviewed academic research is central to Cardano’s developments. They want to create “High Assurance Code” which is reliable, safe and should prevent hard fork events that split the network.
Meet the Cardano team
Cardano was founded by Charles Hoskinson who was one of the co-founders of Ethereum. Since its launch, it has developed an extensive team of individuals and organizations that each play an important role. The three main parts to the Cardano team are the Cardano Foundation, IOHK (Input Output Hong Kong) and Emurgo.
The Cardano Foundation oversees development of the project and aims to grow the ecosystem and adoption of the technology. IOHK is the research and development arm that collaborates with various universities to conduct peer-reviewed research. Emurgo is a sperate entity that aids in development of aspects of Cardano, described as IOHK’s ‘sister company’.
What does Cardano do?
The main problems that Cardano identified with previous blockchain networks and aim to solve are scalability, interoperability and sustainability.
Scalability – if blockchain is to become globally adopted, it needs to be scalable in terms of processing lots of TPS, having copious network bandwidth and being able to store lots of data. Cardano have many unique solutions to these scalability issues.
Interoperability – again, interoperability is pivotal to global adoption of blockchain technology. Cardano wants to enable blockchains to communicate with each other and importantly, with real-world institutions such as banks.
Sustainability – ICOs (Initial Coin Offerings) is a common form of crowdfunding for crypto projects. However, one round of fundraising is not necessarily sustainable as this money could run out and halt network development. Cardano introduces the idea of a ‘treasury’ – a smart contract that receives a small portion of transaction fees and can distribute funds based on the community voting on improvement proposals.
Cardano has a rather famous roadmap given that each phase is named after famous English poets
The first phase, Byron, was focussed on crucial developments, building a community and would facilitate exchange of the native ADA token and production of the Daedalus and Yoroi wallets.
Shelley was the next phase, focussing on optimizing decentralization, brining about improvements in the robustness and security of the blockchain. It also marked the introduction of staking and the game theory underlying the PoS (Proof of Stake) consensus mechanism (https://ontheblocks.io/the-complete-beginners-guide-to-consensus-mechanisms/).
The third stage is Goguen, which is one of the most significant as it begins smart contracts to Cardano via the Alonzo hard fork. This is the most recent development as we saw smart contracts launched on Cardano in September 2021.
The second-to-last stage, Basho, is all about improving scalability and interoperability to increase network adoption. Finally, Voltaire is the final phase associated with creating a fully self-sustaining system that is community-governed and completely out of IOHK’s hands. This will indicate true decentralization and implementation of the treasury system among other features.
How does Cardano work?
Unlike many blockchain projects which employ a single-layered approach, Cardano have a two-layered approach. The system has a settlement layer that accommodates the exchange of ADA, and a computational layer that smart contracts function on – allowing the team to make changes using soft forks that don’t effect the settlement layer.
Ultimately, Cardano aim to boast a higher transaction throughput than Ethereum and demand much lower fees from users. Their unique Ouroboros PoS consensus mechanism is central to this.
Ouroboros is how the blockchain reaches consensus and unlike the PoW (Proof of Work) systems used in Bitcoin and Ethereum , it is PoS. It is a unique algorithm that secures the network and validates transactions.
Ouroboros splits the network into ‘epochs’ (around 20 secs long) which are then further sub-divided into time slots. Stakeholders with a given amount of ADA staked become electors and can choose a ‘slot leader’ to produce and add a block onto the chain. Given the level of power this ‘slot leader’ would have, electors also play a coin tossing-like game to implement a degree of randomness to the selection of validators. Leaders also review previous blocks to ensure network robustness as the ledger is passed between people.
The ADA token
As we have mentioned, ADA is the token that fuels the Cardano blockchain. To become a validator or elector, you have to stake ADA. The token is also used to pay for transaction fees which validators receive a percentage of as a block reward. ADA is also required to be involved in network governance, whereby, through a fully democratized process, holders will be able to vote on Cardano Improvement Proposals (CIPs) and Funding Proposals (FP’s).
Cardano, as the first third-generation blockchain, represents an exciting project in the world of crypto.
Their unique and rigorous approach to peer-reviewed research is interesting, however, it does mean that they may be last to the smart contract platform party.
Despite this, it is certainly arguable that this is a worthy price to pay for fully reliable code that creates a self-sustaining, scalable and interoperable blockchain network.
Solana – the next Smart Contract Platform Giant
- Solana has been crushing it in 2021, moving into the top 5 cryptocurrencies by market capitalization at the time of writing this article.
- It is a smart contract platform and activity on the network has exploded in recent months thanks to its low fees and rapid transaction times.
- Read on to learn about what Solana is, how it works, why it is described as a potential ‘Ethereum killer’ and what the SOL token is all about.
What is Solana?
Like Ethereum, Solana is a smart contract platform that claims to solve the blockchain scalability trilemma – optimizing for decentralization, security and scalability.
Solana’s achievements and rate of progress are extremely impressive given that the blockchain only launched in April 2020. Since then, Solana has proven to be an ultra-fast, ultra-low cost blockchain solution that can provide a reliable platform for both DeFi and non-Defi dApps (decentralized applications) in an open-source and permissionless way.
Ethereum processes around 15 TPS and has a block time of around 15 seconds. In comparison, Solana, through a unique consensus mechanism, have produced a platform that can process 65,000 TPS (more than VISA) and produce blocks in 400ms. Additionally, Ethereum’s gas fees often make the network unusable and can cost users hundreds or even thousands of dollars for a single transaction. Solana’s average transaction fee is $0.00025, and its scalability makes sure that these fees do not rise above $0.01. This is mightily impressive and has allowed Solana to steal a large chunk of Ethereum’s activity – this explains SOL’s unrivalled price performance this year as demand for the token to use the network has sky-rocketed.
Meet the Solana team
Solana was founded in 2017 by Anatoly Yakovenko and the blockchain was launched in April 2020. Yakovenko, along with colleagues Greg Fitzgerald and Eric Williams, created Solana Labs which remains the primary development arm of the protocol.
The Solana Foundation, based in Geneva, Switzerland, also has an important role. They are a non-profit organization that are responsible for working with international partners to further grow and support the Solana network.
How does Solana work?
How does Solana perform so much better than Ethereum? Well, the team has been able to create a Proof of Stake (PoS) blockchain that has a high enough transaction throughput and fast enough block time that there is no network congestion. On a slow, Proof of Work (PoW) blockchain like Ethereum, network congestion due to low transaction throughput clogs the system and can lead to miners producing blocks that pay the highest fees. This leads to a competition whereby users pay more gas fees to try and have their transactions processed first. Solana’s unique and innovative consensus mechanism allows for rapid transaction processing and low fees. This is a combination of PoS and a novel mechanism known as Proof of History (PoH).
Solana’s consensus mechanism – PoS and PoH
Solana does employ a PoS consensus mechanism whereby validators have to stake a certain amount of SOL tokens (and in the case of Solana, pay a daily fee) to be able to validate blocks. If they are selected to validate a block, they receive rewards in the form of transaction fees and freshly minted SOL tokens. More specifically, this is a delegated PoS model as users can delegate their stake to validators to receive a portion of the rewards in proportion to the amount they delegate.
There are only 1,000 validator nodes on the Solana network, compared to 70,000 on Ethereum. This difference in decentralization is a criticism that has been directed towards Solana, however, this number should increase over time.
Proof of History (PoH):
The real magic of Solana is their PoH mechanism. This introduces the idea of time to blockchain – a decentralized clock that validator nodes can trust. This is similar to Bitcoin’s PoW mechanism, whereby nodes have to agree upon the correct order of transactions, which isn’t a feature of PoS blockchains. Instead of relying on nodes to come to a consensus on the correct order of transactions, PoH allows accurate timestamps that saves the time taken to reach such a consensus. Instead, blocks can be arranged chronologically at any point with reference to their timestamp.
This creates a historical record of transactions that provably occurred at a specific point in time. This clever mechanism has enabled Solana to emerge as a potential smart contract platform giant thanks to its unbelievable speed. While 65,000 TPS already makes Solana a leader in smart contract platform speed, developers state that this could reach a whopping 700,000 TPS as the network scales.
What does Solana do?
Solana is thought to be a potential ‘Ethereum killer’ when, in reality, we should be striving for co-existence and interoperability. Nonetheless, Solana does improve upon many of Ethereum’s weaknesses and represents a fast, shiny, new car that users can zoom off in.
Like other smart contract platforms, Solana is a programmable blockchain that provides the network upon which dApps can be built. At the end of the day, such platforms are central to moving to a more decentralized world. Previously, centralized servers boasted one major advantage over blockchain-based platforms – speed. However, Solana provides a decentralized alternative that is faster than most centralized networks and it could act as the catalyst for global adoption of blockchain technology.
Solana can host all dApps, which means that the use cases of the protocol are near-infinite. There are DeFi dApps facilitating lending/borrowing, flash loans, insurance, decentralized exchanges (DEXs) and much more. There are even more non-DeFi use cases that could further change the world as we know it today. These include dApps involved in real estate, social media, music, video streaming, gaming, supply chain management, healthcare and so much more. The potential is limitless – fast and reliable blockchains like Solana will continue to increase blockchain adoption as the user experience improves and fees become manageable.
One of the current crazes on Solana is NFTs. Trading of these non-fungible tokens is bringing a monstrous amount of activity to the ecosystem and been a large driver of the recent price appreciation. For example, the Degenerate Ape Academy art collection has ape artwork with a floor price of 48.3 SOL (~$11,500 as of writing), with a total volume of 988,000 SOL traded so far for this collection.
The SOL token
The SOL token has experienced a major surge in price over the past year. As we have established, SOL is required to be staked to become a validator or alternatively, SOL can be delegated.
For every transaction that occurs in the Solana ecosystem, SOL is required to pay this. Amazingly, 50% of SOL used for transaction fees are burned, which will outpace the long-term inflation rate (currently 8% annually but will decrease year-on-year until it reaches a fixed rate of 1.5%). When a node validates a block, their reward is a portion of transaction fees and fresh SOL tokens.
Finally, SOL is also a governance token, meaning that holders can have a say in the network’s decision-making process. This bottom-up governance structure is a major part of the crypto ethos, removing central authorities that wield total power over us individuals.
Solana is one of the most exciting projects in the blockchain and crypto space, and this is reflected by the increase in demand and price of the SOL token.
This excitement is also obvious when we look at how much activity occurs on the network, and that it is now the third largest smart contract platform in terms of total value locked up in smart contracts (TVL).
The future is definitely bright for SOL, and I for one believe it will remain one of the best and most popular blockchain platforms for years to come.