Intro to Blockchain and Smart Contracts

Intro

· Simply put it is a chain of blocks that contain information

· The blocks are intended to timestamp documents digitally in order to ensure that they are not altered or tampered with at some point in the future

· It is a distributed ledger that it completed open to anyone

o A Distributed Ledger means digital data that is replicated, shared and synchronised geographically across many sites, countries or institutions. The rationale of using the blockchain is that it requires a popular or majority of the nodes to be in agreement.

· BLOCK – Each block contains some data, the hash of the block, and the hash of the previous block

o DATA – The data stored on the block depends on the specific block. For example Bitcoin contains transaction data such as the sender, receiver and the amount.

o HASH – The hash of a block can be compared to a fingerprint as it is always unique. Once a block is created the hash is calculated. Changing something inside the block will cause the hash to change also., this essentially means it is a new block.

o PREVIOUS HASH – This is what creates the chain of the block as the current block is linked to the previous block

o GENESIS BLOCK – Each block in the chain points to the previous block but the first block cannot do this since it is the first, it is called the Genesis Block

o TAMPERING – If a block changed then this invalidates all the following blocks in the chain. So a hash is not enough to make the blockchain truly immutable.

· PROOF OF WORK – This is a process that slows down the validation of each block. This prevents tampering on the chain because if one block is changed then every other block would have to be “re-worked” on the chain.

· DISTRIBUTION – Blockchains also secure themselves by being distributed. The network is P2P (Peer-2-Peer). Each person in the network is a node and is granted full information of the blockchain when they join. Each node then can verify that everything on the chain is still in order. When a new block is made, it is sent to everyone on the network and so everyone can see whether it has been tampered with. If it is good, then each node adds this block to their chain. This creates CONSENSUS

· CONTRACTS – The introduction of smart contracts on the chain has allowed for immutable digital contracts, agreements, to be made between parties that cannot be tampered with, thus reducing the need for trust between 3^rd parties and introducing trust less agreements.

Intro to Smart Contracts

· Contracts – The introduction of smart contracts on the chain has allowed for immutable digital contracts, agreements, to be made between parties that cannot be tampered with, thus reducing the need for trust between 3^rd parties and introducing trust less agreements.

· A Smart Contract can be described as a distributed ledger to store contracts

· They are just like real world contracts but are completely digital in the form of a computer program stored inside of a blockchain

· TRUST - Smart contracts allow for a trust less system. Trust is built into an agreement without having to trust a third party

· IMMUTABILITY - The trust comes into play in form of immutability; the contracts cannot be changed. The code cannot be changed for the contract behind the back of any persons involved in the agreement.

· DISTRIBUTION - Contracts on the blockchain are also distributed meaning the output of the contract is validated by everyone on the network.

· This means a single party on the network cannot request, for example, a release of funds without the remaining parties on the network having validated that all criteria have been met for the funds to be released

o EXAMPLE USE CASES of smart contracts across various industries:
Banks – Loans, Automatic Payments

Insurance – Process Claims

Postal – Payment on Delivery

Medical Records

E-Notary

Collecting Taxes

· Ethereum – There are many blockchains that support smart contracts but the biggest one is Ethereum. It is programmed using a language called Solidity. This programme uses a syntax called JavaScript.

o Bitcoin – Bitcoin also has support for smart contracts although it is more limited than Ethereum.