BLOCKCHAIN

Definition of ‘Blockchain’

ActionCyberLaw™ simple definition: A “blockchain” is a term used to describe a data set comprising individual aggregations of data into digital ‘blocks’, which then incorporate cryptographic algorithms for integrity and security to mathematically link these ‘blocks’ seriatim, thereby forming an unbroken ‘chain’ of data blocks, or in computer speak, a “blockchain”.
Blockchain ‘DLT’ means ‘distributed ledger technology’ and is explained below.

Introduction:

Since its description in the Bitcoin cryptocurrency whitepaper of 2008, the blockchain concept has been hailed as a more efficient and innovative way of recording not only transactions of currency and value, but also goods, services and many other types of data. The promise of the blockchain technology is to provide a peer-to-peer transaction recording ledger secured by cryptographic means. Thus, third parties needed to authenticate transactions are eliminated along with the threat of successful cyberattacks directly on the blockchain data structure. In our ubiquitous, digital-age transaction frenzy, the blockchain promises to eliminate third-party verification, provide openness and transparency, opaqueness of identity, a permanent trusted recording, and a decentralized maintenance infrastructure. Time will tell whether any or all of these promises materialize.

Peer-to-Peer

Peer-to-Peer computing supports the direct exchange of data between computers without relying on a common or centralized file server. Each device becomes a “peer” that can act as both a client and a server. This equality reduces or eliminates centralized servers, reduces communication latency as it is peer-to-peer instead of client to server, and improves against failure by providing redundancy over many peers, or nodes.

But acknowledging the potential to revolutionize monetary and business transactions, research and start-up ventures have exploded creating a world-wide gold rush of sorts, or land rush stampede, in staking claims to intellectual property innovations utilizing the blockchain technology. While the novelty of the blockchain technology as described in 2008 cannot be the subject of any patent because of the expiration of time limitations, many clever organizations have filed hundreds of patent applications claiming improvements in the technology and its uses. This is a textbook example of human self-interest driven by the quest for discovery and derivatively, profit.

NIST Definition

In the January 24, 2018, report by the The National Institute of Standards and Technology (NIST), ‘blockchain’ was defined as,

“… essentially a decentralized ledger that maintains transaction records on many computers simultaneously. Once a group, or block, of records is entered into the ledger, the block’s information is connected mathematically to other blocks, forming a chain of records. Because of this mathematical relationship, the information in a particular block cannot be altered without changing all subsequent blocks in the chain and creating a discrepancy that other record-keepers in the network would immediately notice. In this way, blockchain technology produces a dependable ledger without requiring record-keepers to know or trust one another, which eliminates the dangers that come with data being kept in a central location by a single owner.”

Blockchain Basic Operation:

The basic technology of the blockchain comprises a unique combination of peer-to-peer networking coupled with cryptographic layering. The result predicted is control of participants and integrity of completed transactions in an open ledger data system.

Peer-to-Peer Networked Nodes – The peer-to-peer network is well known means of connecting computers where there is no set hierarchy. Each peer, or ‘node’ as described in blockchain parlance, is both a server and a client to other nodes. Nodes come online and go offline as needed. Transaction data is transferred from node-to-node throughout the network so that each node contains identical data. Hence the distributed nature of the blockchain data ledger.

Cryptographic Hash – The blockchain software contains a command to one or more cryptographic hash functions to associate a specific input with its respective output. A cryptographic hash function is software that produces a unique binary string from the input data. Even a minor change in the input data will produce an entirely different output in the binary string. The Bitcoin blockchain ledger uses the SHA-256 (Secure Hash Algorithm).

Cryptography – The blockchain software also makes use of asymmetric cryptography which produces a public key and a private key to access the data on the blockchain. A key is a string of digital characters. The public key is exactly that, known to the public. The private key is to be disclosed only to the owner or originator of the input. Essentially, the public key is used to encrypt the data, and the private key is used to decrypt the data. In this blockchain concept, each participant generates a public key and a private key. An example of a private key is a digital signature required to complete a transaction. Blockchain uses the Elliptic Curve Digital Signature Algorithm endorsed by the US National Institute of Standards and Technology.

Merkle Tree – The Merkle Tree data structure is used in the blockchain software to provide a summary of the transactions in the data set. Once this summary is established, it can be verified at any later time to determine whether the data set has been changed. This ability to verify the transactions in the block ensures that the blocks originate from a network peer and have not been damaged or altered so they can be added to the chain.

Miners – The entities that use their computers on one or more nodes to compile the data into blocks, and add those blocks to the chain, are called ‘miners’ for cryptocurrency applications of blockchain. Miners provide the ‘trust’ in the distributed data now encapsulated in the cryptographically protected blockchain residing on the decentralized network. That ‘trust’ factor was previously accomplished through centralized third party verifications.

The Basics of How a Blockchain is Built (without geekspeak):

The Transaction – The blockchain computer code provides for an input of the public address of the digital asset to be transferred and the code output then directs where the asset is to be sent to complete the transaction. Analogous to drafting a check.

Signing the Transaction – The originator or sender of the transaction at the digital asset public address inputs the corresponding private key which directs the code to transfer the asset to the corresponding output address. The entity with the private key can thus prove possession, ownership or control of the asset on the blockchain. Hence, the transaction is ‘signed’ or completed, but is not yet on the internet. Analogous to signing a check.

Broadcasting the Transaction – Next, the completed transaction is broadcast to the peer-to-peer computer network around the world where it is recorded and verified in every node. As of this writing, there were over 9000 Bitcoin nodes.

Mining the Transaction – The ‘miner’ on a node uses the blockchain software to bundle individual transactions with cryptographic tools into data ‘blocks’ and attach the ‘blocks’ seriatim, thereby increasing the size of the blockchain over time. The first ‘block’ is known as the genesis block, from which the subsequent blocks are propagated. Each new block is connected to the prior one with a cryptographic hash assuring continuity and security. Since it is a peer-to-peer network, each node then contains an exact copy of the cryptographically armored blockchain as it grows.

Proof-of-Work vs Proof-of-Stake – In order for the miners to be rewarded for the expenditure of the resources in equipment, electricity, personnel and overhead, they are paid in cryptocurrency for successfully completing or ‘mining’ the next ‘block’. The most used incentive to collect payment is called a “proof-of-work”. To be rewarded or paid in the proof-of-work model, the miner must be the first to aggregate a certain number of unmined transactions into a block and then solve a complicated mathematical problem. Analogous to being the first across the finish line. Thus the proof-of-work miner must expend considerable resources to win this race in competition with hundreds or thousands of other nodes. On the other hand, the Proof-of-Stake reimbursement model is based upon the economic risk of the miner to participate in the network. The analogy is that the miner receives an ‘insurance premium’ from the blockchain for covering the risk of mining. Those with a significant amount of blockchain assets want miners to continue to assure stability and security, and therefore pay the miners based upon their risk, or what the miners have at stake.

Blockchain Gold Rush

The ‘blockchain’ patent, trademark and Intellectual Property gold rush is in full swing all around the world with promises of Midas-sized rewards. Our ActionCyberTimes™ blog provides news and reviews of these and related Intellectual Property disciplines.

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