Blockchain is a new database, also known as a distributed ledger. By combining cryptographic technologies such as P2P communication and Hash functions, it is possible to synchronize information such as transaction data with multiple computers while hedging the risk of falsification / loss.

After the rapid expansion of the market over the past five years, despite the security issues, it is now being applied and used in all industries, including China, both financial and non-financial. Where will blockchain technology go in the future while complementing IoT and AI? I will explain thoroughly.

What is a blockchain?

Blockchain is a new database (distributed ledger)

Blockchain was born as the core technology of “Bitcoin” (virtual currency network) advocated by Satoshi Nakamoto in 2008.

Bitcoin uses various old and new technologies such as P2P (Peer to Peer) communication, Hash function, and public key cryptography, and the blockchain plays the role of a platform that connects them.

There are various definitions of blockchain, but here it is better to understand it as ” a format and rules for properly recording transaction data. Also, a collection of stored data (≒ database) “. Probably.

Generally, a system that collects and stores transaction data and retrieves it as needed is generally called a “database”, but blockchain, which is also translated as a “distributed ledger”, is a type of database, and among them in particular, it is a technology with new formats and rules regarding data management methods.

blockchain is also called the “second Internet” because of its high security capabilities, low system operating costs, and decentralized nature. In recent years, blockchain has been used not only for FinTech but also for all businesses. It is expected to be applied.

Features and merits of blockchain (difference from conventional database)

Features and benefits of the block chain, Decentralized resistance, versus falsification of data, system use costs of inexpensiveness, Byzantine resistance (defective computer is present a certain number on the network However, the entire system continues to operate normally).

These features and merits are born from the fact that the blockchain is a database that does not require a central administrator of the system, unlike conventional database data.

The main differences between blockchain and traditional databases are:

 Features of traditional databasesFeatures of blockchain
ConstructionEach subject has a DB with a disjointed structureEach entity refers to data with a common structure
DBEach DB exists independentlyEach storage is physically independent, but synchronized over a Peer to Peer network
Data sharingNew development required to refer to mutual dataSince they have common data, no new development is required to refer to each other’s data.

Blockchain is attracting attention and being used in various fields by acquiring the characteristics of “decentralized and decentralized” by a special mechanism explained later.

How the blockchain works

Blockchain foundation structure

As the name implies, a blockchain has a shape in which “blocks” are connected in order like a “chain”.

A “block” is a 1MB worth of “Tx (Transaction)”, that is, transaction data collected in a certain amount with meta information such as dates added.

If you compare it to something familiar, you can say that a block is like a chest of drawers with several drawers.

The image is that there are multiple drawers of the same size in one chest of drawers, which also contain, for example, a paper contract or cash (see the figure below).

Once you’ve stowed your contract or cash in your chest of drawers, the next thing to think about is “getting it right where and what’s going on” and “locking it securely so it won’t be stolen by a thief.” Let’s do it.

It is the blockchain recording and storage format that is likened to a “chain” that fulfills these functions.

Specifically, in addition to the date (time stamp), each block is given meta information called “Hash”, “nonce”, and “target”. Based on the information, the front block and the back block are connected like a chain under a certain rule.

In the example of a chest of drawers, the key of the first chest of drawers is put in the second chest of drawers, the key of the second chest of drawers is put in the third chest of drawers, and so on.

Furthermore, in more detail, each withdrawal (that is, each transaction) is individually locked by a method called “public key cryptography”.

Public key cryptography is an “encryption method that uses separate keys (procedures) for encryption and decryption (returning from encryption to the original data) so that the encryption key can be disclosed.”

In blockchain, this public key cryptosystem is used when transacting transaction data in order to reduce the risk of transaction data leakage.

By adopting this public key cryptosystem in addition to the chain structure, it can be said that the security of the blockchain is extremely robust.

The basic structure of such a blockchain is adopted in almost all blockchain after Bitcoin.

How are blocks made?

In the blockchain network, blocks newly created by nodes (= network participants) scattered all over the world are propagated between the nodes, and simultaneous data sharing in real time is realized.

Nodes can generate blocks by satisfying certain conditions based on consensus building rules called “consensus algorithms”.

A consensus algorithm is a consensus method by an unspecified number of nodes to determine “which data is correct?” In a blockchain where a central administrator is absent.

The consensus algorithm differs depending on the type of blockchain platform (described later), and typical examples include the following types.

  • Bitcoin: PoW (Proof of Work)
  • Ethereum: PoS (Proof of Stake)
  • Nem: PoI (Proof of Importance)
  • Ripple: PoC (Proof of Consensus)

Of these, the most famous PoW guarantees the correctness of data by the following two principles.

  • PoW principle (1st role: block generation condition) = “If the calculation related to the block meta information is successful, the block can be generated”
  • PoW Principle (Second role: Correspondence to forks) = “When multiple blocks are generated, the longest chain is legitimate and the blocks contained in it are recognized as correct “Nakamoto Consensus”

First, PoW imposes a calculation work called “mining” on the node using the block meta information (“Hash”, “nonce”, “Target”) in the block generation process.

To put it plainly, the calculation is “let’s find a number that meets a certain condition”, but it is not easy to make a block because it costs a huge amount of computer electricity to solve this problem.

However, with Bitcoin, if you can successfully generate blocks, you can get virtual currency as a reward, so many people try to make blocks and multiple blocks may be born at the same time (A situation called “fork”).

Therefore, the second point is that PoW adopts the basic principle that ” the block contained in the longest chain is correct” when multiple blocks are born.

In this way, in the blockchain network, block generation based on the consensus algorithm is performed in order to ensure the correctness of the data while being decentralized.

Blockchain related technology

P2P (Peer to Peer) communication

The most typical related technology used in blockchain is ” P2P (Peer to Peer) communication “.

The P2P, such as a personal computer communication method for transmission and reception of data directly between the information medium by the, “client over-server” of traditional database will be compared with.

In the client-server type, when sending and receiving data between information media, the presence of a central administrator is indispensable because the media that share the data do not communicate directly and go through a third-party medium as a server. (It will be easier to understand if you imagine Google Chrome or AWS).

P2P, on the other hand, does not require a third-party server to communicate directly between media.

Therefore, it can be said that the “decentralization”, which is also the greatest feature of blockchain, was brought about by this P2P.

P2P is used for personal remittances that do not go through a third party, and for Skype, which can be said to be the pioneer of free Internet telephone services.

Hash (hash value, hash function)

Each block in the blockchain has a value called a “Hash value” embedded as meta information in order to improve the tampering property of the data.

Hash values ​​are created through a special encryption technique called the “Hash function”.

In the blockchain, the Hash value of the previous block converted to Hash is passed to the next block, and it is woven into the block to create the block.

Hash has the characteristic that if the input value changes even a little, the output will be completely different.

Another feature is that the length of the output value is constant regardless of the input, and the input cannot be inferred from the output.

In summary, it has the following features, which leads to the advantages of blockchain.

Blockchain platform as a development platform

For the development of products and services utilizing blockchain, a platform that is the basis for implementing development is indispensable.

There are many types of blockchain platforms to suit your needs.

Typical blockchain platforms are as follows.

Platform nameWho is it for?Application example
EthereumFor enterprises (toC companies)Tokens, games, etc
EOSFor enterprises (toC companies)Games, etc
NEMFor enterprises (toC companies)Games, etc
RippleFor enterprises (banks)Interbank remittance (specialization)
CordaFor enterprises (toB companies)Interbank remittance, inter-company platform, etc.
QuorumFor enterprises (toB companies)Business-to-business platform, etc
Hyperledger FabricFor enterprises (toB companies)Business-to-business platform, etc
Bitcoin CoreFor individualsRemittance between individuals

As shown in the table above, the eight platforms can be roughly divided into the following four categories from the viewpoint of usage.

  • For toC companies: Suitable for developing games, etc.
  • For toB companies: Suitable for development of industry platforms, etc.
  • For banks: Specializes in interbank remittances
  • For individuals: Used as a means of small money transfer

It is beneficial not only for developers but also for business people to understand the platform that is suitable for the project that they are promoting and to understand its characteristics.

Application examples of blockchain technology

As of 2020, the two most frequently applied blockchain technologies are:

  • Token
  • Smart contract

All of these technologies are indispensable for industrial applications in non-financial fields, not to mention FinTech.

Token

Token is a concept used in the business context to mean ” disposable money for turning a small economic zone with limited exchange targets “, and is used in combination with a decentralized blockchain.

Token type

Point of distinctionToken typemeaningFamiliar example
Does the token itself have monetary value?Utility Token (Utility token)A token that becomes an asset only when it can be exchanged for other specific assetsPachinko ballsBook couponTrain and bus ticketsAmusement park admission ticket
 Security Token (Security token)A token that has its own monetary valueStock certificateClaims
Do you distinguish tokens from each other?Fungible Token… (*) (Fundable token)Tokens that are indistinguishable regardless of meta informationPure gold (→ 1 gram of gold owned by whom and where has the same value)
 Non Fungible Token (Non-fangable token)Tokens of the same type or brand that are distinguished by individually assigned meta informationLand (→ 1 square meter in Ginza and 1 square meter in Kamari are the same unit but different in value)

For example, it is used as a financing method such as ICO (Initial Coin Offering, Initial Coin Offering, New Virtual Currency Release) and STO (Security Token Offering), or as a common currency exclusively for the fan community.

Smart contract

Smart contract, at advocated by legal scholars, cryptographers that Nick Szabo in 1994, Vitalik Buterin is a computer protocol began to provide development and on Ethereum foundation, “contract (contract) Means “automation”.

By using smart contract technology that can be compared to vending machines, we will realize “fully automated and efficient processes and transactions” and socially implement the idea of ​​blockchain to eliminate inconvenience and inefficiency in the world. It is expected to continue to be used, for example, in DEX (Distributed Exchange) and voting systems.

Business utilization of blockchain

Various aspects of blockchain such as distributed ledgers, tokens, and smart contracts are socially implemented as various solutions tailored to actual business issues.

Blockchain as a business solution can be easily commercialized by dividing it into three areas: financial / non-financial / hybrid.

The first area, the financial area, is a business area for the purpose of utilizing cryptographic assets (virtual currency).

It is used in the trading market of crypto assets such as BTC (Bitcoin) and ETH (Ether), and in the derivative market using crypto assets and tokens such as ICO and STO.

The second area, the non-financial area, is the area that does not use crypto assets (virtual currency) .

In the context of DX (digital transformation) of existing industries, such as ledger sharing, proof of authenticity, and automation of counter operations, it can be said that this is the area that is currently receiving the most attention.

There are a wide variety of use cases in this area as follows.

  • Autonomous decentralized library DAOLIB concept
  • Workday Credentials
  • Medical supplies donation tracking portal
  • Socios.com (soccer fan token)
  • Medical data platform medical chain
  • ID service for the United Nations, refugees, homeless people, etc.

As a result, according to the above-mentioned blockchain-related market size forecast by the Ministry of Economy, Trade and Industry, of the total 6,12,677,882,000 USD, the so-called financial area is only 9,144,446,000 USD, and the remaining 6,03,533,436,000 USD is included in the non-financial area.

Finally, a third of the region hybrid area is, financial × non-financial, that is the area that the application of encryption assets and to solve problems in the non-financial area with, speaking roughly, the virtual currency settlement to the “real business It can be said that it is an area where you want to introduce.

It is easy to understand if the so-called “token economy” is included in this area, and it is an area where future blockchain applications are expected.

The future of blockchain (AI and IoT)

When considering the future of blockchain, the two concepts of DX (digital transformation) and the prerequisites for it are IoT and AI.

DX refers to the concept that “the penetration of IT will change people’s lives for the better in every aspect,” and it is also the most promising way to utilize blockchain.

DX is premised on the utilization of big data.

And the three concepts of IoT, blockchain, and AI can be related to each other as follows as elements of this larger social trend called “DX premised on the utilization of big data”.

  1. Collect big data → Collect data on hardware terminals by IoT
  2. Save and manage big data → Database integration and management by blockchain
  3. Analyzing big data → Processing a large amount of information by AI (machine learning)
  4. Utilize big data (implement in society)

In this way, future blockchain will analyze large amounts of data that have not been utilized so far, in collaboration with complementary technologies such as IoT and AI, under the larger framework of DX using big data. It will be used more and more as a data infrastructure for.

And as a result, blockchain has the potential to significantly change and streamline the structure of industry and society as a whole, and enrich our lives.

Blockchain challenges

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There are unavoidable barriers in exploring the future possibilities of blockchain.

It is the social spread of blockchain.

As mentioned above, in order for blockchain as an innovation to really change the world better, it involves the “uncontacted people with technology”, which is the volume zone of society, and obtains their proper understanding and cooperation. I have to go.

Blockchain has the following three main issues in order to achieve social dissemination.

  • Scalability
  • Finality
  • Security

Of these, the most important and serious issue is scalability.

Scalability is the “transaction volume scalability”, that is, the limit of how many transaction records can be processed at the same time.

Due to its mechanism, blockchain has the problem that it has to be less scalable than conventional databases.

In general, scalability can be defined by “tps (transaction per second)”, but in fact, a typical blockchain network is said to have insufficient scalability as follows. It is said.

  • Common credit card: tens of thousands tps
  • Bitcoin (consensus algorithm is PoW): 7tps
  • Ethereum (consensus algorithm is PoS): 15 ~ 20tps
  • Consortium-type blockchain network (consensus algorithm is PoA): Thousands of tps

In this way, while blockchain is expected to be an open and decentralized database, it has the problem that scalability cannot be guaranteed as the number of network participants increases.

In response to this challenge, the financial sector is paying attention to a new concept called “Lightning Network”.

Lightning Network (English: Lightning Network) processes small and many transactions such as small payments (“micropayments”) outside the blockchain (“off-chain transactions”), and the first and last transactions. It is a new method of Bitcoin network that broadcasts only to the Bitcoin blockchain and confirms it.

By utilizing the Lightning Network, there are high expectations for future development, such as the creation of a service called GO-NET that can process payments within 2 seconds and can handle more than 1 million transactions per second.

However, no solution in the non-financial sphere remains to be seen.

It can be said that these fundamental issues are important issues that determine whether blockchain can become a social foundation.

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