The blockchain technology revolution, coupled with the notion of "smart contracts" and alternative currencies (also known as Microcurrencies, Altcoins and Crypto Currencies) is facing us as a watershed opportunity as we're about to move into 2022. What is your firm doing to move forward?
Well, one of the first places to start is to look at our "open standards" which we are compiling to assist the Cannabis and Hemp business entities to understand what they need to do to leverage each aspect of their business. Let's review these now...
What is Blockchain Technology and why should I care?
A blockchain is a growing list of records, called blocks, that are linked together using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree). The timestamp proves that the transaction data existed when the block was published in order to get into its hash.
A well respected microcurrency exchange firm, Coinbase, gives us further guidance...
"Cryptocurrencies like Bitcoin and Ethereum are powered by a technology called the blockchain. At its most basic, a blockchain is a list of transactions that anyone can view and verify. The Bitcoin blockchain, for example, contains a record of every time someone sent or received bitcoin. Cryptocurrencies and the blockchain technology that powers them make it possible to transfer value online without the need for a middleman like a bank or credit card company.
Imagine a global, open alternative to every financial service you use today, accessible with little more than a smartphone and internet connection.
Almost all cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, are secured via blockchain networks. Which means their accuracy is constantly being verified by a huge amount of computing power.
The list of transactions contained in the blockchain is fundamental for most cryptocurrencies because it enables secure payments to be made between people who don’t know each other without having to go through a third-party verifier like a bank.
Due to the cryptographic nature of these networks, payments via blockchain can be more secure than standard debit/credit card transactions. When making a Bitcoin payment, for instance, you don’t need to provide any sensitive information. That means there is almost zero risk of your financial information being compromised, or your identity being stolen.
Blockchain technology is also exciting because it has many uses beyond cryptocurrency. Blockchains are being used to explore medical research, improve the accuracy of healthcare records, streamline supply chains, and so much more.
Due to the cryptographic nature of these networks, payments via blockchain can be more secure than standard debit/credit card transactions.
What are some advantages of blockchains?
They’re global: which means that cryptocurrencies can be sent across the planet quickly and cheaply.
They increase privacy: Cryptocurrency payments don’t require you to include your personal information, which protects you from being hacked or having your identity stolen.
They’re open: Because every single transaction on cryptocurrency networks is published publicly in the form of the blockchain, anyone can scrutinize them. That leaves no room for manipulation of transactions, changing the money supply, or adjusting the rules mid-game. The software that constitutes the core of these currencies is free and open-source so anyone can review the code.
What’s the main advantage blockchains have over the old financial system?
Think about how much of your financial life takes place online, from shopping to investing – and how every single one of those transactions requires a bank or a credit card company or payment processor like Paypal in the middle of it. Blockchains allow for those transactions to happen without a middleman, and without the added costs and complexity that come with them.
Is Bitcoin a blockchain?
Bitcoin is a form of digital money. And the underlying technology that makes it possible is a blockchain.
How many kinds of blockchains are there?
Thousands, from the ones that power Bitcoin, Litecoin, Tezos, and countless other digital currencies to an increasing number that have nothing to do with digital money
How does a blockchain work?
Picture a chain you might use for a ship’s anchor. But in this case, every link on the chain is a chunk of information that contains transaction data. At the top of the chain you see what happened today, and as you move down the chain you see older and older transactions. And if you follow it all the way down to the anchor sitting at the bottom of the harbor? You’ll have seen every single transaction in the history of that cryptocurrency. Which gives the blockchain powerful security advantages: it’s an open, transparent record of a cryptocurrency’s entire history. If anyone tries to manipulate a transaction it will cause the link to break, and the entire network will see what happened. That, in a nutshell, is blockchain explained.
Another way people often describe the blockchain is that it’s a ledger (sometimes you’ll hear the terms ‘distributed ledger’ or ‘immutable ledger’), that is similar to the balance sheet of a bank. Like a bank’s ledger, the blockchain tracks all the money flowing into, out of, and through the network.
But unlike a bank’s books, a crypto blockchain isn’t maintained by any individual or organization, including banks and governments. In fact it isn’t centralized at all. Instead, it is secured by a large peer-to-peer network of computers running open-source software. The network is constantly checking and securing the accuracy of the blockchain.
Where does new cryptocurrency come from? Every so often – around every ten minutes in the case of Bitcoin – a new chunk of transaction information (or a new block) is added to the chain of existing information. In exchange for contributing their computing power to maintaining the blockchain, the network rewards participants with a small amount of digital currency.
A crypto blockchain is distributed across the digital currency’s entire network. No company, country, or third party is in control of it; and anyone can participate. The network is constantly checking and securing the accuracy of the blockchain.
Who invented the blockchain?
A person or group using the name Satoshi Nakamoto published a whitepaper online explaining the principles behind a new kind of digital money called Bitcoin in late 2008. Every cryptocurrency since is an evolution of the ideas laid out in that paper.
Nakamoto’s goal was to create digital money that would make online transactions between two strangers anywhere in the world possible without requiring a third party like a credit card company or a payment processor like Paypal in the middle.
This required a system that would eliminate a thorny issue called the ‘double spending’ problem, where a person might use the same money more than once. The solution is a network that is constantly verifying the movement of Bitcoin. That network is the blockchain.
Every Bitcoin transaction is stored and verified by a global network of computers beyond the control of any person, company, or country.
The database that holds all of that information is called the blockchain. Bitcoins are ‘mined’ via that huge, decentralized (also known as peer-to-peer) network of computers, which are also constantly verifying and securing the accuracy of the blockchain. In exchange for contributing their computing power to the blockchain, miners are rewarded with small amounts of cryptocurrency.
Every single bitcoin transaction is reflected on the ledger, with new information periodically gathered together in a “block,” which is added to all the blocks that came before.
The miners’ collective computing power is used to ensure the accuracy of the ever-growing ledger. Bitcoin can’t exist separately from the blockchain; each new bitcoin is recorded on it, as is each subsequent transaction with all existing coins.
In exchange for contributing their computing power to the blockchain, miners are rewarded with small amounts of cryptocurrency.
What's the future of blockchains?
The blockchain idea has turned out to be a platform that a huge range of applications can be built on top of. It’s still a new and rapidly developing technology, but many experts have described blockchain’s potential to change the way we live and work as being similar to the potential public internet protocols like HTML had in the early days of the World Wide Web.
The Bitcoin Cash and Litecoin blockchains work in a very similar way to the original Bitcoin blockchain. The Ethereum blockchain is a further evolution of the distributed ledger idea, because unlike the Bitcoin blockchain it’s not solely designed to manage a digital money. (That said Ethereum is a cryptocurrency and certainly can be used to send value to another person). Think of the Ethereum blockchain more like a powerful and highly flexible computing platform that allows coders to easily build all kinds of applications leveraging the blockchain.
For example, imagine a charity that wants to send money to a thousand people every day for a year. With Ethereum, that would only take a few lines of code. Or maybe you’re a video game developer that wants to create items like swords and armor that can be traded outside of the game itself? Ethereum is designed to do that, too."
What are Smart Contracts and why should I care?
Decrypt.co gives us some guidance on this topic...
"A smart contract removes the need to trust so many people in the process of buying something.
Why? Smart contracts are:
Secure: They use cryptography to stop people altering records.
Transparent: Everyone can see on the blockchain what the smart contract is and what it’s being used for.
Third-party free: Smart contracts don’t need a middleman to verify. The blockchain does that for you.
Autonomous: They work automatically, so you’re not having to wait for someone to push a button.
Accurate: Because smart contracts are written in code, they don’t rely on the grey areas of a language and what words mean.
If this happens, do this
At the heart of a smart contract tends to be a mechanism that says (in computer code) “if this happens, then do this”.
These already exist today. Let’s say you want to pay for something using a debit or credit card. The software your bank runs on will use the “if this happens, then do this” in the following way:
If the amount in the bank account is larger than the sum requested, release the funds.
If the amount in the bank account is smaller than the sum requested, don’t release the funds.
The difference with smart contracts is, instead of a bank (or any third party) being the controller of that decision, it falls to the blockchain.
So taking the above example and applying it to a smart contract built on a blockchain you’d see the following:
If the amount in the digital wallet is larger and has not been spent already, release the funds.
If the amount in the digital wallet is smaller, or has been spent already, do not release the funds.
The exciting bit about smart contracts is it means anyone can enter into an agreement with anyone else, with the blockchain keeping a record of the whole thing.
Inside a smart contract
Like regular contracts, smart contracts are designed to enforce the terms of an agreement—whether this is an exchange of cryptocurrencies, tokenized rights, proof of identity, or practically anything else.
Smart contracts will automatically execute when pre-defined conditions are met. The operation of a smart contract can be briefly described with three main terms:
Interconnectivity: Each smart contract usually has a restricted set of functions. Several smart contracts can be set up to connect with one another and can form more complex arrangements known as decentralized applications (dapps).
Objects: These are the signatories that interact with the smart contract and the subject/s which is/are modified by the smart contract based on predefined or newly-submitted terms.
Environment: Smart contracts are dependent on an underlying cryptographic environment. This ensures they can operate securely, and that the data they act on is immutable and generally transparent.
For most blockchains, the code underlying the smart contracts is immutable, though several blockchains also support updateable smart contracts.
Who created smart contracts?
Like the blockchain technology used to power most cryptocurrencies, smart contracts were derived from earlier technologies that weren’t quite complete. In the case of smart contracts, they are derived from earlier electronic instruction execution programs that used if/else statements other conditional logic to automatically produce an outcome based on the information it is presented with.
The term “smart contract” itself was coined in the 1990s in an academic paper created by Nick Szabo, a prominent computer scientist and cryptographer that was also responsible for developing one of the earliest precursors to Bitcoin, known as Bit Gold. Szabo initially described smart contracts for a variety of basic purposes like fraud reduction and enforcing contractual arrangements, but later elaborated on the potential use-cases of the technology to digital cash, smart property, and more in a 1996 paper.
Ethereum implemented a Turing-complete language on its blockchain, allowing for complex and sophisticated logic in its smart contracts.
How do dapps use smart contracts?
Dapps, or decentralized apps, can be best thought of as a bunch of smart contracts tied together.
A smart contract on its own can only be used for one type of transaction. A dapp, however, can bundle multiple smart contracts together to do more sophisticated things.
A dapp can also put a friendly interface on top of the contracts—just like apps do today.
Some notable dapps
Augur - A tool that allows anyone to speculate on derivatives
MakerDAO - A decentralized finance (DeFi) dapp that enables users to lend and borrow of cryptocurrencies without needing a middleman.
Uniswap - An Ethereum-based exchange that allows anyone to swap ERC20 tokens.
CryptoKitties - Unique NFT-based crypto-collectibles that can be "bred" using smart contracts.
Argent - an Ethereum wallet that uses smart contracts to abstract away concepts like addresses and private keys.
Who is using smart contracts?
Smart contracts are a relatively new technology, but they have already seen widespread implementation—particularly among pure crypto projects.
Smart contracts are at the heart of the entire decentralized finance (DeFi) revolution and are used to power popular DeFi protocols like Compound, Aave, Uniswap, and hundreds of others.
But they’ve also been adopted by a whole host of corporations, and even some governments have begun experimenting with smart contracts. Some of the most prominent examples include:
🎮 Ubisoft: Video games giant Ubisoft has embraced blockchain in a big way; among its many blockchain initiatives, it’s crafted specially-designed smart-contracts allowing users to own, transfer, and claim rare non-fungible tokens (NFTs) based on its popular Rabbids gaming franchise.
ING: Dutch bank ING has co-created Fnality, a blockchain-based trade-settlement system using smart contracts. It’s also involved in a number of other blockchain initiatives.
🇸🇪 The Swedish government: Sweden’s government has tested a blockchain-based land registry for proving the ownership of land, which is built on smart contracts.
Smart contracts aren’t always perfect
Although smart contracts are generally considered to be a “trustless” way of enforcing agreements and logic, they aren’t without their fair share of problems.
For one thing, smart contracts are immutable on many blockchains. This means that once launched, they cannot be changed or upgraded, which can lead to disastrous consequences if there are underlying issues with the code. This is perhaps best highlighted by the 2016 Ethereum DAO hack, which saw an unknown hacker siphon off millions of ether (ETH) by exploiting a loophole in the DAO’s split function."
What are Alternative Currencies and why should I care?
"Alternative currency" is a term that refers to any currency used as an alternative to the dominant national or multinational currency systems (usually referred to as national or fiat money). As we move into 2022 we can see that countries and large financial firms will be changing how we live by releasing alternative currencies for us to use in both consumer transactions as well as business to business transactions. This trend will change the world!