Talking Nerdy: Blockchain, Mixed Reality, & Web3 (Part 1)

Released: 1-08-2024

TL;DR: Blockchain is a digital ledger providing secure and transparent transaction recording, far beyond just cryptocurrency. It allows for self-executing contracts, efficient supply chains, and builds trust without middlemen. Each transaction block is immutable and linked, ensuring security. The technology isn't just a currency mechanism; it's a system tracking transactions with unique, secure digital fingerprints. Understanding blockchain means differentiating its types—centralized, distributed, and decentralized—and its applications in various sectors from finance to healthcare, providing solutions like frictionless payments and secure data sharing.

"Thinking about blockchain as just a fancy spreadsheet is like calling The Mona Lisa a paint smudge. Sure, it technically is, but you're missing the whole point."

Blockchain

Imagine a world where contracts execute themselves, supply chains whisper their secrets on a tamper-proof ledger, and every transaction is etched in digital stone. That's the beauty of blockchain. No more middlemen, no more blurry processes, just pure, transparent trust woven into the fabric of your business. This isn't just about cutting costs; it's about building unshakeable customer confidence. Think frictionless payments, automated logistics, and a supply chain so transparent, you could track an avocado from orchard to guacamole bowl.

Mixed Reality

Get ready to blur the lines between the real and the virtual. Mixed Reality – the harmonious marriage of Augmented Reality and Virtual Reality – is about superimposing digital information onto the physical world, or transporting us into whole new virtual universes. Imagine product demos conducted in your living room, training simulations so real you can smell the virtual oil, or collaborative meetings held anywhere in the world, rendered in stunning 3D. This is the future of work, learning, and even shopping – one where physical and digital seamlessly blend to create experiences as real as, well, reality itself.

Web3

While ushering in the age of the empowered user, Web3 is all about decentralization. With the power shifting from corporate giants to communities and individuals. This means owning your data, participating in open-source governance through blockchain, and even shaping the future of the internet itself through digital assets like NFTs. For businesses, this translates to deeper engagement, loyal communities built on shared ownership, and innovative revenue models beyond the control of centralized platforms.

Blockchain Does Not Equal Crypto!

Whenever someone hears the word "Blockchain", they immediate assume the person is talking about cryptocurrency (crypto). This is because the technology is primarily used in the digital currency landscape to track transactions. This is where you hear terms like "Bitcoin Blockchain" or "Ethereum Blockchain" but it's important to recognize that blockchain isn't a currency but the mechanism, a Distributed Ledger or database if you will, to track the transactions in an immutable (unchangeable) while remaining completely visible.

You probably guessed now that the reason it's called a "Blockchain" is because it is a growing set of blocks that are chained together. Each block has a digital fingerprint that is important to itself, the previous block, and the next block. This is partly why it's difficult to "hack" a blockchain network as each block has reference-able hashes crossing three different blocks. A hash is an algorithm that coverts a file or data into 128 or 258 fixed bits (characters) that changes drastically if anything is altered. This is how you ensure file integrity; if the hash matches throughout the chain of custody, then the file is unchanged. If you look at Block 2 in the photo; it includes the hash from Block 1, its own (Block 2) hash, and Block 3 references the Block 2 hash as well. This shows the expansion across 3 blocks previously mentioned.

A couple terms that are important to know are "Genesis Block" and "Merkle Hash". The Genesis Block is the first block in the blockchain, it is created when the blockchain is formed and is super important to the integrity of the system. The Blockchain Developer is responsible for ensuring this block is correct because the following blocks are reliant on it.

The next term is the Merkle Hash, this works from bottom to top shown in the image to the right. The letters at the bottom are individual transactions. Transactions are a loose definition of a record or a log. The transaction is hashed individually (Leaf) then combined with the hashed value of the neighbor transaction to a "Branch" hash and so on until there is a single hash value left called the "Merkle Root". This is the transaction hash that is posted in the block within the blockchain; as well as the hash of the previous block. Don't worry, there is also source and destination information like an IP Packet but that's the easy stuff.

Now let's discuss the 3 Blockchain Types

Centralized

A single entity controls the network, validating transactions and maintaining the ledger. Think of it as a tightly governed database, offering efficiency and speed, but at the cost of centralized trust and potential single points of failure. Most enterprises would choose an architecture like this one.

Decentralized

Power shifts from a central authority to a distributed network of participants. Nodes collectively validate transactions and maintain the ledger, creating a secure and transparent system, albeit potentially slower and more resource-heavy than centralized counterparts.

Distributed

Every node holds a complete copy of the ledger, ensuring high resilience and fault tolerance. This decentralized structure also promotes data transparency and eliminates central control, but complexity and scaling can be challenges. This is the backbone of crypto.

The goal of the different blockchain types is to come to "Consensus", which is the approval of the transaction(s) to be added to the blockchain. When it comes to Decentralized and Distributed (and most Cryptocurrency), there are many different types of Consensus Mechanisms like Byzantine Fault Tolerance, Proof of Burn, Proof of Capacity, etc but we will focus on the three primary and well-known ones: Proof of Work, Proof of Stake, and Proof of Activity and then dive into Smart Contracts and Blockchain Security.

Proof of Work (PoW)

Imagine a gold rush, where miners compete to solve complex puzzles and earn the right to validate transactions and add new blocks to the chain. The first miner to crack the puzzle gets rewarded with cryptocurrency, while others keep trying. This process consumes a lot of energy, but it's highly secure thanks to its computational difficulty. Think of it as brute force meets digital treasure hunt.

Example: Bitcoin

Proof of Stake (PoS)

Instead of brawn, PoS rewards those who hold the most cryptocurrency, or "stake" their wealth in the network. Think of it as voting with your coins. Validators are randomly chosen based on their stake, and they verify transactions and create new blocks. It's a more energy-efficient approach than PoW, but there's still a risk of those with the most coins having undue influence.

Example: Ethereum

Proof of Activity (PoA)

PoA blends elements of PoW and PoS to create a secure and efficient system. Initially, it uses PoW to mine empty blocks, requiring energy. Then, PoS kicks in, choosing validators based on their stake and activity within the network. This hybrid approach improves security but increases energy consumption as well as block-write times.

Example: Decred

Smart Contracts

A smart contract is “an agreement or set of rules that govern a business transaction; it’s stored on the blockchain and is executed automatically as part of a transaction. The execution is either completed from a time logic parameter like "at this day and time" or after a certain action is completed. On a Public Blockchain, like Etherum, the contract whether open or completed is visible on the blockchain for all participants to see, however, the parties involved are private. This allows for visibility and anonymity.

Blockchain Security

Immutability - Once the block is added to the blockchain then it cannot be altered. It's only allowed to be appended by adding a new block.

Verification - Multiple hashes (mentioned above) are part of each block and reference neighbor blocks. This makes hacking a single block irrelevant.

Consensus - In a Decentralized or Distributed architecture, this requires at least 51% of the votes approve the creation of a new block. Threat actors would have to compromise this 51% in order to write an illegitimate block.

Visibility - All participants on the blockchain can see all transactions and their relevant data.

Anonymity - More relevant for public blockchains used in cryptocurrency, but both parties identities are kept private.

So now for the big question; how can Blockchain be used in business?

Here are some common tools that are used to build a private blockchain for an enterprise. Most of them are managed solutions natively but a Cloud Solutions Provider (CSP) can assist with implementation and support to provide a customized and quality experience.

Also check out some of the following use cases for ideas.

Blockchain for payment processing and money transfers. Transactions processed over a blockchain could be settled within a matter of seconds and reduce (or eliminate) banking transfer fees. Many countries are implementing digital currencies, this is effectively Centralized Crypto. This could also be some form of rewards system where employees or customers receive benefits tracked on a ledger. Imagine being able to trade rewards for another, I'd love to trade Starbucks for Chipotle!
Blockchain for monitoring of supply chains. Using blockchain, businesses could pinpoint inefficiencies within their supply chains quickly, as well as locate items in real time and see how products perform from a quality-control perspective as they travel from manufacturers to retailers. The data could easily be visible and referenceable by all parties to ensure provenance while maintaining security requirements.
Blockchain for digital IDs. Microsoft is experimenting with blockchain technology to help people control their digital identities, while also giving users control over who accesses that data.
Blockchain for data sharing. Blockchain could act as an intermediary to securely store and move enterprise data among industries. Businesses can store the data on-chain or off-chain. On-chain requires a lot more storage and bandwidth while off-chain stores the metadata on the blockchain with references to the data itself in a shared drive. Generally, this is done via API.
Blockchain for copyright and royalties protection. Blockchain could be used to create a decentralized database that ensures artists maintain their music rights and provides transparent and real-time royalty distributions to musicians. Blockchain could also do the same for application developers. This is another great use for Smart Contracts!
Blockchain for Internet of Things network management. Blockchain could become a regulator of IoT networks to identify devices connected to a wireless network, monitor the activity of those devices, and determine how trustworthy those devices are. It can also track the "churp" data from the IoT sensors instead of using a typical SQL database.
Blockchain for healthcare. Blockchain could also play an important role in healthcare: Healthcare payers and providers are using blockchain to manage clinical trials data and electronic medical records while maintaining regulatory compliance. Think in the future where all of the healthcare data is on the blockchain and your private key is what allows your preferred provider to access. Transferring providers would be seamless and access to your personal information is completely under your control, otherwise you appear anonymous. This is a hint of what's possible with Web3.
Plus many more!

Blockchain technology represents a revolutionary leap in how we approach data integrity, transaction security, and decentralized systems. It goes beyond its initial association with cryptocurrencies to offer a broad range of applications across industries, from automating contracts and ensuring supply chain transparency to securing digital identities and facilitating efficient, transparent transactions. By eliminating intermediaries and creating a tamper-proof ledger, blockchain is redefining trust and efficiency in business operations.

As we continue to explore and expand its potential, blockchain stands as a testament to innovation in digital trust and security. It holds the promise of transforming industries, enhancing privacy, and paving the way for a new era of decentralized, transparent, and efficient systems. The journey of blockchain integration into various sectors is just beginning, promising a future where technology drives unprecedented levels of security, efficiency, and trust in digital transactions and data management.

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