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Blockchain Technology

From the days of Adam to the days of the atom, we have evolved the way we process, perceive and store information. From the huge computers weighing hundreds of kilograms to the most compact ones storing tons of information, we have modernized the way information is stored and accessed. In this dawn of technology, a term which deserves special reference is the blockchain technology. 

Though it was initially created only to facilitate transactions of the digital currency known as Bitcoin, it became acceptable worldwide. It is a decentralized system wherein digital transactions occur without relying on a third party. It involves peer to peer transactions and works on encryption and decryption.

What is blockchain technology? 

Blockchain is a distributed and immutable ledger allowing you to track anything, including both tangible and intangible goods. This allows individuals and organizations to record the entries digitally and securely. The entries are thereof endorsed and secured by a community of users. The blockchain works on a hash code, which is a unique alphanumeric sequence for a particular transaction. Each block bears its own hash, along with the hash of the previous block. It is similar to a digital fingerprint and represents a transaction. This unique feature makes it immutable and hamper resistant as any changes or tampering in one transaction will immediately change the hash of that transaction in the block, and the changes will need to be made in every block bearing that hash. Thus, it makes any tampering with the transactions easily traceable. Further, the use of encryptions and digital signatures make the blockchain technology safer. 

At the primary level, blockchain is similar to a chain of blocks; the reference is not to be understood in the traditional sense but in terms of the digital world. The block here is the digital information, whereas the chain is the public database wherein it is available or accessible. 

The next question that arises is what does a block contain? 

  • Transaction details including the date amount and time.
  • Hash, which is a unique alphanumeric combination. Hashes are cryptographic codes created by special algorithms.
  • Details of the participants of the transaction with the help of a digital signature or username. 

The first successful and popular application of the Blockchain technology came as digital cryptocurrency “Bitcoin” in the year 2009 by Satoshi Nakamoto.

The question that arises is how does a blockchain work or operate?

A block in the blockchain network contains some information about the transaction and the hash of its previous block. Hash is a unique alpha-numeric code which is a result of a specific algorithm and corresponds to a specific block. Any modification of the information inside the block leads to the modification of hash. This connection of blocks through unique hash keys, previous and present makes the blockchain secure.

  • Public and Private keys are used to form a digital signature for the transaction to ensure security and consent.
  • On authentication through these keys, there arises a need for authorization.
  • The participants of the network can reach a consensus as to a particular value.
  • To make the transfer, the sender uses their private key over the network. Immediately, a block is created which contains information including digital signature, the receiver’s public key, and the time stamp.
  • The block of information is broadcasted through the blockchain network.
  • Transactions that take place on a blockchain, are validated by nodes on the network. In Bitcoin blockchain specifically, the nodes are referred to as miners.
  • To validate a transaction, each block must correspond to the hash of the preceding block. The transaction is concluded only if each hash on the corresponding block is correct. 
  • Miners all over the network start solving the mathematical puzzle which relates to the transaction in order to process it. The miner who solves the puzzle first receives rewards in the form of bitcoins. This refers to proof-of-work mathematical problems.
  • When the majority of nodes in the network or the minors come to a consensus and a common solution is achieved, the block is hereinafter added to the existing blockchain with the timestamp.  
  • On the addition of the new block to the chain, the existing copies of the blockchain are updated for all the nodes on the network to ensure accessibility and transparency.

Features of a blockchain:

  • Decentralized: No single person or a group holds any authority in the overall network. While everybody can access it, they cannot modify or control it. 
  • Peer-to-Peer Network: There is no third party involvement and works on P2P protocol. There exist no interruptions or extra charges or other technical difficulties.
  • Immutable: Any data once stored in a block cannot be altered owing to the unique hash and the feature of correspondence to each block. Any changes are easily traceable. 
  • Tamper-Proof: Owing to the feature of immutability, tampering of any data is easy to trace. There are two ways of detecting tampering: the hashes and blocks. Each hash function which is associated with a block is unique. An analogy can be drawn to a fingerprint of a block. Any change to the information will lead to a change in the hash function. Further, since the hash function is interlinked to other blocks, to validate the transaction the hash of each block will have to be altered, which is tedious. 

Is blockchain patentable?

Whether a blockchain is patentable or not depends on nature and its ability to pass the test of Patent. It is pertinent to note that this question needs to be answered in light of Patent requirements in different countries. As a general rule, a patent must be novel, capable of industrial application and include an inventive step. It is also considered that while machines can be a statutory subject matter of patents any abstract theorem does not qualify for the same.

In the United States, the blockchain technology that needs to be patentable has to pass the Mayo or the Alice Test. It is likely that patent applications will multiply, but the immediate question is whether they can overcome the hurdles presented in Alice Corp. v. CLS Bank International, (2014) US Supreme Court decision. The Supreme Court unanimously held that claims to a computer-implemented technique of extenuating “settlement risk” in financial transactions were barred from patenting. The Court elucidates that a claim directed to an abstract idea is not qualified for patent protection when it “merely requires generic computer implementation” or “attempt[s] to limit the use of [the idea] to a selected technological surroundings.”

In Canada, pursuant to its Patent Act, the legal definition of the invention has been narrowed down. An invention can be “any new and useful art, process, the machine, manufacture or composition of matter” but cannot be a mathematical formula or scientific concept. 

However, a few blockchain patents have been granted including the Goldman Sachs who has been awarded a patent for its proposed SETLcoin cryptocurrency settlement system, which envisions a system for settling securities trades using a built-in cryptocurrency.

Blockchain and Cryptocurrency

A cryptocurrency is a form of digital or virtual currency based on Blockchain. They are meant to be a medium of exchange similar to paper currency without a physical existence per se. Cryptocurrencies by virtue of blockchain are immune to counterfeiting. They do not require a central authority and are protected by strong and complex encryption algorithms. Modern Currency includes paper notes, credit cards and debit cards, all of which are regulated by the banks or financial institutions. However, there are various instances of unsuccessful transactions owing to hacking, identity theft, low servers, technical issues at the bank, so on and so forth. This drawback led to the birth of cryptocurrency.

Crypto refers to Cryptography which is a method of using encryption and decryption to secure communication in the presence of third parties with ill intent. It uses a computational algorithm, a public key (that the user shares with everyone) and a private key (which acts as a digital signature of the user).

Blockchain technology enables cryptocurrencies, which are peer-to-peer, decentralized, digital currencies capable of serving in highly secure transactions. Pseudonymous developer(s) Satoshi Nakamoto introduced BitCoin in January 2009, offering a currency that used no paper or metal but only 31,000 lines of code and an announcement on the Internet.8 Today, the market capitalization of bitcoin is around $10.5 billion. 

Features of Cryptocurrency: 

  • There is a limit to how many units can exist. For bitcoins, the limit is 21 million. 
  • Easy verification of transfer of funds by hash code.
  • They operate independently of a central or bank authority.
  • New units can be added only after the fulfillment of certain conditions.
  • There is little to no transaction costs. 
  • 24*7 access to money. 
  • Freedom for anyone to use. 
  • Faster international transactions. 
  • No limits on purchases and withdrawals.

Blockchain is the platform where cryptocurrencies operate. This network creates a background and the means for transacting and enables transferring of value and information. On the other hand, cryptocurrencies are the tokens used within these networks to send value and pay for these transactions.Cryptocurrency is the tool whereas Blockchain is the network that enables the transaction.

Why does the Blockchain matters to Banks? 

The blockchain can guarantee the provenance of every transaction—a service currently provided for banks by a cumbersome and bureaucratic set of back-office systems. With blockchain architecture, there is no need for a central clearinghouse or financial institution to act as a third party to financial transactions, because trust in the system is created by a type of cryptography. Moreover, according to Blythe Masters of Digital Asset Holdings, “one master prime record can eliminate the need for reconciliation, which is a very costly process for financial institutions, while improving compliance, security and privacy.”11 The economic impact is that a cryptocurrency carries a very low transaction cost and, theoretically, offers a cheaper electronic payment method.

The blockchain technology has created a whole new playing field, and the game could yet be very hard-fought. It remains to be seen whether this becomes a winner-takes-all race and how the issue of standards for the technology will be managed. But in the face of disruptive technology, banks will be keen to protect their innovations.

Limitations & Challenges of Blockchain in the Public Sector

Though blockchain is a revolutionary step in the present times which eases the transactions and provides for a convenient alternative. It is also at the same very risky and poses threats to the traditional banking system. Further, it poses a lot of threats, limitations and challenges to the public sector in regards to its adoption including:

  • Lack of regulatory rules or legal provisions.
  • Anonymous transfers, which aids terrorism and other unwanted activities.
  • Lack of practical implementation.
  • Lack of standards and the absence of an institution to raise awareness.
  • Lesser access to individuals owing to the complex nature of the system which challenges the very roots of traditional banking.
  • Uncertainties as to safety and surety.

Therefore, though Blockchain operates on the best of technological developments offering a very convenient means of transfer, yet it is flawed on various grounds. The primary challenge faced is the lack of legal regulations, making it uncontrollable with no checks and balances, operating openly in the online space. Further, the feature of the anonymous transaction anywhere in the globe can be misused to fund terrorism or other illegal unwarranted activities. 

People around the world are divided in their opinions in regards to blockchain technology. While few like Bill Gates, Richard Branson supports the idea citing it to be better and more effective than the regular currency. There are Nobel Prize Winners like Warren Buffet, who refer to Blockchain as a pansy scheme which will serve as a means for fraudulent activities. There is a conflict between regulation and anonymity operating in the digital world wherein major consequences are a click away. Only time will tell if the Blockchain technology is a boon or a bane for the digital space is an unpredictable space.

Conclusion 

The more blockchain innovators join together to protect and nurture our innovation, the better for our ecosystem. We all agree that patents in the wrong hands will hurt our industry and the speed at which others embrace blockchain. We all must take responsibility and be good corporate citizens when it comes to IP. By removing the uncertainty that comes from PAEs, we can avoid the turmoil and costly litigation we saw play out in the Smartphone and semiconductor industries. If we remove friction, we can accelerate the adoption of blockchain technology. This tide will raise all boats. Whether you are an investor or an entrepreneur in blockchain projects, you should strongly consider the manner by which your projects handle their intellectual property and do careful diligence to ensure that your interests are not threatened by a potential patent battle.

The post Blockchain Technology appeared first on TechStory.

Source: Techstory

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