Explaining Blockchain and Crypto Currencies

In this blog we are providing you with a structured definition of the key words so you can better understand how blockchain and crypto currencies function.

Decentralization:

When something is controlled or regulated by many separate groups rather than one main group, it's decentralized

Peer-To-Peer Network (P2P Network)

A peer-to-peer (P2P) network is a group of computers, each of which acts as a data point for sharing files within the group. Instead of having a central server to act as a shared drive, each computer acts as the server for the files stored upon it. When a P2P network is established over the Internet, a central server can be used to index files, or a distributed network can be established where the sharing of files is split between all the users in the network that are storing a given file.

Cryptography:

The practice and study of techniques for secure communication. More generally, cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages. Applications of cryptography include electronic commerce, chip-based payment cards, digital currencies, computer passwords, and military communications.

Block chain:

A block chain is a tamper-resistant distributed ledger that's used to validate and store digital transactional records. No single authority is responsible for maintaining a Blockchain. Instead, computers in a peer-to-peer (P2P) network each store a copy of the ledger and transactions are verified through a decentralized consensus mechanism.

Transactions are stored in permanent, time-stamped units called blocks and each block is connected (chained) to the previous block with a cryptographic hash (code) that is created by using the previous block's contents. The hash links make it impossible to alter data in one block without making changes to each subsequent block in the chain at the exact same time. Essentially, this means that any attempt to alter or delete information will break the cryptographic chain and immediately alert all nodes in the network that there is a problem.

Blockchains can be public or private. In a public blockchain, anyone can view the ledger and participate in the consensus mechanism. In a private Blockchain, the consensus mechanism is restricted to certain nodes on the network and views of the private ledger may also be restricted.

Originally created for digital currency, Blockchain is now being used by many types of businesses as a decentralized database technology to support smart contracts as well as records management for health care and identity and access management (IAM)

Digital ledgers using Blockchain can significantly shorten the time it takes to transact business by eliminating the need for transactions to be approved and verified by a centralized authority. This not only speeds up the time it takes to execute a transaction, it lowers transaction costs while still providing high levels of security and trust.

One of the criticisms of blockchain transactions is that it requires a lot of computing power, which can be expensive.

Example of Blockchain Usage:

WiV Technology has selected EY to provide technology services to help develop its fine wine investment trading blockchain platform.

WiV’s global platform helps enable WiV’s growing list of specialist wine industry clients to conduct investment trades of bottles and cases of wine, with the origin, quality and value of an asset certified on a tamper-resistant, constantly updated global blockchain.

The WiV solution is designed to address one of the biggest hurdles in wine investments, the fear of counterfeiting and substitution, by having fine wines shipped directly from producers to a bonded warehouse, with full traceability. Once delivered into the warehouse, there will be a one-to-one linkage between cases in the bonded warehouse and blockchain tokens.

The blockchain components that EY teams have developed for WiV include a non-fungible ERC-721 token structure known as WiV Wine Asset Tokens. These will be deployed on the Ethereum blockchain. A smart contract tracks token ownership, provenance and transaction history and operates as a ready-made standard for everyone to use. Each case is allocated a token with a unique identifier and its properties are stored as detailed metadata (data that provides information about other data", but not the content of the data).

With the wine secured in a bonded warehouse and fully tokenized, a broad range of financial services can be provided against those assets on the blockchain. Investors are expected to be able to trade, sell, transfer and even seek financing against their blockchain-based assets at a fraction of the cost and time required previously.

Mining:

Blockchain mining involves adding transactions to the existing blockchain ledger of transactions distributed among all users of a blockchain. Mining involves creating a hash of a block of transactions that cannot be easily faked, protecting the integrity of the entire blockchain without the need for a central system.

Mining is typically done on a dedicated computer, as it requires a fast CPU, as well as higher electricity usage and more heat generated than typical computer operations. The main incentive for mining is that users who choose to use a computer for mining are rewarded for doing so. In the case of bitcoin, it is 25 bitcoins per hash.

Cryptocurrencies

The problem with current banking systems is that they rely on trust. Financial institutions act as a trusted third-party intermediary to process payments. The flaw of this system is that financial institutions cannot make non-reversible transactions. Because the financial institutions act as a trusted intermediary, they also have to mediate any disputes that arise over a transaction. So, financial institutions can reverse a transaction.

Such a system requires a lot of trust in our financial institutions and is expensive to maintain. It also requires a lot of personal information as that information is used to establish trust. When Bitcoin was created, there was no way to make a digital payment more similar to a cash transaction without a trusted party facilitating the transaction.

Bitcoin was created to meet this need. Nakamoto explained, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.”

Bitcoin:

The first crypto currency that was created. The exact limit of Bitcoins is 20,999,999,9769.

They did this by putting a cap in the algorithm, meaning computers will no longer be able to solve the equation - mine Bitcoin - once 20,999,999,9769 are mined.

With the current total of just over 18.9million, that leaves 2.1million bitcoins left to be mined.

It is estimated that 3-4 million bitcoins are lost forever. That's because owners of the coin have forgotten their password, misplaced hardware wallets and more. Once your bitcoin is gone, it's really gone.

It is believed that the last bitcoin will be mined in 2140 When all 21 million bitcoins are mined, there won't be a block reward to pay the miners. Instead, they will be rewarded with transaction fees.

Ethereum:

Ethereum is a platform powered by blockchain technology that is best known for its native cryptocurrency, called ether, or ETH, or simply ethereum. The distributed nature of blockchain technology is what makes the Ethereum platform secure, and that security enables ETH to accrue value

USDT, Tether:

one of multiple stable coins, meaning it is pegged to the Dollar, 1 USDT = 1 USD      

Many other currencies exist and anyone can basicaly create a digital currency/ token but the most important is to look for the usage of this currency and how will it maintain value.

Prepared by Mazen Jradi.