Digitalisation, e-commerce, and the emergence of e-money in our daily lives made the notion of non-physical currency quite common. Since the early 2000s, the idea of a digital payment system and a digital currency native to the Internet has become very attractive.

What is a blockchain? Simply put, it is a data ledger (think of an accounting ledger, which records every ‘in’ and ‘out’ transaction). The ledger is distributed, which means that many copies of the same ledger exist on computers worldwide. It is also protected by strong cryptography to protect it from malicious actors attempting to change any information within the blockchain. 

How was this technology born? In 1992, W. Scott Stornetta and Stuart Haber presented the idea of blocks of digital data that are chained by cryptography to prevent tampering with time-stamped documents. By 2008, an anonymous person known by the name of Satoshi Nakamoto, proposed a new payment system to a group of prominent cryptographers and mathematicians through a cyberpunk mailing list.

The proposal, called Bitcoin: Peer-to-peer electronic payment system, was based on an online distributed ledger - verified by cryptography - functioning through a ‘proof-of-work’ consensus mechanism - the same technology that was being used to tackle spam. The term blockchain was not mentioned in the proposal; it was coined later on, with reference to Stornetta and Haber’s proposal.  

How is new data added to a blockchain? Every computer (or node) synchronises the data through a consensus-based mechanism. Once data is added, it cannot be added or altered on a blockchain unless there is a consensus.  

There are many types of blockchain databases. The main types are open blockchains, and closed or private blockchains.

Open blockchains 

Open blockchains are permissionless: they are fully transparent and each transaction is visible to anyone on the network. The most prominent open blockchain is the one developed for the Bitcoin cryptocurrency in 2009.

The aim behind an open blockchain is to do away with a central authority which arbitrates each transaction, such as a financial institution or a payment processor, allowing individual users to carry out transactions directly (peer-to-peer). 

Private or closed blockchains

A private blockchain is controlled by a central authority. One or several parties can control who can add data, and take part in setting the rules. The advantage of this model is the ability to react to any incorrect data that is inputted. Security is therefore entrusted to the central authority, which is able to change the rules and expel malicious users. 

Blockchain as a service 

With the emergence of the blockchain industry, large tech players stepped in to create ready-to-use, deployable blockchain solutions. Given the large processing power needed to secure transactions on the blockchain, IBM, Microsoft, and others were able to use the power of their massive cloud capacities to offer secure, fast, and scalable blockchains. 

How is blockchain used mostly?

The most prominent use is as a platform for cryptocurrencies. Bitcoin’s blockchain, based on the open, permissionless model, was proof that large-scale deployment was indeed possible. Other cryptocurrencies started introducing open and closed blockchains to issue and monitor online currencies. 

Blockchain is also used extensively in supply chains. Major world retailers and distributors can track merchandise alongside global supply chains, which helps the industry cross-check data such as labeling processes. From the food industry to the aero-parts industry, blockchain is proving itself to be a powerful tool for reducing costs and introducing trust throughout the production and supply chains. 

Blockchain technology is also being used for storing and safeguarding public information. Examples include land registries, the issuance of personal documents, and for online verification methods. 

Blockchain-based digital identities could bring a decentralised approach to data management, and empower users to choose how and which of their personal data can be shared on the Internet. Tech companies are creating deployable solutions: these include Microsoft’s partnership with the W3C consortium to introduce open standards for Decentralised Identifiers, and IBM’s own digital identity solution

The certification of goods, academic degrees, and even copyright claims are next on the private sector’s radar for potential development. 

Mr Arvin Kamberi

Multimedia Coordinator, DiploFoundation

An expert in remote participation, Mr Arvin Kamberi heads up Diplo’s Webinar Team. Based in Belgrade, he has been working on webinars and other web-based remote participation since 2011. Arvin has been part of the remote participation team for many international forums, such as the IGF, EuroDIG, and local IGF events such as IGF Africa. From 2014 to 2015, he was a part of the IGF Working Group on Remote Participation (established in 2008), and involved in the elaboration of IGF remote participation guidelines.

Arvin has a keen interest in cryptocurrency and blockchain developments; first as an avid ‘miner’, then more in terms of regulation and consensus mechanisms surrounding the decentralised systems. His primary focus is on Bitcoin development, but he follows other cryptocurrency developments and the blockchain/distributed ledger technology, too. Vice President of Bitcoin Association of Serbia, Arvin writes extensively about Bitcoin and blockchains. He holds an MA in Film and Video Production from Belgrade University of Art.

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