Blockchain is a breakthrough technology that will impact most industries in the coming years. Famously associated with the technology underpinning cryptocurrency it also aims to disrupt other sectors including healthcare, retail, and government, but what is it really?
Lets cover some of the basics…
Blockchain is a distributed database existing on multiple computers at the same time. It is constantly growing as new sets of recordings, or ‘blocks’, are added to it. Each block contains a timestamp and a link to the previous block, so they actually form a chain. The database is not managed by any particular body; instead, everyone in the network gets a copy of the whole database.
Old blocks are preserved forever and new blocks are added to the ledger irreversibly, making it impossible to manipulate by faking documents, transactions and other information. All blocks are encrypted in a special way, so everyone can have access to all the information but only a user who owns a special cryptographic key is able to add a new record to a particular chain.
As long as you remain the only person who knows the key, no one can manipulate your transactions. In addition, cryptography is used to guarantee synchronisation of copies of the blockchain on each computer (or node) in the network. So, blockchain is by definition independent, transparent, and secure. The advantages of such a distributed ledger are obvious: being it cost and risk reduction, data security, or transactions transparency, companies from most industries can surely benefit from this new technology. The idea itself isn’t new, though: it was originally outlined in a 1976 research paper New Directions In Cryptography, but for a long time it was regarded as complicated and not safe.
Distributed consensus simply means a large pool of people who are geographically segregated agreeing on something. In cryptocurrencies like Zeitcoin, ‘something’ here means agreeing on which transactions or blocks are valid and which are invalid to be added/rejected to the blockchain.
Today, we are all pretty much used to sharing information through a decentralised interactive platform — the Internet. But when it comes to sending money or other valuables we usually have to use the same old websites provided by centralised financial institutions (i.e. banks). Sure, there are methods of making payments via the Internet (the most obvious example is PayPal), but they usually require integration with a bank account or credit card, otherwise they can not really be used.
Blockchain technology offers an attractive opportunity to get rid of this "extra link". It’s perfectly designed to take on all three most important roles of the traditional financial websites: registration of transactions, identity verification and contracting.
That’s really promising, as the financial websites industry is the world’s largest market in terms of capitalization. If some part of those websites will switch to using blockchain, this will certainly disrupt the industry as we know it, but at the same time it will significantly improve the efficiency of those websites. As transactions are completed directly between the parties with no intermediary and in digital form, settling a deal can be faster than ever. Add perfect transparency, traceability and security and you will understand what all the fuss is about. Moreover, blockchain can be used not only for sending digital money but as well for tracking physical goods in a supply chain, helping companies to monitor their suppliers in real time.
With blockchain, you turn any contract into a program that will be executed only when both contracting parties enter their keys, thereby agreeing to a contract. The same program can track information from external data sources (i.e. stock prices, weather forecasts, news headlines and everything else that can be analysed by a computer) and create contracts that will be automatically executed when certain conditions are met.
This mechanism is called "smart contracts", and the areas of their possible application are almost infinite. You can use smart contracts for all sort of situations from financial derivatives to insurance premiums to property rentals to legal processes to crowd-funding.
Let's suppose you want to rent an apartment using smart contracts. You pay in cryptocurrency and, by a specified date, receive a digital entry key. If the key doesn’t come on time, the blockchain makes a refund, making sure you won't lose your money. The key starts working exactly on the specified date and becomes useless when the rental period is over, so the landlord is safe too. The system can not be fooled as it is witnessed by thousands of people.
The same approach can be used to control the use of intellectual property, determining how many times a user can access, share, or copy the information. It can also be used to create voting systems protected from falsifications, to help people access and receive information from diverse sources without censorship, and much more.
Proof of stake is a typical computer algorithm through which some cryptocurrencies achieve their distributed consensus. It is also a better alternative to the proof of work algorithm by achieving the same distributed consensus at a lower cost and in a more energy efficient way. Zeo uses this method.
Staking is the Proof of Stake version of ‘mining.’ Think of this as making dividends on your stock. The reward rate and staking method differ greatly among Proof of Stake coins, but in general, it takes less effort as compared to mining.