How Blockchain components work for a common purpose

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Understanding blockchain and its components is not enough. You need to know where each piece fits where, how, and most of all WHY, to truly understand. Part 3 of 5 - Consensus IS Power series

To understand blockchain, you must understand its components

There are several components to blockchain, and it does get very complex. Understandably, not everyone has the time, or desire to dedicate themselves to learning how it all works. As is normal, most people in crypto don’t really know how it works.

Yet, confidence in crypto is rising

Think about it – how many people have do you hear referring to Bitcoin as a “bubble” lately? New blockchain applications sprout up every other day, existing components are improved frequently, and large capital are being invested in all that’s to come.

 

You’ve probably been wondering if you should get in on the action, or perhaps you are considering including blockchain into your business operations, or even launching your own blockchain-based enterprise.

 

Indeed, if you’re reading this, it’s likely not your first article on the topic, there’s tons of materials, articles, explanations. You’ve read it’s the future, has many applications, and it will change everything.

But what are they talking about exactly? Why is this tech so revolutionary? How can blockchain cater to all these very diverse businesses all at once?

Recordscontracts and transactions are some of the fundamental building blocks of civilization itself, everything is based on and tracked through such components, in all organizations and cultures. 

 

These basic building blocks have been introduced millennia ago, and other than which law they should conform to, remain mostly unchanged in form & purpose throughout time.

 

But Blockchain technologies propose “updated” versions for each component, featuring new characteristics. In brief, we can now use these components to achieve, more or less the same goals, differently. 

 

And it’s a huge deal.

Blockchain components vs traditional counterparts

1. Ledgers

Are the systems of records for any organization’s economic activities and interests. Businesses typically use many, and everything they do is tracked and accounted for in these records.

1. Blockchains are "Distributed Ledger Technologies"

Are the systems of records for any organization’s economic activities and interests. Businesses typically use many, and everything they do is tracked and accounted for in these records.

 

Blockchains are “Distributed” due the many nodes keeping and verifying the same record of the same ledger. They use an ingenious mechanism, so that if one such node keeping records should contain an error or be tampered, in one or more nodes, the others would detect and exclude it.

Correctness is maintained as long as most nodes preserve Consensus

The result of this is networks being capable of operating securely and globally without needing a “trusted third party” – an entity granted oversight authority –  to check the validity of transactions.

 

These “trusted” third party intermediaries are many (think: banks, credit cards, exchanges, auditors, etc.) expensive and cumbersome organizations, whose functions can now be optimized and automated top to bottom, including the prevention of issues such as human error, criminal conduct, or simply adding redundancy to the system, to not depend on a single point of potential failure.

2. Contracts

Set the framework for, regulate and enforce the behaviors of all participants in an organization’s network. You know this well, they’re used for a million different things.

2. Smart Contracts

Are computer protocols (= a bunch of code) intended to “digitally facilitate, verify, or enforce the negotiation or performance of a contract” (“an agreement enforceable by law”).

 

Or in human-speak: they are contracts, with a built-in payment system, enforced by pre-built computer code.

Smart contracts can serve as many purposes as regular contracts, but better.

Smart contracts can serve as many purposes as regular contracts, have become (somewhat) accessible to non-expert users due to being cheap & easy to deploy.

 

However, what is arguably their best feature, that many seem to overlook entirely, is their ability to self-enforce. This gives us the possibility of doing something we just could not before: guaranteeing the future.

Not clear enough? here's a simple example:

You are hired for a job, given targets and promised a raise if you achieve it:

 

Option A) normal contract.

Regardless, many things can go wrong. Your boss could be a bastard and question the legitimacy of your methods or results achieved.

 

Option B) smart contract.
Code does what its built to do: targets achieved, raise received.

 

Now try to imagine a whole corporation operating like this. Headache? You’re not alone.

3. Transactions

Are transfers of ownership, measured in currencies or assets, whose movement creates value within an organization’s business network. 

3. Enter crypto-currencies & assets

Bitcoin, and all the others that spawned after, have introduced variants of traditional currencies and of various financial instruments, with more new entries each year. We won’t dwell on these, see this article for more.

How blockchain components fit together

To quickly understand how blockchain components interact compare them to a human cardiovascular system: 

the Ledger is the heart, contracts are the blood vessels (veins, arteries, capillaries), currencies & assets are the blood, and transactions are the heartbeat, setting the pace and allowing blood to flow.

 

After all, corporation (from latin: corpus, corporis = body) literally means “to embody for a common purpose”.

None of it has any function without the whole.

Everything flows from purpose - even conflicts of interests

And what is the purpose of a corporation? Profit. 

This, ultimately, is what we covered in Part 2: the core issue is that it’s in the interest of the owners to squeeze the consumers for all they’re worth.

Blockchains can be used to prevent this issue

As also covered, in Part 1: the purpose of blockchain is to disintermediate and replace middlemen that are too cumbersome and inefficient to adapt, for the purpose of removing existing congestion in national and global economic networks.

 

There are many in today’s world, and in some cases, they are terribly detrimental to local and global economies. 

Producers and Consumers are both dependent on Intermediaries

As is self-evident, modern middlemen networks have grown enormous, are globally interconnected and are virtually impossible to avoid.

 

Both producers and consumers have become dependent on a never ending chain of organizations draining value from transactions. 

 

New producers stand no chance of outcompeting peer whom cooperate with large distributors and are thus forced into conforming to whatever terms and procedures are demanded of them. Consumers struggle to get access to the goods and services that they need and/or rely upon.

The result: most costs (of everything you'll ever buy) goes to Intermediaries

That is, unless we (humanity, ndr.) do something about it. 

 

Throughout this series, we argue that the solution is “Consensus”, and hope to help you understand how anyone can harness it into a feasible solution.

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We're building the 1st S-DEX (“Self-Decentralizing Exchange”) – a market intermediary using a custom blockchain solution to transition its holding entity into a non-profit over time. Why, you ask? 
To fulfill blockchains' true purpose: so that we can redirect platform generated revenue to our end-Users instead.

Lorenzo Ferrari | CryptoArena CEO Tweet

1. Ledgers

1. Ledgers

Blockchains can be used to prevent this issue

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Lorenzo Ferrari

Lorenzo Ferrari is the Founder & CEO of CryptoArena.org, a fintech startup aiming to launch the first “Self-Decentralizing Exchange” – a secondary market intermediary using a custom blockchain solution to transition its own holding entity into a fully non-profit Foundation. 

CryptoArena distributes platform-generated revenue to its (active) Users through a game-like, social-competitive, points scoring system. Incrementally, over time, 

all the way to 100%.

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