Transcripts
1. Introduction: Hi, I'm Mark. I've been working in
digital asset management and education for
over ten years. And I've worked with
organizations such as Sony, the British Home Office, Cambridge University, Harvard Business
Council, and many more. In this class, I'll
be teaching you the fundamentals of
blockchain technology. This knowledge will
help you to understand the current applications
and implementations of blockchain in areas such as cryptocurrency and FTEs
and d phi services. As well as give you
an insight into the huge potential for future use and opportunities
for investment. Whether you're looking to apply this information in
software development, industrial application,
Crypto investment, or you just want to
stay ahead of the game. This class will provide you
with a solid foundation. You'll learn what the
blockchain is, how it works, how it is used, how
to invest in it, and how it will likely
develop in the future. For our class project, I've left a worksheet
in the class resources. This will help you to
reinforce your knowledge and deepen your understanding
of blockchain technology. Just fill it out and
post it in the class. Ready to get started. I'll see you in
the first lesson.
2. What Is Blockchain?: For the vast majority of people, the blockchain is
an unknown entity. Most people who have heard the term may associate it
with cryptocurrencies. But this is an
extremely limited view. Blockchain technology
has such huge potential. Thinking of blockchain
in relation to cryptocurrency is
like thinking of the Internet in
comparison to email. Email was the first widespread
use for the internet. Like cryptocurrencies are the
first use for blockchain. The elusive creator
of Bitcoin created the currency as an example of the potential the
blockchain technology. Over recent years,
we've seen the use of blockchain expand
into new areas. There are still a lot of
experimentation taking place. This means that there are lots of opportunities as an investor, a developer, or
service provider, but there are also high risks. What we know for sure is that
blockchain technology and the whole decentralized system is being adopted at
a staggering rate. And it looks set to
change the way we interact with our
digital worlds. Blockchain technology
was outlined decades before the invention
of cryptocurrencies. The idea was first introduced
by two researchers in 1991 named Stewart Haber
and W Scott stomata. They wanted to create
a system where document timestamps could
not be tampered with. The first real-world
application came almost two decades
later in January 2009, with the launch of Bitcoin, the Bitcoin protocol was
built on a blockchain. The pseudonymous creator of
Bitcoin, Satoshi Nakamoto, outlined the protocol in a
paper referring to it as a new electronic
cash system that's fully pair to pair with
no trusted third party. Bitcoin is only
one example of how blockchains can be utilized
to store and record data. Theoretically, blockchains
can be used to record a limitless
amounts of data points. With the success and popularity
of cryptocurrencies, blockchain technology
was proven to be a robust and
practical system with the potential for application across all fields
and industries.
3. How Blockchain Works: So now we're getting into the
nitty-gritty of blockchain. But blockchain is simply
a ledger. A database. Ledgers have been used since
the earliest records began. Some of the oldest
known writings on tablets by the Sumerians. And the Babylonians were
essentially ledgers of transactions with
some bare recipes thrown in for good measure. The blockchain is a
digital equivalent to a written ledger. The main differences between stone tablets and
Blockchain ledgers. Blockchain ledgers are not
stored in one location. They are decentralized
and cannot be changed without the agreement of all the storage locations. The blockchain, as
the name suggests, is also a chain with each block dependent
on the previous block, making a sequence which
forms a continuous line. This line is immutable, meaning it cannot
be re-sequenced. Each block contains
three elements. It has data, the
hash of the block, the hash of the previous block. The data can contain almost
any kind of digital data. Digital data contained in a block is what is used
to create the block hash. In the case of cryptocurrency, that data would include
the transaction data, including information
about the sender, the receiver, and the amount. The previous hash is what
makes the blockchain work. Each block contains the
previous block's hash. This makes the chain a
linear sequence unsecure. The block hash is a
digital signature, a unique identifying code
specific to that block. Each block in the chain uses
the same configuration. The only exception
is the first block, because that one can't include a previous hash because
there isn't one. The first block is called
the genesis block. When a block is generated, a 32 bits whole number is
created called a nonce, which stands for number
only used once the nonce is randomly generated and is used to generate the block hash. The block hash is
a 256 bits number, minors, most guests
the nonce number in order to find
the target hash. The target hash is a number between 0 and the maximum
value of a 256 bit number. This number is set
by the blockchain. Working out which
string to use as the nonce requires a
process of trial and error. A non-string must be appended to the hash
of the current header. It is then rehashed. The value is compared
to the target hash. If the resulting hash
value is correct, the block can be added
to the blockchain. Adding blocks to the
blockchain requires a substantial amounts
of computer power. The individuals
and companies that add blocks are called miners. Miners who meet the
requirements to find the target hash are awarded the block and are often compensated with cryptocurrency
for their efforts. Funding. The target
hash is a lottery. The target is a predetermined
256-bit number, extremely large. If the resulting
hash is below or equal to the target,
the miner wins. If not, the nonce is incremented and the
process starts again. So the more powerful
the computer is, the more guesses it can do
in a short space of time, and it's more likely to win
to find the correct hash. The process starts
with the block header. This contains the block
version number a timestamp, the hash used in
the previous block, the hash of the Merkle root, the nonce, and the target hash. The process used to guess the nonce is called
Proof of Work. The data inside of a block is arranged in a system
called a Merkle tree. This is a type of binary
tree that is used to summarize and verify
parts of a large dataset. In Bitcoin, for example, a block contains an average of 500 transaction data entries. A Merkle tree creates
a single value by hashing together all of
the contained hash data. The single hash value is
called the root hash, and it sits at the
top of the tree. At the bottom of the
tree, we have the data. The data is used to create
a corresponding hash node. This is called a leaf node. Pairs of leaf nodes are then combined to create
a parent node. The parents from the
first layer up are known as non-leaf nodes. The reason why this
structure is so useful is because it allows an efficient
verification of whether or not the data has
been tampered with. For example, if someone wants to change a value in the database, they would need to recalculate every single leaf nodes hash
and update them accordingly. For a single transaction
in a block to be verified, there is no need
to check the data from the previous or
following blocks. As the data can be verified from the hash values in
the Merkle tree. In this example, t stands for transaction and H
stands for hash. As you can see, the
transaction data is hashed and added to the
binary parent in the tree. That parent is then added to another parent
higher in the tree. At each stage, the parent hash contains a summary of
the child hash values. This carries on up the
tree to the top where the root hash contains all
hashed data from the tree. Since the Merkle
tree root contains all of the information
from the entire tree, you only need to verify the transaction hash a
sibling node if there is one, and then proceed up the tree
until it reaches the top. The Merkle tree and the
root hash mechanism significantly reduce the
levels of hashing required, which speeds up verification. When a miner wants to add a
new block to the blockchain, this information is broadcast to all of the nodes
on the network. Nodes are the stakeholders
on the blockchain network and their devices are authorized to access the
distributed ledger. They also act as a
communications hub. The main role of the
nodes is to verify the validity of a block before it's added
to the blockchain. They also store
the information on their devices and it's
cross-referenced with the rest of the nodes on the network to
confirm that there is a consensus for the validation and addition of a block
to the blockchain. At least 51% of the nodes
must be in agreement. There are a few different
kinds of nodes on a network. There are online nodes
which are permanently online and are constantly updated with the latest
version of the ledger. And there are offline nodes
that only download and sink their information when logging
onto a blockchain network. As the nodes are decentralized. This improved security, both in terms of ensuring
that there's always a copy of the ledger
somewhere in case of things like power failure
or network outages. But also in terms of
susceptibility to hacking or rogue
node manipulation. Generally speaking,
the more nodes there are on a network, the stronger the
security will be. Nodes are not required
to be miners, but minors must also be
complete nodes as they require access to the blockchain
ledger in order to determine the correct
values required. Some blockchains also
use a master nodes. These nodes have
more functions and capacity than regular nodes. They are often used
to manage voting, execute protocol updates, and enforce the rules
of the blockchain. This type of node often requires more RAM than regular nodes, and he's on line 24 hours a day. As master nodes have more responsibility and
influence on the blockchain, managers of master nodes
are usually required to pay a deposit which
acts as security. A master node violates the
rules of a blockchain. The deposit is used
as collateral. Nodes which require the most
energy and computing power are often incentivized with
cryptocurrency rewards. One such incentive is staking. Staking requires
the node owner to deposit cryptocurrency and keep their node active
24 hours a day. By doing this, they
enter a lottery. A staking node essentially
places a bet on which miner will add the
next block to the chain. If the staking node wins, they receive
cryptocurrency rewards, usually in proportion to the amount that
they have staked.
4. Blockchain Security: The hash system already provides a high
level of security. Changing just one block would
mean changing the hash. And the hash is specific
to the data in that block. If the hash changes, all following blocks
would become invalid. The system just wouldn't
allow it unless all of the subsequent
ashes could be changed. Although it's unlikely, it is theoretically possible for
a super-fast computer or a hacker to change a block and calculate all of the following hashes
and fool the system. Well, that's only where
blockchain technology stars. There are additional layers that make tampering
almost impossible. Almost. One of the added
security features is a mechanism called
proof-of-work. This slows down the
creation of blocks, as there are so many
blocks in the chain, limiting the speed of
creation means that anyone who tries to change
a sequence of hashes, in the example of Bitcoin
that'd be waiting over ten years for the
creation of the new blocks. The proof of work refers to the way that the
blocks are created. In most cases, a
cryptographic puzzle must be solved to
create a new block. This is the work to prove
that the work has been done. The other computers on
the network have to verify that the
solution is correct. This is the target hash
that we covered previously. It's easy for the computers
to verify correct solution without having to go through the whole process
of working out. The nodes can use
the miners nuns to verify that it meets the
target hash requirements. The nonce is like a key. The verifying nodes don't
have to search for the key. They just have to check
that it opens the door. If 51% of the computers agree that the
solution is correct, the block is added to the chain. In a proof-of-stake system, instead of mining a network, participants will be
selected to add a block to the blockchain and
earn rewards in exchange, much like staking nodes, which we've already covered, proof-of-stake requires
the participants to stake their own cryptocurrency
to be eligible to win. The winner who gets to add
the block can be selected randomly from a group of validators who meet the
minimum state requirements. Or it can simply be determined
by the amount of crypto that is staked on the amount
of time has been staked for. This rewards the most
invested participants. Once the winner validates the block to be added
to the blockchain, the rest of the validators
confirm that it is accurate and they
are also rewarded. The reward amount is usually determined by the amount state. A second security feature
is found in the way that the blockchain
ledger is distributed. The ledger is decentralized, meaning that it exists in
multiple locations and must be validated at each location
before a new block is added. There are also other
features such as smart contracts that make things even more
difficult to manipulate. More about that later. To successfully change
the blockchain, you would need to change all
of the blocks in the chain, redo the proof of work for each block and take control
of the decentralized network. As blockchain
transactions must be verified by multiple nodes. This can reduce errors. If there is a mistake by
one node in the database, dealers would notice that it's different and correct the error.
5. Limitations and Issues: Blockchain technology is
certainly revolutionary, but it's still in
the early stages of development and
implementation. Like any new idea, problems and limitations need to be identified and overcome. Let's take a look at some
of the current problems. This is one of the most
immediate problems with the blockchain system, with the amount of time
and costs associated with the processes needed
to keep the system secure, the scalability becomes limited as more people use blockchain, the slower the system becomes. People who have
become accustomed to instant transactions
with bank transfers and credit card payments. Waiting for any
length of time for a transaction to process
is inconvenient. But in the current
financial world, it actually costs money. The scalability issues are
already being tackled though, through a variety of processes, some faster than others. So more secure than others. It's highly likely
that this issue will be overcome over
the next few years. Many of the solutions
currently in operation are already working
to speed up the process. Although each solution needs
to be refined further, this will eventually lead to wide adoption
across blockchains. Some of the current solutions
include increasing the block sizes so that more transactions can be
processed per second. But this creates its own
issues because that means that more data has to be distributed across the
decentralized network. Sharding is another
technique being explored. In this process, the
validation nodes are assigned randomly
in smaller numbers. This means that the numbers
can be crunched faster. This also weakens the
overall security and the sharpening system itself
becomes a security risk. In the case of
cryptocurrencies where cryptography puzzles need
to be solved by computers. The blockchain requires lots of computing power to
process and create the blocks. This requires large
amounts of energy, although it's highly likely that blockchain technology
will actually help to solve environmental
issues further down the line. Currently, the reliance
on fossil fuels to power the blockchains is damaging the planet and it
must be changed. This issue is being
worked on and many newer blockchains have significantly reduced the
amount of energy required. As blockchains are
still relatively new. And I certainly an
exciting concept. More and more people are
becoming interested in the technology and especially
in the investment side. With news of crypto NFT, a multiverse millionaires
finding overnight success. Blockchain fever is
starting to take hold with so much interest and very little knowledge surrounding
blockchain technology. Scammers are finding easy
picking in would-be investors. Fake cryptocurrencies are unregulated and
unscrupulous exchanges and fraudulent investment
Ponzi schemes are rife. These types of scams are not
exclusive to blockchain. Well, there are so many of them, like the golden age of the Internet scammer
as blockchain and associated digital assets are not regulated like
traditional investments. Practices like insider trading and pump-and-dump strategies, which are illegal in
traditional investment arenas, are a regular occurrence
in blockchain. As blockchain is becoming widely adopted across
many industries, regulations will surely follow. Blockchains decentralized
nature will make it difficult to police, but many areas of the
use of blockchain will become regulated and make it
more difficult for scammers. Education about
blockchain may be introduced at a school level as every part of our
lives will become more integrated into the
digital multiverse. The financial services
industry including banks, lawyers, brokers,
lending agents, regulatory bodies,
and a myriad of other middlemen have had a longstanding relationship with central governments
around the world. They hold huge influence over entire countries and
socio-economic systems. The blockchain threatens
to remove the need for many of those traditional
middleman roles. This would usher
in a power shift never seen before
in modern history. Some countries, governments and financial institutions
are embracing this move to the blockchain, but the vast majority
remained publicly skeptical. Some of the skepticism
is well-founded, such as the investment
risks posed by the volatility and non
regulation of cryptocurrencies. But there were also political
motives for discouraging the general public to adopt the new decentralized
financial system, or what we call d phi.
6. Blockchain Uses: Blockchains potential for
application is ever-expanding, has new features and processes such as smart contracts
are introduced. The technology lends itself
to a greater number of uses. Let's take a look at some of the current and developing
uses for blockchain. Since the move away from the gold standard in
most Western countries, fiat currency has not encountered
any major issues yet. But as fiat currency is not tied to a physical assets
such as gold, the value is only
determined by the users, or in this case, the government. A piece of paper with
ten written on it could be determined to represent
the value of ten apples, or it could represent
ten houses. All works fine as long as
everyone agrees on the value. If the government starts
to print more money, such as in the case of
the COVID pandemic, the value of the notes
is diluted as new notes. And to the system, we then see inflation and that's
the devaluation of the currency with digital currencies and in
particular cryptocurrencies, the value, again is not
tied to a physical asset, but the value cannot
be changed by a centralized system
like a government. The value is determined
by the people using it. And manipulations of any kind
become more difficult as everything is stored and is accessible to see
on the blockchain. In 2008, Satoshi published his white paper outlining the creation and use
of a cryptocurrency, which used Blockchain
technology to essentially remove banks and
centralized systems completely from the equation. The birth of Bitcoin signaled
the start of a new era. Today, money transfers are the most popular use
for the blockchain. As we all transition into
the digital world are online and offline identities can be difficult to
manage and verify. Fast and accurate solutions have been a problem in the past, and identity theft has
become a global problem. Blockchain technology can
help to solve this issue. Companies like Microsoft use their Blockchain for their
own identification apps. The immutable nature of the blockchain means that
data cannot be tampered with and it's difficult
to steal to gain access to the data
in a closed network, a key is required. Proving ownership of anything in the physical world or the digital world can
be extremely difficult. We've all heard the expression, possession is nine
tenths of the law, but with the blockchain, proof of ownership can be
determined in seconds. The ledger states the owner's
name or wallet address and any other associated data in relation to an asset with
a corresponding code. Blockchain can replace
paper files and all of the legal middleman usually required to
prove ownership. Recently, we've seen this
use case implemented in the form of LFTs or
non-fungible tokens. The most famous FFTs or digital artworks which you've sold for millions of dollars. The value lies in the
proof of ownership. This is now expanding
into many areas, from gambling to metaphors, land a smart contracts
are introduced, which we'll cover later. This opens up even more
possibilities for the blockchain. One feature that has become
popular with LFTs in particular is the ability
to build in royalties. For example, an
artist could sell an artwork and a royalty
payment could be built in to pay the artist a percentage of every
future transaction price. This is particularly useful
in the music business. Over recent years, music
artists have encountered administration issues
with streaming and digital music platforms. The blockchain can
be used to build royalty payments into
every transaction. Property, deeds and
records have always been a challenge to store,
record, and process. Multiple intermediaries
are usually required to register ownership
and look up records. Deal with transfers
of ownership, cross-reference with local
bylaws is a minefield. In the extreme case of
war and displacement, records can sometimes be totally lost and can be
difficult to prove. Ownership. Blockchain can be implemented to solve
these security issues, as well as make
the whole process more accurate and efficient. Medical records have always
been difficult to store and administrate without significant human resources and budgets. Paper records are still
used in most countries, along with digital systems, which have been prone
to errors and hacking, health care fraud is
also a major issue, especially in the United States. The national healthcare
anti-fraud Association estimates a loss of
$80 billion annually. The blockchain can solve
all of those problems. Smart contracts can help to streamline the supply
chain management process. The larger the supply chain is, the more complex the
process becomes. Logistics companies
like UPS have extremely large
complex supply chains. Smart contracts will help
them streamline all of these chains by providing
self-executing contracts. Technology is already utilized heavily in transport
and logistics. But there are still human
errors in the supply chain. The wrong load can be placed
on the wrong transport. For example, with smart contracts
and blockchain systems, this can be eliminated completely by only
allowing a certain truck, which will be a smart drug to depart when the correct
load is on board. This can be integrated with barcodes or other physical
scanning equipment. A small vehicles become
more widely available. Further parameters can be
added to the contracts. The immutability of
blockchain means that fraudulent voting would become far more difficult to occur. As soon as the votes are cast and committed to the blockchain, the data is immutable
and transparent. Banking and finance
will potentially see the greatest benefits from blockchain in the
immediate future. Although cryptocurrency is
may be seen as a threat, the underlying technology
can be used to advantage of banks and
financial institutions. Traditionally, financial
institutions and banks only operate
during business hours. This also usually means
that they're close on weekends due to
the sheer amount of transactions that banks
have to deal with across different countries and between countless accounts
and intermediaries. It can often take days for
a transaction to complete. But blockchain works 247 in the financial markets
such as the stock exchange. The clearing and settlement
process can currently take up to three days on a national basis and longer
if it's international, mean that money in shares or frozen for that period of time. These delays cost
time and money. There is also a large
human resources cost involved in auditing and
processing transactions. Blockchain can
revolutionize this process. In some developing countries
where inflation, corruption, and structural
volatility is high, many people do not
use otros banks. In many cases,
people will work for cash and have to
physically hide it away. Unlike banks, most
blockchains have no restrictions on who
can access and use them. Cryptocurrency can be stored securely and a crypto wallet. And it can be accessed by a k, which can be memorized, written down, or stored
on a basic smartphone. This offers a new opportunity
for people to build wealth regardless of their location or the financial situation
of their homeland.
7. Types Of Blockchains: When a company, institution, or community decides to
create a blockchain, they must first
determine its function. Blockchains are not all
born equal and there is no one type of blockchain
which can serve all purposes. Blockchains are used for
supply chains may have vastly different requirements than cryptocurrency
transactions. For example, let's
take a look at the different types
of blockchains that are currently used. Private blockchains
are usually developed for internal use by businesses, organizations, or individuals to perform a specific function
or variety of functions. This could be anything from
simple record keeping to complex software applications
using smart contracts, private blockchains,
as the name suggests, are closed networks that are controlled by a single entity, although they're controlled by a centralized organization, the blockchain itself is the centralized
nodes are used to verify the data added
to the blockchain, but nodes can only be
created by authorized users. These types of blockchains
are often called permissioned blockchains
or enterprise blockchains. The security of the
blockchain is administered by the centralized
organization who can set permission levels and
determine which nodes have access to view the
ledger and add blocks. This type of system is often accessed by a small
number of users. And as such, the system can run very fast in comparison
to other blockchains. The main disadvantage of private blockchains is the fact that there are a smaller
number of nodes. This means that
for a consensus to be reached on the
validity of data, a 51% majority might only
be a small number of nodes. This could be a security risk. Public blockchains are designed to be used by a community. This could be for things like transaction information
for cryptocurrency. Or it could be far open-source
software developers, research data or gaming. Public blockchains rely on a consensus algorithm whereby the participants and
community members of the blockchain collectively
reach an agreement on the validity of the ledger
when blocks are added. The most common consensus
methods are proof of work, POW and proof-of-stake POS. Public blockchains are
permissionless and require no authorization
to join the network. Anyone can sign onto the
blockchain and become a node. All users have access
to the records of past and present activity and also have the option
to conduct mining, which is the process
of conducting complex computations to
solve cryptographic puzzles. By solving these puzzles, users can verify data and
add this to the ledger. In the case of cryptocurrencies, this is often the
transaction data, as well as the hash numbers of the previous add new blocks. As the source code
is also open source, users can also proposed changes. Most public blockchains
offer incentives to miners, often in the way
of native tokens. The disadvantage of
this system is that networks often slow down as
the number of nodes increase. This type of blockchain has many use cases including
public government records, property ownership,
and any other type of auditable record keeping, as well as cryptocurrency
transactions. This type of blockchain works in much the same way
as a hybrid system. But instead of a central
entity controlling the system, a group of entities collaborate on a
decentralized network. The consensus is reached
by using preset nodes, which are often a selection from each group in the consortium. The preset nodes
act as validators. Member nodes can initiate
and receive transactions. Although these types
of blockchains can be faster in operation, the nature of the consortium means that administration and implementation procedures
require a consensus which can slow things down. This top of blockchain
is ideal for banks as they conform
Consortium's with other banks. This system also works well with most types
of supply chains. There is often a need in organizations to retain
control of data, but also offer public access. In a hybrid blockchain, a private permission
based system can be used simultaneously
with a public ledger. Parts of the ledger
can be concealed, such as private data and other parts can be open
to the public to view. One common use for this type of blockchain is when private data, such as transaction details, must be kept private, but can become accessible to a user who is
granted permission, often through the use
of a smart contract. For example, all users may be given access
to the blockchain, but identity
information is hidden. The data is only revealed when a user is engaged
in a transaction. When the transaction takes place through a smart contract, the identities of both
parties are revealed. This type of system has many use cases for
financial institutions, real estate, and
government entities. For example,
governments could store citizens information
privately on the blockchain, but it could be accessed
securely between authorized institutions
when needed. This type of blockchain
is often fast, but lacks the full transparency
of public blockchains.
8. Blockchain Features: Smart contracts can
be referred to as self-executing contracts
or blockchain contracts. Just like a
traditional contract, smart contracts contain an
agreement between two parties. The difference with
a smart contract is that because it's digital, it can be used as a
program which self executes to perform the action agreed between the two parties. The contract is stored on
the blockchain and there is no need for a central authority
like banks or lawyers. The contract is stored on a decentralized
blockchain network, meaning that there are
always multiple copies. Unlike traditional contracts, smart contracts cannot
be misplaced or lost. Another advantage
of smart contracts is there speed as their self executing and don't rely on any third parties in a
traditional process chain, the speed of execution
is extremely fast. In the case of money transfers, the self-executing program is distributed on the
blockchain so that no individual or central
authority has control of the money while it is transferred from one
person to another. As it's part of the blockchain, this makes it a mutable, meaning that it cannot be
changed or tampered with. In contrast, in a
traditional database, if an individual
makes a mistake, it may go unnoticed. In addition, every
asset is individually identified and tracked on
the blockchain ledger. So there is no chance
of double-spending. The downside is that if there are any bugs in the contract, they can't be changed. This could cause
security issues. Has many smart contracts are stored on public blockchains. They're instantly visible to anyone who wants to see them. If there is a bug
that causes a hole in the security of
the small contract, this can be exploited. In June 2016, a book
in a smart contract lead to $50 million worth
of ether B and extracted. Luckily, this contract had
a time delay in place, which gave the
developers enough time to create a hard fork with a consensus from the developers which stopped the
transaction just in time. Smart contracts can be used on many different blockchains, all with different standards. Some smart contract networks run in parallel to
major blockchains, while others wrote on
primary blockchains, some blockchains
have limitations on what types of
contracts can be used. Others provide a variety of
templates which can be used. And some of our open source blockchains allow for additional application
resources like smart contracts, others like the Bitcoin
blockchain, they don't. This is mainly due to the age
of the Bitcoin blockchain. Smart contracts
were not developed until later in the
evolution of blockchain. There are however, solutions
for adding functions to blockchains that don't have the native ability
to implement them. One method is to
use a side chain. Side chains are in network
that joins blockchains. This allows secondary
blockchains with their own consensus protocols to interact with the main
blockchain or main net. In the case of bitcoin, tokens on the Bitcoin
blockchain can be sent through a side chain
to a secondary blockchain, and then data can be returned
to the Bitcoin blockchain. In reality, the tokens are not moved by a locked
on the main net. And with the equivalent amount released in the side chain. This is performed using what
is known as a two-way peg. This can be thought of as a
two-way transport tunnel. Smart contracts are used to confirm cross blockchain
transactions. The advantage of using
side-chains is that the secondary
blockchain can often perform more complex processes, such as smart
contract execution, which may not be available
on the main net. Secondary blockchains may
also use faster validation, which can speed up
processing times, enhance security or privacy, and add scalability
to the main net. For example, bitcoin has
a ten-minute block time, whereas the liquid network
side chain block time is just one minute. Blockchains store data. That data is created
by protocols. Sometimes the developers
of the protocol may have a disagreement over the way the protocol develops over time. In cryptocurrency, we often see developers breaking off
to create new versions. Protocols are essentially
software which is open-ended and will
continuously develop. Just like with
software applications, new updates are
introduced regularly. Sometimes these
updates are subtle and sometimes there is
a complete overhaul. We see this regularly with
operating systems and crypto. Some of the developers
might not like the way that the
protocol is developing. It may be heading in a
direction which shows a little resemblance to the original protocol that brought them on board
in the first place. Now at this point, like in
any kind of relationship, there are a number of options. If the developers cannot
come to an agreement, a split must take place. As the name suggests, at this point, the
blockchain becomes a fork. At a designated block number, the chains split into a hard fork is a simple
split in the blockchain. One part of the fork
follows the old rules of the protocol and the new
thought follows the new rules. After the block number
for the fork is decided. From that point on, the two
chains are incompatible. As you can see here,
after block number 102, chains carry on with
subsequent blocks. A soft fork is the equivalent of partners splitting up,
but staying friends. In the future. If
differences are reconciled, the chain can be reconnected. In the case of blockchain, the chain splits at a
designated block as before, but the new chain follows both the new rules and
also the old rules. It is compatible with both. If more users follow
the new chain, that becomes the stronger chain. If a consensus is reached, the new rules can be implemented
across the whole chain. And the chain discards
the redundant nodes.
9. Investing in Blockchain: Although blockchains are merely a system and not an entity, there are ways to invest in blockchain infrastructure
and protocols. You can, for example, invest
in companies that use blockchain as an integral part of their production or services. For example, you could invest in banks which are early adopters
of blockchain technology. If diversification is more
your style of investment, you can invest into
an exchange traded fund that is composed of blockchain based
companies and assets. An ETF is a group of different stocks from a number
of different companies. The benefits of
this approach are that if one stock underperforms the other stocks in
the fund help to even out the losses and gains. Another way to invest in blockchain technology
is to invest in the native tokens or
cryptocurrencies on a blockchain. For example, if you like
how a theorem blockchain is performing and you see it facilitating innovation
and growth in the future. You may consider
buying into ether, a theorems native
token has this is what is needed to power
the Ethereum network. Another way to
earn money through blockchain is to become
a proof-of-stake node. By staking your cryptocurrency
on the blockchain, you have the potential
to earn from block allocations
and validations.
10. The Future: The future potential for blockchain technology
is virtually limitless. Has more people, companies, and institutions
implement the technology. The benefits become
more apparent, which sparks further
interests in its development. It certainly looks like
blockchain is here to stay. Although blockchain is currently dominated by
cryptocurrency processing, the acceptance and
implementation across industries is moving
at a lightning pace. There are opportunities
for developers, investors, and users to benefit from the technology at
almost every level. Well, that brings us to
the end of this course. Congratulations on completing
all of the modules. Don't forget to fill out the
worksheet which are left in the class resources and post it here in the class
project section. Thank you for joining
me on this course and I hope to see you
on another course soon.
Marc Hamill, CEO of The Success Bureau
