What is Blockchain Technology? Definitive Guide

Chapters

1. Blockchain 101

2. How does blockchain work?

3. What is blockchain used for?

Chapter 1 - Blockchain 101

Content

• What is blockchain?

• How are the blocks connected?

• Blockchains and decentralization

• The Problem of Byzantine Generals

• Why do blockchains need to be decentralized?

• What is peer-to-peer networking?

• What are nodes on a blockchain?

• Public vs. public blockchains private

• How do transactions work?

• How to make Bitcoin transactions

  • How to withdraw bitcoins from Binance

  • How to send bitcoins from Trust Wallet to Electrum

• Who invented blockchain technology?

• Pros and cons of blockchain technology

  • Pros

  • Contras

What is blockchain?

A blockchain is a special type of database. You may be familiar with the term distributed ledger technology (DLT) – which in most cases refers to the same thing.

A blockchain has certain unique properties. There are rules about how data can be added, and once it is stored, it is virtually impossible to modify or delete it.

Data is added over time in structures called blocks. Each block builds on the last and includes information that links to the previous one. By looking at the most updated block, we can check if it was actually created after the last one. Therefore, if we continue “going back in the chain”, we will reach the first block – known as the Genesis Block.

Let's make an analogy. Suppose you have a spreadsheet with two columns. In the first cell of the first row, you place the data you want to store.

The data from the first cell is converted to a two-letter identifier, which will be used as part of the next entry. In this example, the two-letter identifier, KP, should be used to fill in the next cell in the second row (defKP). That is, if you change the first input data (abcAA), you will receive a different combination of letters in all other cells.

Database where each entry is linked to the previous one.

Looking at line 4, our most recent identifier is TH. As we mentioned, you can't go back and remove or delete entries. This is because it would be easy for any user to notice that this has been done and simply ignore your attempted change.

Suppose you change the data in the first cell - you would get a different identifier, i.e. your second block would have different data, resulting in a different identifier in row 2 and so on. Essentially, the TH is a product of all the information that comes before it.

How are the blocks connected?

What we discussed above – with our two-letter identifiers – is a simplified analogy of how a blockchain uses hash functions. Hashing is the "glue" that holds blocks together. Hash functions gather data of any size and submit it to a mathematical function to produce an output (a hash), which always has the same length.

The hashes used in blockchains are interesting because the chances of you finding two pieces of data that result in exactly the same output are astronomically low. Just like our identifiers, any slight modification to the input data will give an entirely different output.

Let's exemplify using the SHA256 function, widely used for Bitcoin. As you can see, even changing the case is enough to completely scramble the output.

The fact that there are no known SHA256 collisions (i.e. two different inputs giving us the same output) is incredibly valuable in the context of blockchains. This means that by including its hash, each block can point back to the previous one and any attempts to edit old blocks become immediately visible on the network.

Each block contains a fingerprint of the previous one.

Blockchains and decentralization

We explain the basic structure of a blockchain. But when you hear people talking about blockchain technology, they're likely not just talking about the database, but also about the ecosystems built around blockchains.

As independent data structures, blockchains will only be truly useful in specific applications. Things get more interesting when we use blockchains as tools for strangers to coordinate with each other. Combined with other technologies and game theory, a blockchain can act as a distributed ledger/record, which is not controlled by anyone.

This means that no one has the power to change the entries by ignoring the rules of the system (more on the rules soon). Therefore, we can say that the ledger belongs to everyone simultaneously: participants reach an agreement about it at any time.

The Problem of Byzantine Generals

The so-called Byzantine Generals Problem is a real challenge for a system like the one described above. Conceived in the 1980s, it describes a dilemma in which isolated participants must communicate to coordinate their actions. The specific dilemma involves a group of generals from an army besieging a city, deciding whether to carry out the attack. Generals can only communicate through a messenger.

Each of the generals must make the decision to attack or retreat. It doesn't matter whether they attack or retreat as long as all generals agree on a common decision. If they decide to attack, they will only be successful if they do so at the same time. So how can we guarantee this?

Of course, they can communicate via messenger. But what if the messenger is intercepted with a message that says “we will attack at dawn” and that message is replaced with “we will attack tonight”? What if one of the generals is malicious and intentionally deceives the others to ensure they are defeated?

All generals succeed when attacking at the same time (left). If any general retreats, those who attacked will be defeated (right).

We need a strategy in which consensus can be reached, even in the event of malicious participants or intercepted messages. For a database, failing to reach consensus is not a life or death situation, as in the case of generals attacking a city without the help of reinforcements, but the same principle holds true. If there is no one to oversee the blockchain and provide users with the “correct” information, they must be able to communicate with each other.

To overcome the potential point of failure of one (or multiple) user(s), blockchain mechanisms must be carefully designed to withstand these setbacks. A system with this resistance is called Byzantine fault-tolerant. As we will soon see, consensus algorithms are used to enforce strict rules.

Why do blockchains need to be decentralized?

Of course you could operate a blockchain yourself. But you would end up with a disorganized database if we compare it to other more suitable alternatives. The real potential of a blockchain can be explored in a decentralized environment – ​​that is, where all users are equal. This way, the blockchain cannot be deleted or maliciously dominated. It is a single source of truth that anyone can see.

What is peer-to-peer networking?

The peer-to-peer (P2P) network is our user layer (or the generals, as in the previous example). There is no administrator; therefore, instead of contacting a central server whenever he wants to exchange information with another user, the user sends it directly to his colleagues (peers).

Consider the graph below. On the left, user A needs to route his message through the server so that it reaches user F. On the right, however, they are directly connected. There is no intermediary.

A centralized (left) vs. centralized network a decentralized network (right).

Typically, the server stores all the information that users need. By accessing Binance Academy, you are asking the servers to provide you with all articles. If the site goes offline, you won't be able to see them. However, if you have downloaded all the content, you can access it on your computer without having to consult Binance Academy.

Essentially, this is what all Peers do with blockchain: the entire database is stored on their computers. If someone leaves the network, the remaining users can still access the blockchain and share information with each other. When a new block is added to the chain, the data is propagated across the network so everyone can update their own copy of the ledger.

Check out our Guide to Peer-to-Peer Networks for a more in-depth discussion of this type of network.

What are nodes on a blockchain?

Simply put, nodes are machines connected to the network – they store copies of the blockchain and share information with other machines. Users do not need to handle these processes manually. Generally, all they need to do is download and run the blockchain software and the rest will be done automatically by the system.

What we wrote above is the description of a node in the purest sense, but the definition can also cover other users who interact with the network in other ways. With cryptocurrencies, for example, a simple wallet application on your cell phone is considered a light node.

Public vs. public blockchains private

As you may know, Bitcoin provided the foundation for the blockchain industry to develop into what we have today. Since Bitcoin began to prove itself as a legitimate financial asset, many innovative scholars have been thinking about the potential of the underlying technology for use in other fields. This provided the exploration of blockchain technology for numerous use cases, in addition to finance.

The Bitcoin system is what we call a public blockchain. In other words, anyone can view your transactions. All you need is an Internet connection and the necessary software. As there are no other requirements for participation, we can refer to this system as a permissionless environment.

On the other hand, there are other types of blockchains, called private blockchains. These systems establish rules about who can see and interact with the blockchain. Therefore, we refer to them as permissioned environments (when permission is required). Although private blockchains may seem redundant at first, they have some important applications – particularly in corporate scenarios.

To learn more about this subject, see the article Private, Public and Consortium Blockchains - What's the Difference?

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How do transactions work?

If Alice wishes to make a payment to Bob by bank transfer, she will notify her bank. Let's assume that, for practical reasons, both parties use the same bank. Before updating its database (e.g. -$50 for Alice, +$50 for Bob), the bank verifies that Alice has the funds to carry out the transaction.

It's not very different from what happens with a blockchain. After all, it is also a database. The main difference is that there is no single party running the checks and updating the balances. All nodes on the network must do so.

If Alice wants to send five bitcoins to Bob, she transmits a message to the network containing this information. The transaction will not be added to the blockchain immediately – nodes will be able to see it, but other actions must be completed for the transaction to be confirmed. Check out How are blocks added to the blockchain?

Once this transaction is added to the blockchain, all nodes can see that it was made. They will update their copy of the blockchain considering the changes. Now, Alice cannot send those same five units to Carol (double-spending), because the network knows that she already spent the five bitcoins in a previous transaction.

There is no concept of usernames and passwords – public key cryptography is used to prove ownership of funds. To receive funds, Bob must first generate a private key. It's just a very long random number that is practically impossible for anyone to guess, even if they tried for centuries. However, if Bob discloses his private key, anyone with that information can use it to prove they own the funds (and then spend them). Therefore, it is very important that he keeps the private key secret.

What Bob can do, however, is derive a public key from his private key. He can provide the public key to anyone, as reverse engineering to obtain the private key, using the public key, is practically unfeasible. Additionally, in most cases, the user performs another operation (such as hashing) on ​​the public key to obtain a public address.

Bob will provide Alice with his public address so she knows where to send the funds. It creates a transaction that says pay these funds to this public address. So, to prove to the network that it isn't trying to spend funds it doesn't have, it generates a digital signature using its own private key. Anyone can take Alice's signed message and compare it with her public key and thus say with certainty that she has the right to send these funds to Bob.

How to make Bitcoin transactions

To illustrate how you can transact with Bitcoin, let's imagine two different scenarios. The first involves you withdrawing bitcoins from Binance and the second involves sending funds from your TrustWallet to the Electrum wallet.

How to withdraw bitcoins from Binance

1. Login to your Binance account. If you don't have bitcoins yet, check out our guide on how to buy Bitcoin.

2. Position the cursor on Wallet and select Spot Wallet.

3. Click Cash Out in the sidebar on the left.

4. Select the currency you want to withdraw – in this case, BTC.

5. Copy the address you want to withdraw bitcoins to and paste it into the Recipient BTC Address field.

6. Enter the amount you want to withdraw.

7. Click Submit.

8. You will soon receive a confirmation email. Check carefully that the address is correct. If so, confirm the transaction using the link in the email.

9. Wait for your blockchain transaction to complete. You can monitor your status in the Deposit & Withdrawal History tab or using a block explorer.

How to send bitcoins from Trust Wallet to Electrum

In this example, we will send some bitcoins from Trust Wallet to Electrum.

1. Open the Trust Wallet app.

2. Select your Bitcoin account.

3. Select Submit.

4. Open your Electrum wallet.

5. In Electrum, click on the Receive tab and copy the address.

Another alternative is, through the Trust Wallet app, clicking on the [–] icon to scan the QR code corresponding to your Electrum address.

6. Paste your Bitcoin address into the Recipient Address field in Trust Wallet.

7. Enter the amount.

8. Check that the data is correct and confirm the transaction.

9. Done! Wait for your transaction to be confirmed on the blockchain. You can monitor your status by copying your address into a block explorer.

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Who invented blockchain technology?

Blockchain technology was formalized in 2009 with the launch of Bitcoin – the first and most popular blockchain. However, its creator (pseudonym) Satoshi Nakamoto was inspired by previous technologies and proposals.

Blockchains make heavy use of hash functions and cryptography, which have existed for decades before the launch of Bitcoin. Interestingly, the blockchain structure can be traced back to the early 1990s, although it was only used for timestamping documents so they could not be changed later.

To learn more about the subject, check out The History of Blockchain.

Pros and cons of blockchain technology

Properly developed blockchains solve a problem that plagues stakeholders in various sectors, ranging from finance to agriculture. A distributed network has many advantages over the traditional client-server model, but there are also some disadvantages.

Pros

One of the immediate benefits noted in the Bitcoin white paper is that payments can be transmitted without involving an intermediary. Subsequent blockchains took this even further, allowing users to submit all types of information. Eliminating counterparties means there is less risk to the users involved, resulting in lower fees as there is no need for an intermediary.

Furthermore, as we mentioned, a public blockchain network is permissionless – there is no barrier to entry, as there is no one in charge. If a user can connect to the Internet, he or she can interact with other network participants (peers).

Many argue that the most important quality of blockchains is their high degree of censorship resistance. To harm a centralized system, all a malicious actor needs to do is target the server. However, in a peer-to-peer network, each Node acts as its own server.

A system like the Bitcoin blockchain has more than 10,000 visible nodes spread across the world. In other words, it is practically impossible for an attacker to have enough resources to compromise the network in any way. It is important to note that there are also many hidden nodes, which are not visible to the entire network.

These are some of the general advantages. There are many specific use cases for blockchains, as you can see in the chapter What is blockchain used for?

Contras

Blockchains are not a silver bullet for all problems. When optimized for the advantages of the previous section, they end up leaving something to be desired in other areas. The most obvious obstacle to the mass adoption of blockchains is that they do not scale well.

This goes for any distributed network. Since all participants must remain synchronized, new information cannot be added as quickly as nodes would not be able to keep up. Therefore, developers tend to intentionally limit the speed at which a blockchain updates, ensuring that the system remains decentralized.

In a network, if many users are making simultaneous transactions, they may experience long waiting periods. Blocks can store a limited amount of data and are not added to the chain instantly. If there are more transactions than a block can store, additional transactions will have to wait for the next block.

Another possible disadvantage of decentralized blockchain systems is that they cannot be easily updated. If you are creating your own software, you can add new features as you wish. You don't need to work with others or ask permission to make changes.

In an environment with potentially millions of users, making changes is much more difficult. You could change some of the node's software parameters, but you would end up separating yourself from the network. If your modified software is incompatible with other nodes, they will recognize this and refuse to interact with your node.

Suppose you want to change a rule about block sizes (from 1 MB to 2 MB). You can try to send this block to the nodes you are connected to, but they have a rule that says “do not accept blocks larger than 1 MB”. If they receive a block larger than allowed, they will not include it in their copy of the blockchain.

The only way to make changes is to get the majority of the ecosystem to accept them. Considering the main blockchains, it may take months – or even years – of intense discussion in forums before changes or proposed changes can be implemented. See Hard Forks and Soft Forks for more information.

Chapter 2 - How does blockchain work?

Content

• How are blocks added to the blockchain?

• Mining (Proof of Work)

  • Vantagens do Proof of Work

  • Desvantagens do Proof of Work

• Staking (Proof of Stake)

  • Vantagens do Proof of Stake

  • Desvantagens do Proof of Stake

• Other consensus algorithms

• Is it possible to reverse blockchain transactions?

• What is blockchain scalability?

• Why does blockchain need to scale?

• What is a blockchain fork?

  • Soft forks

  • Hard forks

How are blocks added to the blockchain?

We've covered a lot of important information so far. We know that nodes are interconnected and that they store copies of the blockchain. They transmit information about transactions and new blocks to each other. We've already discussed what nodes are, but you might be wondering: how are new blocks added to the blockchain?

There is no single source to tell users what to do. Since all nodes have the same power, there needs to be a mechanism that accurately decides who can add new blocks to the blockchain. We need a system that makes cheating costly and rewards users for acting honestly. Any rational user will prefer to act in a way that is economically beneficial to him.

As the network is permissionless (there is no need for permission), the creation of blocks needs to be accessible to anyone. Protocols generally ensure this by requiring the user to put some of their “skin in the game” – they must put their own money at risk. This allows users to participate in block creation and if a valid block is generated, rewards will be distributed accordingly.

However, if cheating is attempted, everyone in the network will know. Any stake value from the user who attempts to cheat will be lost. We call these mechanisms consensus algorithms because they allow network participants to reach consensus on what the next block added should be.

Mining (Proof of Work)

Mining is by far the most used consensus algorithm. In mining, a Proof of Work (PoW) algorithm is used. This involves users offering computational power to try to solve a puzzle established by the protocol.

This puzzle requires users to transact the hash and other information contained in the block. But for the hash to be considered valid, it must be less than a certain number. As there is no way to predict what the output will be, miners must continue using slightly modified data until they find a valid solution.

Evidently, the process of repeating data hashing is expensive, in terms of computation. On Proof of Work blockchains, the “stake” value that users propose is the money that was invested in computers for mining and the electricity used to power them. They do this in hopes of getting a block reward.

Remember what we said earlier that it's practically impossible to reverse a hash, but it's easy to verify it? When a miner sends a new block to the rest of the network, all other nodes use it as input in a hash function. They only need to run it once to verify that the block is valid given the blockchain rules. Otherwise, the miner does not receive the reward and will have spent resources and electricity for nothing.

The first Proof of Work blockchain was Bitcoin. Since its creation, many other blockchains have adopted the PoW mechanism.

Vantagens do Proof of Work

• Tried and true – To date, Proof of Work is the most mature consensus algorithm and has secured billions of dollars in value.

• Permissionless – anyone can participate in the mining competition or simply run a validation node.

• Decentralization – miners compete with each other to produce blocks, which means that hash power is never controlled by a single network participant.

Desvantagens do Proof of Work

• Waste – mining consumes a huge amount of electrical energy.

• Increasing barriers to entry – As more miners join the network, protocols increase the difficulty of the mining puzzle. To remain competitive, users must invest in better equipment. The costs could end up being too high for miners.

• 51% Attacks – Although mining promotes decentralization, there is the possibility of a single miner acquiring the majority of hash power. If this happens, it would theoretically be possible to undo transactions and compromise the security of the blockchain.

Staking (Proof of Stake)

In Proof of Work systems, what encourages users to act honestly is the high amount invested in mining. The miner will not receive a return on his investment if he does not mine valid blocks.

With Proof of Stake (PoS), there is no external cost. Instead of miners, there are validators who propose (or “forge”) blocks. They can use a regular computer to generate new blocks, but they must stake a significant portion of their funds to have this privilege. The staking value is a predefined amount of the blockchain's native cryptocurrency, according to the rules of each protocol.

Different implementations have different variations, but once a validator stakes their units, they can be randomly selected by the protocol to announce the next block. If the user does this correctly, he will receive a reward. There may be several validators who agree on the next block and a reward is distributed proportionally, according to the stake value of each one.

“Pure” PoS Blockchains are less common than DPoS (Delegated Proof of Stake), which require users to vote, choosing nodes (witnesses) to validate blocks for the entire network.

Ethereum, the leading smart contract blockchain, will soon transition to Proof of Stake in its migration to ETH 2.0.

Vantagens do Proof of Stake

• Sustainable – the environmental impact of PoS is much lower than that of PoW mining. Staking removes the need for resource-intensive hashing operations.

• Faster transactions – as there is no need to spend computational power on solving random puzzles defined by the protocol, some PoS advocates argue that the transaction rate can be higher.

• Staking and interest rewards – instead of benefiting miners, rewards for securing the network are paid directly to token holders. In some cases, PoS allows users to earn passive income in the form of airdrops or interest simply by staking their funds.

Desvantagens do Proof of Stake

• Under-tested – PoS protocols have not yet been tested on a large scale. There may be some not yet known vulnerabilities in its implementation or cryptoeconomics.

• Plutocracy – there is a concern that PoS may encourage an ecosystem where “the rich get richer”, as validators with a large stake (stake value) tend to receive more rewards.

• “Nothing-at-stake” problem – in the PoW system, users can only choose one chain – they mine on the chain they believe has the most potential for success. During a hard fork, they cannot stake multiple chains with the same hash power. However, PoS validators can work across multiple chains with very little additional cost, which can cause economic problems.

Other consensus algorithms

Proof of Work and Proof of Stake are the most common consensus algorithms, but there are many others. Some are hybrid models that combine elements of both systems, while others use different methods.

We won't go into detail about the other methods here. If you are interested, check out the following articles:

• What is Delayed Proof of Work

• Algoritmo de Consenso Leased Proof of Stake

• What is Proof of Authority?

• What is Proof of Burn?

Is it possible to reverse blockchain transactions?

Blockchains are very robust databases. Its inherent properties make removing or altering data from the blockchain a very difficult process after registration. When it comes to Bitcoin and other larger networks, this is almost impossible. So, when you are making a transaction on a blockchain, it is best to think of it as an eternal transaction, which cannot be reversed.

Considering this, there are several blockchain implementations and the main difference between them is in relation to obtaining consensus within the network. This means that in some implementations, a relatively small group of participants can obtain enough power on the network to effectively reverse transactions. This is especially concerning for altcoins running on small networks (with low hash rates due to low mining competition).

What is blockchain scalability?

The term blockchain scalability is typically used as an umbrella term to refer to the ability of a blockchain system to meet increasing demand. Blockchains have desirable properties (such as decentralization, censorship resistance, immutability), but these properties come at a cost.

Unlike decentralized systems, a centralized database can work with higher speed and transfer rates. This makes sense, as there is no need for thousands of nodes spread across the world to synchronize with the network each time their content is modified. But this is not the case with blockchains. Therefore, scalability has always been a hotly discussed topic among blockchain developers.

Several solutions have already been proposed or implemented to mitigate some of the performance disadvantages of blockchains. To date, however, there is no approach that is clearly effective. There is still a need to test many of the different solutions until there are more direct answers to the scalability problem.

On a broader level, we have a fundamental question about scalability: should we improve the performance of the blockchain itself (on-chain scalability) or should we allow transactions to be executed without overloading the main blockchain (off-chain scalability)?

There are clear advantages to both. On-chain scaling solutions can reduce the size of transactions or simply optimize the way data is stored in blocks. On the other hand, off-chain solutions involve batch transactions, outside the main blockchain, which are added later. Some of the most notable off-chain solutions are called sidechains and payment channels.

To learn more about this subject, see the article Blockchain Scalability - Sidechains and Payment Channels.

Why does blockchain need to scale?

If blockchain systems want to compete with centralized systems, they need to have at least the same performance as them. Realistically, however, they will likely have to perform even better to encourage developers and users to move to platforms and applications based on blockchain technology.

In other words, when compared to centralized systems, the use of blockchains needs to be faster, cheaper and easier for developers and users. This is not an easy task, considering that the most important properties of blockchains, mentioned above, must be maintained.

What is a blockchain fork?

As with any software, blockchains need updates to fix problems, add new rules or remove old ones. As blockchain software is open-source, theoretically, anyone can propose new updates to be added to the software that manages the network.

Remember that blockchains are distributed networks. After the software is updated, thousands of nodes around the world need to communicate and implement the new version. But what happens if participants can't agree on which update to implement? Generally, there is no established organization or hierarchy making this decision. This brings us to hard forks and soft forks.

Soft forks

If there is consensus on an update, the process is relatively simple. The software is updated with backwards compatible changes, which means that upgraded nodes can still interact with those that haven't. In reality, the expectation is that almost all nodes will be updated after a while. This is called a soft fork.

Hard forks

A hard fork is more complicated. Once implemented, the new rules will be incompatible with the old rules. Therefore, if a node running the new rules tries to interact with one running the old rules, they will not be able to communicate. This results in the blockchain splitting into two – in one, the old software is running and in the other, the new rules have already been implemented.

After the hard fork, there are essentially two networks running two different protocols, in parallel. It is worth noting that at the time of the fork (split), the balances of the native blockchain unit are cloned from the old network. Therefore, if at the time of the fork, you have a balance on the old chain, you will also have a balance on the new one.

To learn more about this subject, see Hard Forks and Soft Forks.

Chapter 3 - What is blockchain used for?

Content

• Blockchain for supply chain

• Blockchain and the gaming industry

• Blockchain for healthcare systems

• Blockchain and remittances

• Blockchain and digital identity

• Blockchain and the Internet of Things (IoT)

• Blockchain for governance systems

• Blockchain for charities

• Blockchain for the speculative market

• Crowdfunding com blockchain

• Blockchain and distributed file systems

Blockchain technology can be used for a variety of use cases. Let's discuss some of them.

Blockchain for supply chain

Efficient supply chains are the foundation of many successful businesses, focusing on managing goods from supplier to consumer. However, coordinating multiple stakeholders in a given sector has traditionally proven difficult. However, blockchain technology can enable new levels of transparency across many sectors. An interoperable supply chain ecosystem that revolves around an immutable database is exactly what many industries need to become more robust and reliable.

If you want to read more about this topic, see the article Blockchain use cases: Supply Chain.

Blockchain and the gaming industry

The gaming industry has become one of the largest entertainment industries in the world and can benefit greatly from blockchain technology. Typically, gamers tend to depend completely on game developers. In most online games, players are required to accept the server conditions and follow the developers' rules, which are constantly changing. In this context, blockchain can help decentralize the administration, management and maintenance of online games.

One potential problem, however, is that game items cannot exist externally, eliminating the chances of real ownership and secondary markets. By adopting a blockchain-based approach, games can become more sustainable in the long term and in-game items issued as crypto-collectibles could have real-world value.

If you want to know more about the subject, see the article Blockchain Use Cases: Games.

Blockchain for healthcare systems

Storing medical records reliably is vital to any healthcare system. Reliance on centralized servers leaves sensitive information in a vulnerable position. The transparency and security of blockchain technology make it an ideal platform for storing medical records.

By cryptographically securing their records on a blockchain, patients can maintain their privacy while also being able to share their medical information with any healthcare institution if they are interested. If all members of the current fragmented healthcare system could access a secure, global database, the flow of information would be much faster between all institutions and members of the system.

If you want to know more about the subject, consult the article Blockchain Use Cases: Health Systems.

Blockchain and remittances

Sending money internationally using traditional banks is a relatively complicated process. Mainly due to the bureaucratic network of intermediaries, fees and settlement times make using traditional banks an expensive and unreliable option for more urgent transactions.

Cryptocurrencies and blockchains eliminate this ecosystem of intermediaries and allow for fast and cheap transfers around the world. While blockchains undoubtedly sacrifice performance for some of their desirable properties, several projects are leveraging the technology to enable cheaper and near-instant transactions.

If you want to know more about the subject, see the article Blockchain Use Cases: Remittances.

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Blockchain and digital identity

Secure identity management on the Internet urgently needs a fast solution. An extraordinary amount of our personal data is stored on centralized servers and analyzed by machine learning algorithms without our knowledge or consent.

Blockchain technology allows users to take ownership of their data and selectively reveal information to third parties, only when necessary. This kind of cryptographic magic can improve the online experience, without sacrificing user privacy.

If you want to know more about the subject, see the article Blockchain Use Cases: Digital Identity.

Blockchain and the Internet of Things (IoT)

Currently, an extraordinary number of devices are connecting to the Internet and this number is only increasing every day. Some speculate that communication and interactivity between these devices could improve significantly using blockchain technology. Automated machine-to-machine (M2M) payments can create a new economy based on a secure, high-throughput database solution.

If you want to know more about the subject, see the article Blockchain Use Cases: Internet of Things (IoT).

Blockchain for governance systems

Distributed networks can define and enforce their own forms of regulation in the form of computer codes. It is no surprise that blockchain technology can provide the elimination of intermediaries from various governance systems at a local, national or even international level.

Furthermore, it could solve one of the biggest problems facing open-source development environments today – the lack of a reliable mechanism for distributing funds. Blockchain governance ensures that all participants can be involved in decision-making and provides a transparent view of what policies are being implemented.

If you want to know more about the subject, see the article Blockchain Use Cases: Governance Systems.

Blockchain for charities

Charities often suffer from limitations on how they can accept funds and donations. Additionally, it can be difficult to accurately track the final destination of donated funds, which undoubtedly discourages many people from supporting these organizations.

“Crypto-philanthropy” is concerned with using blockchain technology to circumvent these limitations. Drawing on the inherent properties of technology to ensure greater transparency, global participation and reduced expenses, the emerging field seeks to optimize the impact of charities. One such organization is the Blockchain Charity Foundation.

If you want to know more about the subject, see the article Blockchain Use Cases: Charities.

Blockchain for the speculative market

Without a doubt, one of the most popular uses of blockchain technology is financial speculation. Frictionless transfers between brokers, non-custodial trading solutions and a growing derivatives ecosystem make blockchain an ideal environment for all types of speculation.

Due to its properties, blockchain technology is an excellent instrument for users willing to take the risk of participating in this emerging asset class. Some even believe that after the technology matures and is regulated, global speculative markets could all be tokenized for use in blockchain technology.

If you want to know more about the subject, consult the article Blockchain Use Cases: Predictive Markets.

Crowdfunding com blockchain

Online crowdfunding platforms have been laying the foundations for the peer-to-peer economy for almost a decade. The success of these sites shows that there is a real interest in developing products with crowdfunding. However, these platforms act as custodians of the funds, meaning they may end up charging a considerable portion of the funds as fees. Furthermore, each would have its own set of rules, which would facilitate agreement between the different participants.

Blockchain technology, and more specifically smart contracts, could enable more secure and automated crowdfunding, where contract terms are defined by computer code.

Other crowdfunding applications using blockchain technology are Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs). In token sales like these, investors raise funds in the hope that the network will be successful in the future and generate returns on investments.

Blockchain and distributed file systems

Distributing file storage over the Internet has many benefits compared to conventional centralized alternatives. Much of the data stored in the cloud depends on centralized servers and service providers, which tend to be more vulnerable to attacks and can cause data loss. In some cases, users may also face accessibility issues due to censorship from centralized servers.

From a user perspective, file storage solutions that use blockchain technology work in a similar way to cloud storage solutions – you can upload, store and access files. However, the system that provides these services is quite different.

When you upload a file to blockchain storage, it is distributed and replicated across multiple nodes. In some cases, each node will store a different part of your file. Fragmented data isn't very useful, but you can ask nodes to provide each part to combine them and recover the complete file.

Storage space is derived from the participants providing storage and bandwidth to the network. Typically, these participants receive economic incentives to provide these resources. If they fail to provide resources according to the rules, they may be punished.

You can imagine this type of network as similar to the Bitcoin network. In this case, however, the main purpose of the network is not to support transfers of monetary value, but to enable decentralized and uncensored storage of files.

Other open-source protocols, such as the InterPlanetary File System (IPFS), are already paving the way for this new, more distributed Web. Although IPFS is a peer-to-peer protocol and network, it is not precisely a blockchain. However, it applies some principles of blockchain technology to increase security and efficiency.