Information Technology and Ethics/Blockchain

The Technology Behind Cryptocurrency

The technology behind cryptocurrency, blockchain, is a Distributed Trust Protocol. Nick Szabo coined the phrase “The God Protocol” while considering a be-all end-all technology protocol in the late 1990s. His concept was that, in a perfect world, God would be designated as the trusted third party in the middle of all transactions. “All the parties would send their inputs to God. God would reliably determine the results and return the outputs. God being the ultimate in confessional discretion, no party would learn anything more about the other parties’ inputs than they could learn from their own input and the output.” A decade later Satoshi Nakamoto released a white paper outlining this new protocol of peer to peer electronic cash system. He called this cash system bitcoin. Instead of relying on financial institutions serving as the trusted third party, it uses a distributed ledger representing a network consensus of every transaction that has ever occurred.

Within the bitcoin network all transactions are verified, cleared and stored in a block which is linked to the proceeding block thereby creating a chain. Each block must refer to the preceding block. Each block is time-stamped and encrypted. Each transaction is then broadcast to all nodes of the peer-to-peer network. Thus the concept of a distributed ledger. Everyone has the same ledger.

Satoshi Nakamoto’s paper was about money and not some greater goal. The concept of blockchain has evolved from solely an electronic cash system to potentially any trusted transaction between two or more parties authenticated by mass collaboration.

Blockchain does not require a central trust authority to verify information or authenticate transactions; rather, trust is built into the governance rules with pre-written code defining how actors can behave in the system.

Notable Attributes of Blockchain Technology

The combination of trust, transparency and immutability is unique to blockchain. Other attributes such as pseudonymity, security, verifiability, and controllability are not unique to blockchain, but are important for understanding the challenges and potential of blockchain.

Trust

Strict governance rules, cryptography, and immutability of transactions work together to provide strong security for individuals interacting directly on a distributed network without a central trusted authority.

Transparency

Identical copies of the entire record of transactions are available to all participants at all times. This is often referred to as a distributed ledger. In some cases, these ledgers are publicly available to anyone. The ledger provides transparency of transactions to anyone with access.

Immutability

Immutable transactions recorded on a blockchain cannot be changed or removed. To change a transaction on the blockchain, a new transaction needs to be added to reverse the effects of the original. In immutable ledgers, there is no way to “expunge” the record of a transaction.

Pseudonymity

Using public and private key systems, participants have a public-facing digital “address” that is not publicly associated to them, but over which they exercise unique control. This provides pseudonymity through encryption that creates the possibility of effective anonymity for participants.

Security

The use of encryption algorithms combined with the disaggregation of data across a distributed network of nodes (i.e., computers) provides security against attempts to destroy or change the record of transactions.

Verifiability

Transactions on a blockchain are immediately auditable in real time. As an immutable and sequenced digital ledger, a blockchain allows the complete record of transactions to be directly verified.

Controllability

The tracking of individual assets uniquely on a blockchain allows an individual to exercise effective and exclusive control over data or digital assets. Furthermore, transactions on a blockchain allow the secure transfer of control between individuals over the network.

Potential Uses of Blockchain Technology

Blockchain can be used in any transaction that could be digitized. “Transactions on a blockchain could represent either the transfer of a digital asset of value, such as a cryptocurrency token, or a way to link information to a particular profile, such as associating a university degree with a digital identity. Every transaction in a blockchain has a unique identity that is linked to a single entity who can exercise control over the information or asset from that transaction. Once a transaction is recorded on the blockchain, it is effectively irremovable and unchangeable. The result is an immutable and time-stamped record of a series of transactions.” Blockchain began in cryptocurrency, but potential uses could be birth and death certificates, marriage licenses, deeds and titles of ownership, education degrees, medical procedures, insurance claims or even voting.

Furthermore, blockchain technology can be used in many different sectors for a variety of tasks.

Finance

Using blockchain in banks will create faster transactions with extra transparency for both the customer and banker. It can also be used for tokenization of assets which will make it easier to trade cryptocurrency such as stocks and bonds and later open it up to broader audiences.

Decentralized Transactions

Each product can be tracked and traced through its journey to the recipient from the supplier. This would reduce any fraud and ensure that the right package arrives at its destination properly and if there are any discrepancies then it can be traced back to where those discrepancies may be.

Smart contracts

Smart contracts can be used in any sector and with blockchain technology the authenticity will be valid and it'll be automated so the results would be instantaneous. This will also reduce the need for a third party service saving the contract holder money and time.

Healthcare

Blockchain can help in billing and claims as it'll save the medical providers time on compiling the list of expenses and finding the right insurance providers to send claims to. It can also be used to track pharmaceuticals to ensure that the medical drugs are arriving safely and from the correct pharmaceutical, reducing the chances of fake drugs in the market. Lastly, it'll help in verifying the identity of the patients and their medical history, reducing the risk of medical identity threat.

Challenges with Blockchain Technology

Introduction:

The potential of blockchain technology to transform several industries, including financing, logistics, medicine, and more, has attracted a lot of attention in recent years. Fundamentally, blockchain is a technology for distributed ledgers that is decentralized and allows peer-to-peer transactions to be transparent and safe without the use of intermediaries. Blockchain promises to improve transparency, confidence, and efficiency in a variety of applications by permanently recording transactions in an unchangeable and tamper-proof manner. Nevertheless, several obstacles prevent blockchain technology from being widely adopted and used, despite its revolutionary potential. These difficulties cover a wide range of topics, such as complexity, costs, awareness, security, privacy, and scalability. To fully utilize blockchain technology and fulfill its promises of decentralized management, transparency, and trust lessness, these issues must be resolved. Now let us look at the specific sub-challenges inside each domain.

Scalability

1. Transaction Throughput: Blockchain networks, particularly those that are public such as Ethereum and Bitcoin, can only handle a certain number of transactions per second. For example, Bitcoin's transaction speed is limited to approximately 7 transactions every second, but Ethereum's throughput fluctuates but commonly varies between 15 to 30 transactions per second. These limits become more obvious during intervals of high volume of transactions, which leads to longer processing times and more expensive fees. To put this in context, Visa, a centrally managed payment service, can process more than 1,700 transactions every second on a typical basis, showing the scalability difference between blockchain-based networks and traditional banking systems.

2. Network latency: The time required for an entire block to travel throughout a network is potentially significant, causing delays. Network delay is determined by numerous factors, including network layout, bandwidth, and node latency. High network latency reduces the efficiency of decision-making procedures, especially in networks having many nodes distributed across multiple geographical regions. According to studies, network latency varies from a couple of milliseconds to quite a few seconds, affecting transaction completion and user experience.

Security

1. 51% Attacks: A single party can cause chaos on the network by altering or removing transactions in the order that they are processed if they own over fifty percent of the mining hash rate. The safety and reliability of blockchain technology are threatened by this concentration of mining power since most miners can double-spend coins or block the confirmation of specific transactions. Strong security measures are essential for preventing the several high-profile 51 percent assaults on smaller blockchain systems that have occurred in recent years.

2. Smart Contract Issues: Smart contracts are vulnerable to vulnerabilities, which if taken advantage of could result in enormous losses. One notorious instance is the DAO attack that occurred in 2016, in which more than $50 million worth of Ether was stolen due to a flaw in smart contracts on the network of Ethereum. The event made clear how crucial it is to give smart contracts thorough testing, systematic verification, and auditing procedures to reduce exploitation. Since then, using formal verification techniques, bounty programs, and code audits to improve smart contract security has gained more attention.

Complexity

1. Comprehending Blockchain: The technology is intricate and might be a challenge for those who lack technical expertise. It can be difficult to understand concepts like cryptographic hashing, consensus processes, and decentralized governance, which prevents their wider adoption and application. To make matters worse, studying the field of blockchain can be confusing for novices because of its technical terms and vocabulary. To overcome this difficulty, efforts are on to provide user-friendly manuals, online courses, and educational materials that will increase the accessibility and comprehension of blockchain technology for a wider range of people.

2. Integrating with Current Systems: The process of merging blockchain technology with current IT infrastructure can be difficult and complicated. It is possible that blockchain protocols will not work with legacy systems, in which case a thorough redesign or change would be necessary to ensure smooth integration. Furthermore, since data types, regulations, and protocols may vary, interoperability across blockchain networks and traditional systems poses further difficulties. Standards for the industry and interoperability methods are being created to guarantee smooth data exchange and communication between non-blockchain and blockchain systems, hence facilitating integration.

Privacy

1. Connectivity of Transactions: Despite being pseudonymous, transactions are frequently associated with actual individuals. Transaction trends, address reusing, and metadata leaks are some of the variables that lead to transaction linkability. Chain analysis approaches have the potential to compromise users' privacy and confidentiality by deanonymizing them and linking their transactions to specific entities. By obscuring transaction data using cryptographic techniques like ring signatures, hidden addresses, and zero-knowledge proofs, privacy coins like Monero and Zcash have emerged as alternatives to improve transaction privacy.

2. Balancing Privacy and Transparency: It can be difficult to strike a balance between privacy and transparency. Blockchain provides immutability and transparency, but maintaining secrecy and privacy without compromising transparency requires careful consideration. Enhancing privacy without sacrificing auditability and transparency is the goal of strategies like privacy-preserving smart contracts, stealth addresses, and ring signatures. Additionally, privacy-enhancing technologies like zero-knowledge proofs provide a promising way to protect privacy in transactions made on blockchain by enabling parties to confirm the legitimacy of transactions without disclosing sensitive information.

Operating Costs

1. High Energy Use: Evidence of work Blockchains have significant running expenses since they need a lot of electricity. The highly energy-intensive mining process raises questions about the long-term viability of blockchain technology because it leads to resource depletion and environmental deterioration. According to estimates, the energy used in Bitcoin mining alone is equivalent to that of whole nations like Argentina and the Netherlands. Research is being done to create alternative consensus mechanisms, including proof-of-stake and proof-of-authority, that can ensure network security and decentralization while using a lot less energy than proof-of-work.

2. Expenses of Infrastructure: The cost of establishing and running a blockchain network might be high. For enterprises and organizations, the costs of hardware, developing software, network maintenance, and compliance with regulations can be major financial obstacles to entrance. Furthermore, as blockchain networks grow, infrastructure expenses may rise, necessitating ongoing expenditures in modernizing and augmenting infrastructure capabilities. Blockchain services delivered via the cloud and infrastructure-as-a-service providers provide affordable ways to set up and maintain blockchain networks, allowing businesses to use blockchain technology without having to pay large upfront fees.

Awareness and Understanding

1. Lack Of Awareness: The potential advantages of blockchain technology are still mostly unknown to the public. Insufficient knowledge and comprehension of blockchain technology impedes its acceptance and application in several industries and domains. To close this knowledge gap and advance a general understanding of blockchain technology, educational programs, awareness campaigns, and information-sharing platforms are essential. To educate stakeholders regarding technology such as blockchain and its applications, business groups, colleges and universities, and government agencies are working together to provide educational materials, training courses, and public awareness campaigns.

2. Misunderstandings and Misconceptions: There are numerous misconceptions regarding blockchain technology, including those that can impede its adoption. Common misconceptions include identifying blockchain primarily with cryptocurrency while ignoring its larger implications in supply chain administration, health care, and identity verification. Addressing these misunderstandings and encouraging a more nuanced knowledge of blockchain's potential and constraints is critical for supporting responsible choice-making and adoption. Thought leaders, industry professionals, and advocates of organizations are actively striving to dispel blockchain technology myths and misconceptions through focused marketing efforts, open discussions, and educational outreach.