Tag Archives: ethereum

Blockchain Usage Part 1

Disclaimer – Coins discussed in this post are for educational purpose. Please don’t take them as any form of endorsements.

In our previous post we discussed one of the important tools to evaluate ICOs. In this post, we will expand our understanding of the blockchain technology. This will help us to further evaluate ICOs by understanding their underlying technology proposal.

Trustless and decentralized transactions, consistency and privacy – are the major advantages of blockchain.

All these features are already provided by bitcoin. So, the question is what do ICOs or other blockchain offer at all? It all comes down to usage.

Blockchain Usage

Let’s go back to our earlier blockchain example:

Complete Blockchain

From this we understand that a blockchain contains:

  1. Balances
  2. Identity information

But what if things can go beyond this?

Blockchain as Database

The very first block of bitcoin or genesis did not contain only balances and identity information. It also contained a message –

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

If you actually want to see the actual message. Find the genesis block:

https://blockchain.info/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f

Click on the text just below “Transactions”, it will take you here:

https://blockchain.info/tx/4a5e1e4baab89f3a32518a88c31bc87f618f76673e2cc77ab2127b7afdeda33b

Click on “show scripts and coinbase”.

As bitcoin caught on, people started storing all sort of  data on the blockchain. With ingenuity and enough fees anything can be stored . Examples include:

  1. Bitcoin logo
  2. Catholic Prayers – Oh yes, it is embedded in the bitcoin blockchain forever
  3. Nelson Mandela complete pic
  4. Bitcoin pdf paper etc.

(credit to: http://www.righto.com/2014/02/ascii-bernanke-wikileaks-photographs.html. Check the page for detailed information. )

Combined with inherent characteristics like privacy, decentralized etc., blockchain could be used for a lot of things.

Now, armed with this information people came up with two ways to utilize it:

  1. Using the blockchain underlying principle to create a new blockchain (also known as altcoins) to solve a problem.
  2. Using bitcoin as a metadata store (Metadata is data about data. Check the Nelson Mandela pic example in the righto.com link above. Nelson Mandela pic is the data. While the pic name – 3Nelson-Mandela.jpg? is the metadata).

Let’s look at one example of both the ways:

New Blockchain or Altcoins

Any new coin with its own blockchain falls into this category. These tend to solve a particular problem.

Namecoin is the first example of leveraging blockchain concept for a different purpose other monetary transaction.

Namecoin

This was the first fork of bitcoin.

A fork, in layman terms, means copying a program code and then reusing it. The re-use can be:

  1. Simple renaming (ex. Use bitcoin code as it is to create Mycoin)
  2. Improving the code
  3. Re-purposing the code

Etc.

Namecoin used the bitcoin code to create a new coin which could be used, you guessed it, to store names. Domain names are the most stored information on namecoin.

Domain Name

Think of addresses –  the major component of a normal address is the House Number and Zip code. Similarly, every computer in this world has an IP address. A website which is a computer also has an IP address.

For example, www.google.com IP address is: 172.217.26.196

So, when you type www.google.com in chrome or Firefox, it checks the site address in a domain name registry which is hosted on a Domain Name Server or DNS. Your computer requires the correct IP to open a website.

The DNS database is a centralized server. So think of a controversial website like – wikileaks.org. In this case, blocking a site is simple. Just delete the IP address associated with wikileaks.org from the DNS database.

Namecoin and DNS

Namecoin blockchain allows people to store site name and IP address in exchange for well what else but namecoins. The extension for a namecoin site is .bit (extension examples are .com, .net, .org etc). So, WikiLeaks can create a site – wikileaks.bit and store a corresponding IP address on the namecoin blockchain after paying some coins.

Website IP information cannot be tampered as blockchains are secure (immutable in tech speak). So any website information stored on namecoin blockchain will remain forever within the blockchain.

Normal web browsers cannot find the .bit websites. It requires specialized namecoin software,chrome and firefox extension, to get the DNS information of .bit websites.

Using Bitcoin Blockchain as Metadata Store

Metadata is data that provides information about other data. So, using blockchain as a metadata means using it to store information about “other” data ie non-bitcoin information.

An example of these are coins which are layered on top of bitcoin. They utilize bitcoin’s blockchain to store their metadata information ie non-bitcoin information. They utilize the computing power behind bitcoin to secure their network. Examples include — Omni (earlier known as Mastercoin) and Counterparty.

Let’s look at Omni (I will be using Mastercoin and OMNI interchangeably)

Omni (MasterCoin)

OMNI architecture:

Omni and Bitcoin Layering

(Their paper https://github.com/OmniLayer/spec )

Mastercoin was one of the first coin sales or ICO. People were asked to send coins to an exodus address (1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P).  Mastercoin was credited in lieu of BTC to those accounts. The distribution was similar to ICO nowadays. Just like a classic IPO, late buyers paid a slight premium compared to the early adopters.

How does OMNI work?

Omni uses an elaborate scheme to manage transactions. All OMNI transactions have three parts:

  1. The sender and receiver -These are bitcoin addresses which own OMNI coins. Yes you read it right, because of layering all OMNI coin owners are also bitcoin owners
  2. Exodus address – Each OMNI transaction pays a small fee to the Exodus address. It makes filtering OMNI transactions from the complete bitcoin blockchain very easy. So all OMNI transactions can be found on the exodus account page: https://blockchain.info/address/1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P
  3. Data Address – This is a special bitcoin address which stores the OMNI coin transaction. So if I send you 1 OMNI from my bitcoin address to your address, a special data address will store that transaction.

Let’s take an example:

A transfer of 0.9 OMNI between two addresses as seen and stored by OMNI:

https://omniexplorer.info/lookuptx.aspx?txid=fa3dae8c2bcb9fbc4fabf01bb40d047b262203f3768d5980c3ca29c0464d8722

You can see the sender and receiver of the coins.

As, we know OMNI uses bitcoin blockchain so the information must exist there too:

https://blockchain.info/tx/fa3dae8c2bcb9fbc4fabf01bb40d047b262203f3768d5980c3ca29c0464d8722

If you match both the page, the information can be broken down to:

  1. Sender – 1BF6A2MU7iS5qLRe8tLTHkLZBmEUsKHV5m
  2. Receiver – 1KTpA9UJfCP5L3at3QwgHYYyRCUwNnRhWY (Both are actual bitcoin address)
  3. Exodus Address – 1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4P (Omniexplorer uses this to filter transactions)
  4. Data Address – 1BF6A2MU7iS5qLRe8tLTHkLZBmEUsKHV5m → This stores the transaction and ownership information of OMNI coins. In this case it will store the transfer of 0.9 OMNI coins