Bitcoin from "not understanding" to "being misunderstood" - a detailed explanation of blockchain technology

Facing the Bitcoin ransomware, I just want to say: the fear of being hurt is always because we don’t know enough about it, whether it’s a virus, Bitcoin, or something else.

Editor's note: This article is contributed by OKLink Blockchain Research Institute. OKLink is a new generation of global financial network based on blockchain technology launched by OKCoin, a leading Bitcoin trading platform in China, in 2016. The author of the article is Zhou Zihan, a senior researcher at OKLink Blockchain Research Institute.

Before the "Bitcoin ransomware" swept the world, I'm afraid many people had never heard of Bitcoin, or thought that Bitcoin was a relatively expensive...Q coin? Not to mention the underlying technology of Bitcoin, blockchain. Of course, there is nothing wrong with this. Even in the venture capital circle that is closest to new technologies and new business models, there are probably not many friends who can really explain Bitcoin and blockchain.

Since blockchain technology itself is an innovation of underlying technology, the concept of blockchain has always faced many puzzles and doubts since it entered the public eye until today: What exactly is Bitcoin and blockchain technology? Where is its innovation reflected? What is its significance? Why is blockchain technology said to be the core technology that triggers the next round of subversive revolutionary waves after steam engines, electricity, information and Internet technology? What else can blockchain do besides Bitcoin? And so on.

This article will try very hard to balance logic and popularity, and explain in detail to all curious and patient readers what Bitcoin and blockchain are!

|The design concept and operation mechanism of Bitcoin blockchain

It can be understood that Bitcoin is a digital currency that is created through algorithms on a computer network (not manipulated or interfered with by any organization or individual), whose total amount is kept constant by computer programs (it has scarcity and value preservation properties similar to gold), and which achieves peer-to-peer transfer of ownership through encryption and other means (it can circulate freely without relying on any intermediaries). It gradually forms monetary value based on people's trust in its issuance and trading system.

The core value of Bitcoin lies not only in its ability to circulate globally, but more importantly, it enables direct point-to-point transactions that do not require guarantees from a central agency.

In our current currency circulation system, the currency transfer on the Internet (whether it is electronic currency equivalent to paper money withdrawn from our bank accounts or virtual game coins, etc.) depends on a central institution, such as a bank, Alipay, or QQ Game Operation Center. However, it is much more difficult than we intuitively think to realize direct point-to-point transactions of digital currency on the Internet. Imagine if there is no bank as a central institution to verify and record the changes in account funds for each user, how can we realize the act of transfer? Or even how can we have our own account?

The Bitcoin blockchain can be understood as an accounting system. Transaction information within a period of time is packaged and recorded in a data storage unit (block). This block is timestamped, and blocks are linked together in chronological order to form a blockchain ledger.

Of course, in fact, Bitcoin blockchain technology and its operating principles are very complex. To understand it, we can first consider - what key problems must be solved to achieve peer-to-peer transmission of electronic currency?

1. How to verify the identity of the trading account?

That is, only when you prove that you are you can you control the funds in your account (in the current centralized system, the central unit confirms this by setting up account numbers and passwords for users in its general ledger).

In the Bitcoin blockchain system, identity authentication is completed through a pair of keys. When each account is created, a pair of public and private keys is automatically generated. The public key is visible to the public, and the private key is only controlled by the account owner. The characteristics of this pair of keys are that the information encrypted by one key can only be decrypted by the other key that is paired with it, and one key cannot be used to infer the other key.

During the transaction, payer A uses a private key to encrypt the given information. The recorder of the transaction can use the public key of A to decrypt and verify the encrypted content (as shown below) to determine whether he is the real owner of account A. Similarly, payer A encrypts the given information with the public key of the target payee B. Payee B needs to use his own private key to decrypt and verify in order to be eligible to receive the payment. The digital signature in the blockchain refers to the act of using the unique matching private key and public key to complete encryption and decryption verification to prove the identity.

2. How to confirm whether a transaction is valid?

The core lies in how the payer proves that there are sufficient funds in his account to make the payment (in the current centralized system, the central unit sets a balance item for each account in its general ledger. The balance increases after an income and decreases after an expenditure. The expenditure can be executed if the expenditure amount is less than the account balance).

The verification mechanism in the Bitcoin blockchain is unique. It does not check the total balance of the expenditure account, but only needs to prove that there is at least an amount to be spent in the expenditure account. For example, if A needs to spend 20 bitcoins to B, he only needs to prove that his account has received 20 bitcoins in historical transactions and these 20 bitcoins have not been spent. But in fact, there may not be an unconsumed income of exactly 20 bitcoins in historical transactions. If there is an income of 25 bitcoins, of course, it is OK. Then the transaction information record is: 1. A account received 25 bitcoins in a transaction numbered m; 2. A spends 20 bitcoins to B; spends 5 bitcoins back to himself (as shown in the figure below, "input" refers to the transaction that indicates the source of funds, and "output" indicates where the funds will go in this transaction). In this way, every previously obtained fund is fully consumed in the next transaction, without recording the balance.

The specific confirmation process of transaction n in the above figure is that Alice, who runs a client node on the Bitcoin blockchain, broadcasts the transaction information to other nodes and signs it. All nodes that hear the transaction information online have the right to verify and record the validity of the transaction - verify Alice's signature, search and confirm that transaction m really exists and that transaction m has not been referenced by other transactions before; on average, transaction information that passes the validity confirmation within every 10 minutes will be packaged and recorded into a data block (that is, a block) by the accounting node. The successful linking of the block to the blockchain means that all transactions recorded in this block have actually occurred.

The Bitcoin blockchain accurately records the time of block generation by adding a timestamp to each block, that is, the time of the recorded transactions, to avoid duplicate payments. If two contradictory transaction broadcasts are received in the process of packaging transaction information (for example, Alice said in one transaction broadcast that she would transfer 20 of the 25 coins from transaction m to Bob and the other 5 to herself; in another broadcast, she transferred 25 coins from transaction m to Mary), the accounting node will usually choose to record the one heard first by default.

But the trouble is that network communications have delays, and nodes in different locations may not hear the two broadcast messages in the same order.

For example, if A wants to spend 20 bitcoins to buy an electronic device from B, he needs to issue a broadcast instruction that "A received 25 bitcoins from the previous transaction m, and now pays 20 bitcoins to B and 5 bitcoins to A". However, A may have bad intentions and soon send another broadcast saying that all 25 bitcoins should be transferred to the M account (which may be another account of A). It is possible that some nodes heard the correct broadcast of payment to B first, so they recorded this payment, and then ignored another broadcast that could not pass the duplicate payment verification, while some nodes heard and recorded another false information first.

Then one possible situation is that the block recording the correct information (A transfers 20 coins to B) is first incorporated into the blockchain. After B learns of this, he thinks the transaction is effective and delivers the electronic device to A.

However, the next block recorder happens to be a node that heard the false information first, so he thinks that the transaction of 25 coins transferred to M account that he heard first is correct, and the transaction of 20 coins transferred to B recorded in the previous block is not valid, so he chooses not to continue the previous block, but to link his new block to the previous block, and the subsequent block recorder also happens to agree with the new block and chooses to continue after the new blockchain. Then, the subsequent block recorder will see two forked blockchains, one is a shorter blockchain that records the real transaction, and the other is a longer blockchain that records false information. In the case of no particular insistence on the judgment of transaction information, the new recorder will often choose to continue on the longer blockchain - the longer blockchain often represents a more complete transaction record, so the block that records the correct transaction is abandoned and becomes an invalid orphan block, and B has to bear the loss of both people and money.

Although the probability of such a situation occurring is small, it is indeed impossible to completely avoid it, so Bitcoin blockchain transactions have formed a principle of "waiting for six confirmations", that is, B in the above text should not rush to fulfill his transaction obligations after learning that the block recording the correct transaction information has entered the blockchain, but needs to wait for the next 5 blocks to successively recognize this block (that is, choose to extend the blockchain after this block) before confirming that the transaction of obtaining 20 coins has actually occurred. The reason is that if there are still block recorders who attempt to overturn this transaction after 6 confirmations and merge the block recording false information into the blockchain, they must overturn the records of the previous 6 blocks and connect the new block from the 7th to last block. Then this new blockchain is 6 orders of magnitude shorter than the other blockchain. In this case, the possibility of this new blockchain being recognized by subsequent block recorders will be very, very small, almost non-existent.

3. Who records transactions? How can we ensure that transactions can be objectively recorded?

We have been talking about block recorders before, so who are the block recorders? The key is how to ensure that the recorders can objectively record transaction information?

Every Bitcoin blockchain node has the right to record transaction information broadcast by any node. However, on average, only one node can obtain the right to record once through verification by other nodes every 10 minutes, thereby putting the new block recorded by itself into the blockchain (the reason for setting a longer information packaging time of 10 minutes is mainly to allow each node to more fully receive and verify information on a network where communication may be obstructed). The process of obtaining the right to record once and generating a new block is commonly known as - a miner has dug up a piece of mineral.

First of all, why do nodes fight for the right to keep accounts? Because there are rewards!

In the face of a blockchain that already has N blocks connected, obtaining the right to record the N+1th block means generating the N+1th new block in the blockchain. On the Bitcoin blockchain, the process of block generation is also the process of Bitcoin creation. Every time a new block is generated, a certain number of Bitcoins will be created. (The number of Bitcoins that can be created by generating a block is stipulated to be halved every four years. When the first block was generated in January 2009, the world had the first batch of 50 Bitcoins. After December 2012, each block generated will only create 25 Bitcoins, and so on. By 2140, no new Bitcoins will be generated, and the total number of Bitcoins in the world will be 21 million at that time.)

The reward for the bookkeeper is to get the newly created Bitcoins from the generated block! In addition, traders who broadcast transactions seeking to record can choose to pay a certain amount of hard work to the recorder. The part of the transaction output amount in the broadcasted transaction information that is less than the transaction input amount is paid by default to the creator of the new block that successfully recorded the transaction.

Next, how to achieve objective recording of transaction information?

There are two important prerequisites for objectively recording transaction information: first, to prevent the block's accounting rights from being manipulated. For example, if a node or multiple nodes under the control of an organization obtain the accounting rights for multiple consecutive times, they may allow some false transactions to be confirmed by multiple blocks in a row, making it difficult to overturn them, as we worried in the previous article. Second, after some bad nodes on the blockchain that do not comply with the blockchain rules randomly obtain the accounting rights, the behavior of recording false transactions can be corrected.

The Bitcoin blockchain system has a core idea and a basic assumption when solving these two problems. The core idea is to make each acquisition of bookkeeping rights require a certain cost, so that the cost of manipulating bookkeeping rights is much higher than the possible benefits, so that each node will spontaneously and honestly abide by the pre-set rules in the protocol for the sake of maximizing its own interests; the assumption is that most nodes can rationally judge that bearing the cost and risk of doing bad things is not as great as the economic benefits that can be obtained by abiding by the rules, so among all the nodes on the blockchain, there are no bad nodes as high as 51%, and the current rules cannot be subverted.

That is, most nodes are fulfilling their accounting obligations based on the idea that "it is not easy to obtain the right to keep accounts once, I need to keep accounts truthfully and objectively, follow a block that is not suspected of doing bad things, and let the blocks behind me recognize my block, so as to ensure that my block continues on the longest chain, and to ensure that the Bitcoin reward I get for creating the block is valid." Then, even if some bad nodes fail to fulfill their accounting obligations seriously after obtaining the right to keep accounts, the good nodes behind them will overturn the previous block and create a new block based on the belief that "most nodes are good nodes, and the good nodes will support me as a good node instead of the previous bad nodes"!

In actual operation, the cost set for obtaining the right to record accounts is that the block recorder needs to obtain a "random number" that is difficult to calculate through a large number of mathematical operations (now it takes an average of about 2^32 different random number substitution operations to obtain a random number that meets the requirements)! After the random number is found, the bookkeeper broadcasts the block filled with the random number to other nodes. After receiving it, other nodes quickly verify whether the random number meets the requirements (random numbers are difficult to calculate but easy to verify) and whether there are repeated payments in the transaction information recorded in the block. If the verification is passed, it is judged that it has obtained the right to record the current block, then it will stop its own round of calculations and turn to strive for the right to record the next block. It may also be unlucky that two blocks that are far away calculate the random number almost at the same time, and both have been verified and recognized by some nodes-the node closer to itself will hear its broadcast first, then which of the two blocks will eventually successfully enter the blockchain depends on which block the block that obtains the right to record chooses to continue its block after, and the block that is not selected becomes an abandoned orphan block.

This is a consensus mechanism of proof of work, that is, by bearing a certain computing cost (electricity and server fees, etc.), completing a large amount of computing work and obtaining the right to record books through verification. The implicit condition is that the probability of a node successfully completing the calculation and obtaining the right to record books is positively correlated with the proportion of its server's computing power to the total network computing power, which explains why it takes an unimaginably high cost to manipulate the right to record books.

4. What if the previously recorded transactions cannot be found or have been tampered with?

In the current centralized system, generally speaking, all user account information and historical transaction information recorded by the central unit are stored on their servers with strong security protection and backed up to ensure that they are not lost or damaged. So how does the information recorded on the blockchain achieve this?

As we mentioned before, after other nodes verify a block, they express their approval - they agree to continue their next block after this block (this block can be called the parent block of the next block). The specific operation here involves a concept called hash algorithm.

The hash algorithm is an algorithm that can easily convert character information of any length into a string of fixed length (hash value). The main features of the hash algorithm are: 1. The original information and the output hash value have a unique matching relationship. Changing even a punctuation mark in the original information will produce a significant change in the hash value; 2. The original information cannot be cracked by the hash value; 3. Within the existing computing power of humans, there are no duplicate hash values.

The connection between blocks is that the next block writes the hash value of the "block header" of the previous block into its own block (a block consists of a "block header" that records the basic information of the block and a "block body" that records all specific transaction information), that is, fills the "header hash" value of the previous block header into the "parent hash" field of the new block, and the corresponding connection relationship is established between blocks through the "parent hash", thus forming a complete blockchain. This means that, first, we can trace back to the first genesis block by indexing the "parent hash" of the current block; second, if someone attempts to tamper with any data on one of the blocks, it will cause a series of changes in the block hash value, and the tampering behavior will be immediately identified.

In addition, all transaction information recorded in each block is stored in a binary tree data structure (Merkle tree) that uses a hash algorithm. 1 to n transaction data are regarded as the outermost n leaves (end nodes) of this data tree. The end nodes are then grouped in pairs to calculate hash values. Groups of hash values ​​form a new layer of data with fewer nodes, and so on, until we get a single tree root node. As long as the "root hash" is remembered, any attempt to tamper with the transaction data will be detected.

Only recording the "root hash" in the "block header" of the block greatly reduces the requirements for the storage of the "block header" data. Each node on the Bitcoin blockchain can store the complete block header data on the entire blockchain, realizing the backup of the blockchain ledger at each node. In addition, under the Merkle tree data structure, by verifying the path of a transaction to the root hash, it is possible to quickly and simply prove whether the transaction exists on this block.

This ensures that transaction records are traceable and cannot be tampered with!

Attached is a schematic diagram of the blockchain structure, which can be intuitively understood~

It is important to point out that before the blockchain technology, people had tried to achieve value transfer without intermediaries by transmitting digital currency (essentially digital information) point-to-point on the Internet, but it was difficult to achieve due to the reproducibility of digital information and the inability to solve the problem of duplicate payments. The greatest innovation in the Bitcoin blockchain system is that currency owners no longer need to fight for ownership by proving the unique validity of the digital currency they hold, but it depends on the process of ownership transfer being recognized by other nodes on the blockchain network - that is, the number of bitcoins you own is actually the number of bitcoins you can effectively spend on the long-term consensus blockchain recognized by the most nodes.

Seeing this, we should at least understand why the virus hackers would extort Bitcoin this time, right? To summarize it simply, first of all, it is valuable! The value of a currency is based on its circulation ability. As a digital currency that can circulate globally, the current transaction price of 1 Bitcoin has reached 10,612.66 RMB (OKCoin latest transaction price). Secondly, it is anonymous. On the Bitcoin blockchain, the opening of an account is completed in a computer program and encryption algorithm, and you do not need to show your face and ID card. Of course, the current regulatory policy in my country requires real-name purchases of Bitcoin. Finally, the issuance and circulation of Bitcoin is not controlled by any central entity, and no public authority has the power to freeze Bitcoin accounts.

Of course, the advantages of any new technology that brings new changes may be exploited by criminals. The improvement of technology and system requires a process, so we will not discuss it here. The focus is still on the technology of Bitcoin blockchain itself.

|Characteristics and scalability of blockchain technology

Out of admiration for the exquisite design of Bitcoin blockchain, a lot of details of the Bitcoin blockchain operation mechanism are shared above. But in fact, not understanding some details does not affect the analysis of blockchain technology and its application. Moreover, some settings in the Bitcoin blockchain system, such as generating a new block every 10 minutes on average and each block has a size of 1M, are not principles that must be followed when designing the blockchain system. When discussing blockchain technology, we should still start from the core characteristics and innovation of the technology.

In fact, blockchain is not a technological innovation in a single direction, but an integrated innovative solution based on existing cryptography, distributed database, P2P communication and other technologies. Its biggest innovation can be said to be the introduction of a consensus mechanism and reward mechanism that uses a group of random individuals to replace the traditional central unit to manage the system operation.

In summary, the basic characteristics, intrinsic characteristics and important scalability of blockchain technology solutions are as follows:

Decentralization based on P2P communication technology and consensus mechanism

Different from the centralized network model, each node in the P2P network has the same network power, and there is no central server. All nodes share some computing resources, software or information content through specific software protocols. Before the emergence of Bitcoin, P2P network computing technology has been widely used to develop various applications, such as file sharing and downloading software, online video playback software, etc.

The core of blockchain technology decentralization is that it enables individual organizations and individuals to improve collaboration efficiency in a distributed manner under unified consensus rules through technical means. The main value of decentralization is: 1. Reducing the transaction information transfer process and improving transaction processing efficiency; 2. Eliminating the cost burden of the central agency operation; 3. All nodes on the network participate equally in the verification and recording of transactions, eliminating the risk of being controlled by any central organization.

De-trust based on cryptography - the essence is that information can be objectively recorded and cannot be tampered with

In fact, decentralization and trustlessness complement each other and are inseparable. It is in a transaction network without the guarantee of a central authority (or precisely because we want to overthrow the reliance on the guarantee of a central authority) that we need to solve the problem of trust through technical means. If trustlessness cannot be achieved, the decentralized network will lose its basis for operation.

Trustlessness means using technical rules to strengthen credit and realizing self-restraint through algorithms. Any malicious behavior of deceiving the system will be rejected by other nodes. Its essential manifestation in blockchain is that all transaction information can be effectively confirmed and objectively recorded, and historical transactions can be traced and cannot be tampered with. This is mainly achieved by the asymmetric cryptographic algorithm (private key and public key) and hash algorithm mentioned above.

All nodes in the entire system can automatically and securely exchange data in a self-trust environment, saving the cost of establishing trust; once the information is confirmed, it is permanently recorded and cannot be tampered with, greatly improving the data's ability to be securely stored and traced.

Distributed network based on distributed database

A blockchain distributed network is a topological network consisting of numerous nodes running blockchain clients, where points are connected to each other.

In this network, each node shares an open database, that is, each node stores and updates data synchronously. Its main value lies in: 1. The distributed data structure makes full use of the storage and computing resources of each node, avoiding the huge investment in the hardware and software of the central computing equipment; 2. Each node has a database backup, and the damage or loss of information caused by the attack on a single node does not affect the security of the overall data; 3. Based on the data sharing of each node, interoperability between nodes can be achieved, and resource utilization can be improved.

The inherent characteristics of blockchain technology: privacy protection

It should be emphasized here that privacy and transparency in blockchain networks are not in conflict. Transparency mainly refers to the sharing and openness of transaction data history records, that is, the visibility and traceability of data operation behaviors, focusing on the joint supervision of the compliance of operation behaviors; while privacy specifically refers to the protection of account identity information - from two aspects, one is that the account identity is not linked to the real citizen identity, and the other is that the information data in the account identity authority only supports the account holder's operation, while the central unit in the traditional centralized network has the right to browse and adjust the information of each account. Due to the different regulatory policies of different countries, the effectiveness of the former is uncertain, so we focus on the latter.

The privacy of account information is also achieved based on cryptography. The information content under any public key address can only be interpreted or authorized to be interpreted by the corresponding private key holder. This forms a strong security guarantee for the transmission of private information on the network and enhances the controllability of information transmission objects in an environment of open information sharing.

Important scalability of blockchain technology: automation brought by smart contracts

As early as 1994, cryptographer Nick Szabo proposed the concept of smart contracts. Simply put, it is to digitally encode the content of the contract to generate a computer program. When the pre-set conditions are triggered, the smart contract can automatically execute the contract terms. However, in the centralized system in the past, the significance of smart contracts was not obvious, because the contracts stored in the central system could be modified or even deleted by the system owner at any time.

Smart contracts based on blockchain are fully autonomous and self-sufficient. Starting from the moment the two parties reach a contract agreement, the contract content is written into a computer program and stored in the blockchain. The parties involved in the contract will have the right to track and monitor the performance of the contract on the blockchain. Once the agreed conditions are met, the contract can automatically execute and complete the delivery of rights and obligations. If the blockchain that transmits Bitcoin realizes the direct exchange of digital currency between any nodes, then the blockchain that transmits smart contracts realizes the decentralized transaction of any programmable smart assets. For example, a pre-established smart contract can automatically execute the contract after someone has repaid all mortgages, and automatically transfer the ownership of the mortgaged house from the bank to the individual.

Increasingly sophisticated smart contracts will generate more automated agreements based on the characteristics and attributes of the transaction objects, which eliminates unnecessary human participation and saves a lot of signing and performance costs. This is especially true for large-scale, high-frequency, low-value transactions, where the economic benefits are particularly prominent.

|What applications can blockchain technology characteristics match

1. Areas where communication efficiency between different entities is low and connection costs are high

Cross-border payments

Traditional cross-border payment and settlement requires the help of multiple institutions, and multiple procedures such as the opening bank, the central bank, and overseas banks are required. Different institutions have their own independent accounting systems, and the systems are not interconnected. Therefore, multiple parties need to establish agency relationships, record in different systems, and conduct reconciliation and settlement with counterparties. In addition, the traditional payment system cannot achieve trustlessness and can only guarantee the credit of both parties through third-party institutions similar to the margin system, which often leads to high cross-border payment costs and slow speed. The role of the intermediary bank in cross-border remittances is to have different currency accounts and assist both parties in currency exchange. Cross-currency processing is slow and costly.

Solving cross-border payments based on blockchain can build a consortium chain composed of multiple cross-border payment demand parties (the public blockchain is freely open to all network users, and the consortium chain is open to some authorized users). The virtual currency of the consortium chain consensus is used as the medium for point-to-point currency transmission between nodes in the network, eliminating any third-party intermediary links and achieving transaction settlement - there is no need for any third party to act as a counterparty to adjust and reconcile changes in the accounts of both parties, which greatly reduces costs and can complete payments very quickly.

Example: Ripple

In the global cross-border payment market, the first to use blockchain technology to realize its commercial application is the cross-border payment network Ripple developed by Ripple Labs. Ripple mainly provides banks with foreign exchange transfer solutions based on blockchain protocols, and is committed to replacing SWIFT to create a global bank network financial transmission protocol based on blockchain.

Ripple has established a communication bridge for different accounting systems through its InterLedger protocol project, creating a global unified network financial transmission protocol. In the InterLedger protocol system, different banks can maintain their original accounting systems, use the software provided by Ripple, and freely transfer money through a third-party "verification terminal". At the same time, transactions between banks can be hidden. The "verification terminal" uses encryption algorithms and will not see the details of the transaction. Only the bank's own accounting system can track the details of the transaction.

In the Ripple network, the unified distributed accounting system can verify transactions and record accounts through many nodes with a consensus mechanism, without any trust center, and can achieve 24/7 payment. In addition, financial institutions such as banks and currency exchange companies act as market makers in the Ripple network. Remittance banks can choose market makers they trust. As long as there are enough market makers, they can theoretically provide market-competitive exchange rates. At the same time, the Ripple network also uses algorithms to find the optimal exchange rate level. Market makers can provide cross-border payment services anytime and anywhere to improve efficiency.

Case: OKLink

Unlike Ripple, OKLink focuses on providing services to small and medium-sized financial participants around the world. Ripple uses XRP as a medium in cross-border payments, while OKLink uses OKD. There is no difference in the use value of the two as transit tokens.

The specific business scenario is that the remittance company and the payment company using the OKLink service register as an authorized node in the OKLink blockchain network. OKD can be directly transferred between nodes, and the buyer and seller can realize cross-border payment and settlement between different sovereign currencies through the exchange of OKD and the local legal currency, saving all the intermediate link costs, including all the fees of OKLink and the payment company. The entire network only charges no more than 0.5% of the fee based on the middle exchange rate, which greatly saves the cost of small and medium-sized enterprises in small cross-border remittances. And by using the characteristics of "transaction and settlement" in the blockchain network to achieve fast transactions, all remittance processes including payment, exchange rate conversion, and settlement can be completed within 10 minutes, which can be said to be a leap forward compared to the average waiting time of three or four working days in the traditional cross-border remittance process.

Securities registration and settlement

Securities registration refers to the act of securities issuers establishing and updating the list of securities holders, which occurs along with securities trading. In the centralized securities system, market participants entrust all securities registration and settlement tasks to the central registration and settlement agency. Maintaining the credibility of this central structure system requires extremely complex rules and regulations and audit processes. Traditional securities trading requires asset custodians, securities brokers, central banks and central registration and settlement agencies to complete. The compatibility between systems is low and the processing methods are different. The entire process is inefficient and costly. It also takes T+3 days from the issuance of transaction instructions to the end of settlement. The lengthy settlement process leads to longer capital occupation and longer risk exposure. It also creates strong intermediaries, and investors who are at an information disadvantage often cannot get their rights and interests protected.

The securities registration and settlement system based on blockchain technology can reduce system risks and costs, improve settlement efficiency, and use the real-time full settlement model as a supplement and alternative to the central counterparty system.

Blockchain technology can enable economic entities that have not established traditional trust relationships with each other to reach an equal cooperative relationship in the same blockchain system. Each node can communicate freely and fully, saving transaction costs caused by information asymmetry. It also greatly simplifies the intermediate links and transaction processes, improves market transaction efficiency, and helps promote transaction settlement to achieve T+0 real-time full-amount transactions.

Case: tØ

Overstock, one of the top ten retailers in the United States, created the blockchain securities issuance platform tØ in 2015, claiming that securities can be traded directly on the blockchain without going through trading platforms such as Nasdaq. In December of the same year, the U.S. Securities and Exchange Commission (SEC) approved Overstock to issue its own shares through blockchain. The platform is committed to issuing digital assets such as bonds and stocks based on blockchain, subverting the existing T+3 settlement model and becoming a more efficient and transparent "trading and settling" securities issuance and trading platform. Overstock issued bonds and stocks on tØ in 2015 and 2016.

Example: Linq

Nasdaq has officially launched the Linq platform for private equity transactions through cooperation with blockchain startup Chain. Stock issuers through Nasdaq Linq private equity enjoy digital ownership, while Linq can greatly reduce settlement time. Chain pointed out that the current standard settlement time in the equity trading market is 3 days, but the application of blockchain technology can increase efficiency to 10 minutes, which can reduce settlement risks by 99%, thereby effectively reducing capital costs and systemic risks. The platform also provides companies it serves with dashboards for managing valuations, equity change timeline charts, investor personal equity proofs and other functions, allowing issuing companies and investors to better track and manage securities information.

2. Areas with strong demand for information traceability and fidelity

Supply Chain - Anti-counterfeiting and Incompetent

There are endless counterfeit and shoddy goods that are flooding the market, and the phenomenon of counterfeiting and selling counterfeit goods has been repeatedly banned. More and more counterfeit and shoddy goods have been mixed into the market, which not only seriously disrupts the normal market order, but also lays the hidden danger of using counterfeit and shoddy goods. The demand for traceability of goods, especially high unit price luxury goods and products directly related to health, is very urgent. However, since the supply chain is usually composed of multiple enterprise nodes, and information asymmetry or distorted information transmission is distorted and failed, it makes it extremely difficult to identify the source of goods.

Based on blockchain + Internet of Things, starting from the source, the items are identified (item fingerprints) and the key information in the main links such as warehousing, logistics, distribution, and retail during the circulation of goods is extracted and recorded in the blockchain network. Under the guarantee of the traceability and tampering of the blockchain, consumers can scan and identify the goods through supporting smart devices to master all key information in the production, manufacturing and circulation of goods.

Case: Provenance

Provenance is a company that provides supply chain traceability services for enterprises based on blockchain technology. Provenance can record the entire process of the global retail supply chain on the blockchain, allowing consumers to search in real time and improve the transparency of information on the supply chain. Users can monitor the target object through devices connected to the Internet, and track the origin of the goods and the intermediate transaction process in a transparent manner. On the blockchain, consumers can not only view the static attribute information of the product, but also view the transfer and transportation process of the product from the manufacturer to the dealer to the end consumer - consumers can only learn about the updates of information along the way from their smartphones.

Notarization

Under the traditional certification method, the parties fabricate, conceal facts, or provide false proof materials frequently occur. Identifying fake household registration books, fake marriage certificates, fake real estate certificates, fake academic certificates, etc. usually requires a pair of "sighted eyes" of the certified personnel. If you are not careful, some people may get away with it, defraud the certification certificates, and damage the legitimate rights and interests of others. Therefore, the traditional certification method depends on the strong professional quality and sense of social responsibility of notaries, and cannot fully guarantee the authenticity of the certified objects. Moreover, the current certification procedures are cumbersome and complicated, and the "artificial + paper" certification method is inefficient and cost-effective.

If you use blockchain, users only need to record the items they want to authenticate through blockchain, which can achieve the accuracy of the authentication information and the security of the authentication process, and ultimately generate reliable, accurate, and tamper-proof of existence and ownership proof, curbing the occurrence of fraud.

Case: Notarization Factom

Factom is a company committed to using blockchain technology to perform document authentication, data management, and preservation and verification of archive records. It can be applied to the fields of credit proof, patent protection, identity proof, property rights protection, medical archives, auditing and other fields. With a blockchain-based chain structure data storage, the historical records registered on Factom are permanently preserved, and all information will be traceable. Taking Factom's use to manage the land property transfer contract agreement as an example, if the land property transfer is jointly recognized by both parties and the transferred land property rights is not forged and passed the blockchain verification (proof of existence), then the chains related to it will be updated to reflect the above results (procedure proof). However, the historical records of previous land property rights changes will not be lost, and the content and order it records cannot be changed or hidden on Factom (audiligence).

3. Areas with high requirements for the secure computing and sharing of large-scale data

Internet of Things <br/>The Internet of Things is an extended network based on the Internet to realize information exchange and communication between items. The application of the Internet of Things is of great significance to the human society entering a new era of smart home, intelligent transportation and intelligent consumption, including the blockchain mentioned above combined with the Internet of Things to transform supply chain management.

Some institutions predict that in the next five years, more than 25 billion devices, sensors and chips will process more than 50 trillion G of data in the world. The value of the Internet of Things lies in capturing and analyzing this data, identifying and separating the most important data from a large amount of information and noise. However, the speed and cost that a centralized network can achieve is difficult to meet the needs of larger IoT devices. As the current situation is, a centralized network can cope with 1 billion mobile Internet devices. As the number of access increases, the investment and maintenance costs of data center infrastructure that provide support and services will be immeasurable. In addition, the security protection of such a huge data is also a severe test. Information sharing based on the central network will greatly restrict the communication efficiency between physical nodes and the expansion of new nodes.

Blockchain distributed storage technology makes full use of each device's own computing and storage capabilities to avoid the huge cost of software and hardware in building a centralized cloud and central large server cluster; and, based on blockchain distributed data sharing, hundreds of millions of smart devices in the Internet of Things can understand the functions of other devices during the interaction process, as well as the permissions and instructions of different users around these devices, that is, they can track the relationships between devices and the relationships between devices and users, improve their understanding of the operating environment, and strengthen their ability to control their own roles and behaviors.

Case: ADEPT

In early 2015, IBM and Samsung Group announced the joint creation of the Internet of Things system ADEPT based on blockchain technology. The ADEPT system is based on the blockchain architecture and is supported by BitTorrent (file sharing), Ethereum (Ethereum), and TeleHash (terminal to terminal encryption). IBM and Samsung hope that this system can automatically operate various devices in the Internet of Things, such as automatically sending signals and software updates when home appliances fail, and interacting with data and computing power between devices. Typical scenarios that have been implemented: using blockchain technology to add washing machines to the Internet of Things, by obtaining the user's laundry frequency and the number of clothes each time, analyzing whether users have regular exercise, whether they have babies, and can also automatically estimate the available time of remaining laundry detergent, and even automatically complete the purchase behavior of online orders.

Case: Filament

Filament has turned its attention to the industrial field, especially oil, gas, manufacturing, agriculture and other industries. Filament focuses on developing two hardware units - the sensor device Filament Tap, and the intelligent module Filament Patch that can adhere to the surface of the device. The core functions of Filament are: to ensure the security of data storage and communication of smart devices; smart hardware installed with Tap and Patch can achieve long-distance communication that is separated from the network and serves industrial-scale equipment deployment.

Case: Slock.it

Slock.it realizes idle resource sharing through blockchain, and is committed to embedding smart contracts into multiple IoT devices and applications, so that anyone can rent, sell or share any items directly without intermediaries. In its designed autonomous structure, users can track, control rent or use various items connected to the Internet of Things anytime, anywhere on mobile applications. Each time the sharing is completed, they can also charge real-time fees to distribute income.

4. Areas with high demand for information sharing but privacy protection

Sharing medical information helps solve problems such as waste of medical resources, inefficient medical efficiency and high medical costs. However, there are many difficulties in sharing medical information: first, it is difficult to achieve compatibility in technology, and the electronic medical record systems of each hospital are different; secondly, the current medical sharing platform cannot guarantee personal health and privacy without infringement.

By storing and managing personal medical record information on the blockchain, each person's health record is encoded into digital assets, and individuals can grant access rights to doctors, pharmacies, insurance companies, etc. through private keys. Targeted sharing of users' medical records on the blockchain, on the one hand, it opens up the medical health management needs of users in various scenarios, and on the other hand, it can realize clinical case studies of medical institutions around the world; at the same time, blockchain can manage multiple signatures and complex permissions, and use blockchain data to ensure that medical sensitive data is not leaked.

Case: Dokchain

Medical API company PokitDok recently announced a cooperation with Intel to jointly develop the "Dokchain" medical blockchain solution. Intel will provide PokitDok with its open source software Hyperledger Sawtooth as the underlying distribution ledger of Dokchain and use Intel chips to process blockchain transactions.

Dokchain provides users with identity management functions, that is, users who use Dokchain can verify the information of all parties in medical transactions online, and after verification, they can initiate interactive behaviors - they have been practiced in various fields such as prescription records, medical consumption, and medical insurance. Reducing medical fraud and effectively protecting patient privacy are the core considerations for Dokchain's functional deployment.

5. Areas with great uncertainty in human review and execution

Asset transaction <br/>The transfer transactions of all enterprises and individual assets are often accompanied by a complex process of multiple certification and right confirmation, qualification review, and related evidence collection. Before reaching an agreement, multiple parties need to be intervened and communicated by multiple departments and related traders. Asset transactions are the main component of financial and economic activities. Its low execution efficiency and large dispute resolution cost have greatly affected the circulation and appreciation of commercial society's wealth, especially at the moment when asset securitization plays such an important financial breakthrough.

Asset intelligence and smart asset contract execution automation are important ways to effectively improve asset transaction efficiency and processing perfection. Based on blockchain smart contracts, the initial ownership and ownership transfer implementation conditions of asset transactions are encoded into the smart contract in the form of a computer program, and the transfer or division of asset ownership will be automatically completed by triggering the specified conditions. On the one hand, it greatly improves the transaction speed, and on the other hand, it avoids unnecessary manual coordination costs.

At this stage, automated transactions of digital assets represented by financial products such as stocks and bonds have achieved good development results, while intelligent transactions of tangible assets with more arduous review tasks and particularly inefficient execution efficiency still require relatively long development.

Just imagine, when we execute house assets through smart contracts, the house as the transaction assets itself does not support intelligent manipulation, and only completing the change of house ownership stipulated in the contract does not mean that the transaction of house assets is completed. At least, you have not yet obtained the key! This means that it is still inevitable that human intervention will be conducted on-site inspection and handover of houses. Therefore, the comprehensive application of intelligent asset transactions requires waiting for the arrival of a more mature environment for the construction of a financial system, certification system and IoT network.

Finally, it must be emphasized that the specific application of blockchain technology solutions is by no means a split use of one of the functions. It often combines the above aspects and even all advantages to design blockchain technology applications. Here, we want to emphasize that the most vital area of ​​the development opportunities of blockchain applications should be the place where the special technology of blockchain should be able to maximize the charm of blockchain technology. Everything starts from the pain points and needs of real scenarios, rather than just for the sake of combination. At present, the progress of blockchain underlying technology, especially the platform development of smart contracts and the forward advancement of blockchain commercial applications, has initially possessed a good environment of government support and industry norms. Focusing on the technical characteristics of blockchain decentralization, trust loss, distribution sharing, privacy protection, intelligent automation, etc., more blockchain technology applications will be integrated into our daily life and production! At the same time, the limitations of blockchain technology expansion, ductility, stability, etc. also require continuous optimization solutions.

Written later: A new technology that is never understood and misunderstood may have been an advance? At least more people are paying attention to it.

In fact, from the article, we can clearly realize that blockchain, as a relatively early technology, has caused a wide range of technical experiments and applications around the world. It is beyond doubt that it will drive a new wave of reshaping of the business society and economic system. The key lies in whether my country's blockchain technology start-ups can seize this opportunity to overtake!

Please correct the shortcomings of the views in the article. We look forward to communicating with more practitioners and researchers in the blockchain industry!