3.3 controversial mechanism since it helps to enable

3.3 Blockchain Technology


A Blockchain is a public ledger of all transactions that
have been executed and shared among the participated parties. It can be also
considered as the distributed database of records and digital events. Each
transaction is verified by consensus of most of the participants. Once the
information is inserted, it cannot be erased 57. The Blockchain preserves a
certain and verifiable method for every transaction. The Blockchain can be
compared to a cookie jar to demonstrate the security. It is easier to steak
cookies from a cookie jar placed in a secluded place than stealing the jar from
a marketplace where there are thousands of people observing the jar.

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3.3.1 History of Blockchain


The Blockchain was first conceptualized in 2008 by an anonymous
group or person known as Satoshi Nakamoto. The technology was implemented in
2009 as a core component of bitcoin where the Blockchain serves as a public
ledger for the transactions. However, bitcoin is also the most controversial
mechanism since it helps to enable a multibillion-dollar global market of anonymous
transactions without any control of government 57 as it must deal with several
regulatory issues. However, the Blockchain technology itself is
non-controversial and it has worked perfectly over the years. The technology is
successfully applied to both financial and non-financial world applications. The
Blockchain distributed consensus model is regarded as the most important
invention since the internet itself 57 by Johann Palychata who is the doyen
of the Silicon Valley’s capitalists.


3.3.2 Applications of Blockchain


Current world is experiencing digital economy and it is
based on the reliance on a certain trusted authority. The entire online
transactions rely on trusting someone to act honestly. It can be either an
email service provider whom are telling their users that their e-mail is
delivered, it can be a certification authority telling that a certain digital
certificate can be trusted, even it can be a social network assuring its users
that their certain posts are shared with only their friends or it also can be a
bank which ensuring the customer that their money will be delivered to their
loved ones in a remote country safely. The main fact is that at modern day we live
a life of digitalized by relying on a third entity for security and privacy of
our digital assets. The risk factor is that these third parties can be hacked,
manipulated or compromised.


The Blockchain technology comes in handy on the security
issues stated above. It has the necessary steps to revolutionize the digital
world by enabling a distributed consensus where each online transaction that
consist digital assets can be verified at any time in the future. The Blockchain
also preserves the privacy of the digital assets as well as the involved party.
Two of the main important characteristics of Blockchain are the digital
consensus and anonymity.


The regulatory issues and technical challenges are outweighed
by the advantages of the Blockchain technology. Smart Contracts are regarded as
one of the key emerging use case of Blockchain. Smart Contract are basically
some computer programs which are used to ensure that the terms of a contract is
fulfilled. When the parties can fulfill the agreements defined in the Smart
Contracts then they are able to make payments as per the contract in a
transparent manner. Smart Property is another use case of blockchain. It offers
the control of the ownership of a property or an asset by using blockchain. The
property can be physical such as car, house, smartphone, laptop etc. or it can
also be non-physical like shares of a company, bank bonds etc. It is important
to state that even bitcoin is not really a currency, but it is all about controlling
the ownership of the money. Blockchain is recently finding its applications
both in the financial field and non-financial fields.


Financial: Now-a-days institutions and banks do
not see Blockchain as threat to traditional businesses but are trying to adopt
to the technology and use it for the beneficial. Moreover, the world’s biggest
institutions are investing on research in this field to find new opportunities
for their businesses using Blockchain technology. Most of the institutions
stated that they found Blockchain more secured in financial related
applications. Some of the financial fields 57 in which Blockchain can be applied
or already is applied are stated below.


Private Securities: It is often expensive to
take a company public. A syndicate of bank must work hard and underwrite the
deal so that they can attract investors. Company shares are listed for
secondary market by the stock exchanges so that they can function securely with
trades settling and clearing in a timely manner. Thanks to Blockchain, it is
now theoretically possible for companies to directly issue the shares. Those
shares which sit on top of the Blockchain, can be sold and purchased in secondary
markets. Some of the examples are as followed.


i.     NASDAQ
Private Equity: In 2014, NASDAQ launched its Private Equity Exchange 57 and the
main purpose is to provide key functionalities like Cap table and investor
relationship management for the private companies. The previous process was
slow due to the involvement of multiple third parties. To implement private
equity exchange on top of Blockchain, NASDAQ has joined with a San Francisco
based start-up called chain.com which is implementing Blockchain based smart
contracts to implement exchange functionalities. The product is expected to be
fast, efficient and traceable.


ii.     Medici:
It is being developed as a securities exchange. It uses counterparty
implementation of Bitcoin 2.0. The goal of the system is to build a cutting-edge
stock market. Counterparty is a protocol which is used to implement traditional
financial instruments as the self-executing smart contracts 57. These smart contracts
can facilitate, verify or enforce the negotiation of contract and eliminate the
need for a physical document. The provided services eliminate the need for an
intermediary, such as broker, exchange or bank.


iii.     Blockstream:
It is a opensource project with focus on sidechains which are interoperable blockchains
to avoid fragmentation and security.


iv.     Coinsetter:
It is a New York based bitcoin exchange. The project uses Blockchain to settle
and clear financial transactions in significantly less time than traditional


v.     Augur:
This is a decentralized prediction market that will allow users to buy and sell
shares in anticipation of an event with the probability that a specific outcome
will occur. This method can be used to forecast the financial and economic outcomes.


vi.     Bitshares:
These are digital tokens that reside in the Blockchain. These tokens reference
specific assets such as currencies or commodities. The token holders may have a
unique opportunity to earn interests on commodities such as gold, oil, dollar,
euro etc.


Insurance: Assets which can be uniquely identified
by using a single or multiple identifier which are difficult to destroy, or
replicate can be registered in Blockchain. This property can be used to verify
the ownership of an asset as well as trace the transaction history. Any
property, physical or digital, can be registered in Blockchain and the
ownership can be verified by anyone, especially insurers. Everledger is a
company which creates permanent ledger of diamond certification. It also
registers the history of transactions about the diamonds using the Blockchain.
The characteristics which can be used to uniquely identify the diamond (e.g.
height, weight, width, depth, color etc.) are hashed and registered in the
ledger. The verification of the diamonds can be performed by law enforcement
agencies, insurance companies, owners and claimants.


Opportunities of Blockchain in non-financial field are also endless. We can use
the Blockchain to store information about legal documents, health records,
marriage licenses, loyalty payment in industries, notary etc. By avoiding the
storing of digital assets and store only the fingerprints of the asset, can
help to achieve privacy and anonymity objectives.