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February 20, 2018

Ask an Expert: What You Need to Understand about Blockchain with GNOSIS (Part 2)

Meet GNOSIS, a blockchain startup building revolutionary market-driven forecasting technology.

GNOSIS provides an open platform for businesses to create their own prediction market applications on the Ethereum protocol, and they spent the last few months right here at betahaus! We sat down with Nadja, the Brand & Content Strategist for GNOSIS, to get some clarity around some frequently asked questions in blockchain like: how secure is blockchain, what's the difference between bitcoin and ethereum, and what is the future of blockchain?

Did you already read Part 1? Here's the rest of our conversation on blockchain.

The idea of a public ledger of transactions leads me to my next question. In your opinion, how secure is blockchain?

"To understand the security risks of blockchain, it's important to understand the difference between public and private blockchains. Bitcoin relies on a public blockchain where anyone can aggregate and publish those transactions, provided they can show that a sufficient amount of effort went into doing so, which they can demonstrate by solving a difficult cryptographic puzzle. The process by which a network of computers confirms the record of previously verified transactions and verifies new transactions is known as a consensus protocol.

This decentralization and relative freedom of access has led to some consequences: because the consensus protocol is energy consuming, the majority of users operate in countries with cheap electricity, leading to network centralization and the possibility of collusion, and making the network vulnerable to changes in policy on electricity subsidies. This has led to an increased interest in private blockchains, which could ultimately give businesses a greater degree of control.

Private blockchains give their operators control over who can read the ledger of verified transactions, who can submit transactions, and who can verify them. They enable faster transactions, and some even allow for transaction reversal.

Thus, systems requiring fast transactions, the possibility of transaction reversal, and central control over transaction verification will be better suited for private blockchains, while those that benefit from widespread participation, transparency, and third-party verification will flourish on a public blockchain.

Apart from that, you're kind of personally responsible for securely storing your funds on the blockchain. Ownership is demonstrated through the use of a private key (a long number generated by an algorithm designed to provide a random and unique output) that is linked to a wallet or payment. Like any data, these keys can be stolen or lost, just like cash. However, these thefts are not a failure of the security of blockchain, but of personal security — they're the result of storing a private key insecurely.

Bitcoin or Ethereum currently provides no recourse for those who have lost their private keys; similarly, stolen bitcoins are nearly impossible to recover, as transactions submitted with stolen keys appear to a verifying node to be indistinguishable from legitimate transactions."

From what I understand, blockchain was initially designed for peer-to-peer money only, powering Bitcoin. Now other blockchains have emerged, such as Ethereum. Where's the key difference between the Bitcoin blockchain and the Ethereum blockchain?

"Contrary to the Bitcoin blockchain, the Ethereum blockchain uses smart contracts that trigger transactions automatically when certain pre-defined conditions are met. Smart contracts are basically a piece of code running on top of a blockchain network. If and when all parties to the smart contract fulfill the pre-defined arbitrary rules, the smart contract will auto execute the transaction. These smart contracts aim to provide transaction security superior to traditional contract law and reduce transaction costs of coordination and enforcement.

Smart contracts can be used for simple economic transactions like sending money from A to B. They can also be used for registering any kind of ownership and property rights like land registries and intellectual property, or managing smart access control for the sharing economy. Apart from that, smart contracts can be used for more complex transactions like governing a group of people that share the same interests and goals (decentralized autonomous organizations, or 'DAOs')."

It seems like the most obvious use cases of blockchain are in peer-to-peer transactions, international payments, data storage, or accounting. Are there other interesting applications you’ve seen? What do you imagine as being the future of blockchain?

"I see interesting applications of blockchain in the energy sector, identity management, or real estate.

In the energy sector, blockchain technology could be used to execute energy supply transactions, but it could further provide the basis for metering, billing, and clearing processes. Other potential applications include documenting ownership, asset management, origin guarantees, emission allowances, and renewable energy certificates.

If we were to use blockchain for identity management, people would only need to provide the bare minimum (date of birth, for example) to prove their identities.

The application possibilities in real estate are huge as well: the average homeowner sells his or her home every five to seven years, and the average person will move nearly 12 times during his or her lifetime. With such movement, blockchain could certainly be of use in the real estate market. It would expedite home sales by quickly verifying finances, would reduce fraud thanks to its encryption, and would offer transparency throughout the entire selling and purchasing process.

I see the future of blockchain in so-called decentralized governance. Blockchain can disrupt traditional governance structures of all kinds, and challenge the way we currently think about governance. Instead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, an organization that is governed in a decentralized way involves a set of people interacting with each other according to a protocol specified in code and enforced on the blockchain.

Imagine a shareholder-owned corporation and transplant it entirely on the blockchain: a long-running blockchain-based contract maintains a record of each individual’s holdings of their shares, and on-blockchain voting would allow the shareholders to select the positions of the board of directors and the employees."

Still need to cover the blockchain basics? Check out part 1 of our interview.

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