Super easy-to-understand basic knowledge of blockchain (Part 2)

Chapter 3 Examples of services that can utilize blockchain

It turns out that blockchain could be used for many things. Specifically, in what industries and services can it be used? The Ministry of Economy, Trade and Industry (METI) summarizes the following use cases for blockchain technology utilization in its “Survey on Domestic and Overseas Trends in Services Using Blockchain Technology” report.


Concrete examples of using blockchain for administrative services

Estonia is called a “digitally advanced country”. This small northern European country with a population of just over 1.3 million, which gained independence from the Soviet Union in 1991, has adopted the slogan “e-Estonia” (electronic nation) and actively uses IT in both the public and private sectors. Estonia, an IT-advanced country, is attracting attention as one of the first countries in the world to introduce blockchain to administrative services.

Currently, in Estonia, tax payment, voting, marriage and divorce procedures, land and corporate registration, and even passport issuance are all completed online. Not only banking and insurance, but also medical information has been digitized. Surprisingly, 99% of all administrative services are completed on the Internet. Furthermore, even foreigners who have never visited Estonia can apply for registration as an “e-resident” online, and this e-resident system is the key to attracting foreign entrepreneurs.

Estonia’s e-government has a policy of “convenience” and “transparency”, and uses blockchain to record these administrative procedures, and the country itself is said to be a blockchain startup. there is It can be said that it is a near-future country.

Concrete examples of using blockchain for marketplaces

The mechanism in which individuals buy and sell on flea market sites and auction sites on the Internet is now a huge market. Such marketplaces are also making use of blockchain. OpenBazaar in the US is a prime example. OpenBazaar, which supports payments using Bitcoin, is a type of marketplace where sellers and buyers conduct transactions directly on the site, but by utilizing blockchain, secure transactions are realized while ensuring anonymity. Not only that, but there is no fee for using the service. These blockchain-based marketplaces will continue to grow as they meet the needs of users.


Chapter 4 How Blockchain Works

Until now, transactions such as currency could not be safely conducted on the Internet without the existence of a reliable service provider. For example, with virtual currency, there were two problems: how to prevent spoofing and falsification, and how to prevent double spending. The solution to this problem is Bitcoin, and the blockchain technology that supports it. Blockchain has solved this problem by applying four technologies: “P2P network”, “hash”, “electronic signature” and “consensus algorithm”.

♦ P2P network

P2P (Peer to Peer) refers to a connection method in which multiple equivalent computers communicate directly on a one-to-one basis. A network in which many computers connected by P2P gather and communicate with each other is called a P2P network. Peer is a word that means “colleague” or “companion”, and computers connected in a P2P network have equal and equivalent functions. In other words, the system is distributed, and even if some computers go down, the system as a whole will continue to operate. This property is the biggest feature of P2P network, and blockchain realizes a distributed system that does not go down due to P2P network.

The P2P network itself is an existing technology, and blockchain, including the hashing and electronic signatures described later, can be said to be a new technology created by combining existing technologies.


♦ hash

Hashing is a cryptographic technique that is good at identifying data. By passing it through a calculation formula called a “hash function”, it becomes a unique value (hash value) for the input data. Since the hash value functions as an ID that identifies the input data, any falsification or damage to the data can be detected instantly.

The hash value returned by the hash function is a value unique to the input data, and always has a fixed number of digits no matter what data is input. The original data cannot be identified from the hash value. Also, if the input data is the same, the same hash value can be obtained regardless of who, when and where the hash function is applied.

Here, for those unfamiliar with cryptography, let’s dig a little deeper and give a concrete example. Bitcoin uses a hash algorithm called “SHA256”, and when the left word in the table below is applied to the SHA256 algorithm, the right hash value is output.


As you can see from this table, the number of digits in the returned hash value is constant, regardless of the length of the input data, the type of characters, or the content. Therefore, if the original data is modified even a little, the hash value will be completely different, and thus the tampering can be easily detected by comparing with the correct hash value. In addition, the hash function, which returns a fixed number of digits no matter how long the data is input, realizes efficient communication.

Blockchain takes advantage of these characteristics of hashes to achieve highly tamper-resistant and efficient data management.


Electronic signature
An electronic signature is an electronic signature that certifies the creator of a digital document, and by applying an electronic signature, the following two validity can be proved.

・The data was created by the signer
・The data has not been tampered with

When generating an electronic signature, a pair of keys called a “public key” and a “private key” are created. The signer uses the private key to sign the data and send it to the recipient as an electronic signature. The recipient verifies that the data was created by the signer by using the corresponding public key previously received. Blockchain prevents spoofing and tampering by using this electronic signature.

consensus algorithm
A consensus algorithm in a blockchain is a mechanism for correctly forming a consensus among an unspecified number of participants. It is sometimes called a “consensus algorithm” or “consensus formation”.

The term “consensus algorithm” itself refers to a calculation method for consensus building, with the meaning of consensus (agreement) and algorithm (calculation method). However, in a blockchain consisting of an unspecified number of participants, there is a possibility that there may be people who commit fraud or people who do not operate normally at the time of transactions that cause Byzantine failures. It is necessary to have a mechanism that can form

As explained in Chapter 1 “What is a Blockchain?”, Blockchain distributes and records equivalent information to all participants on the network. The consensus algorithm is the rule for verifying whether each request is correct so that there are no discrepancies in the recorded transaction information.

There are several types of consensus algorithms. For example, Bitcoin uses a consensus algorithm called Proof of Work (PoW). The biggest feature of Proof of Work is that the verification work (mining) of tampering and double transactions involving enormous computational processing is performed in a competitive format, and new Bitcoins are issued to the winner of the competition. Before this method was invented, it was impossible to get an unspecified number of participants to make the right choices by themselves. However, Proof of Work solves this problem by providing incentives for verification work, which relatively eliminates the merit of cheating. With this Proof of Work, correct consensus building was realized without a system administrator or network center, and Bitcoin was born into the world.

Although detailed explanation is omitted here, there are many consensus algorithms other than Proof of Work, such as Proof of Stake (PoS) and Proof of Importance (PoI).



Chapter 9 The Future of Blockchain


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