Chapter 3 Blockchain Applications PDF

[[Chapter 3: Blockchain Applications]]{.smallcaps} ============================================================== Introduction ------------ \"I could either watch it happen or be a part of it.\" - Elon Musk Definition of Cryptocurrencies ------------------------------ - Investopedia: \'A crypt...

[[Chapter 3: Blockchain Applications]]{.smallcaps} ============================================================== Introduction ------------ \"I could either watch it happen or be a part of it.\" - Elon Musk Definition of Cryptocurrencies ------------------------------ - Investopedia: \'A cryptocurrency is a **digital or virtual currency** **secured by cryptography**, which makes it nearly **impossible to counterfeit** or **double-spend**.\' Bitcoin vs Altcoins ------------------- - **Bitcoin** is the **first cryptocurrency** created in **2008**, dominating the market with the **largest market cap**. Altcoins are other tokens introduced after Bitcoin. Crypto Asset Classes -------------------- - Collins: "Cryptographically secured **digital representations of value** **or contractual rights** that use some type of **distributed ledger technology** and can be **transferred**, **stored** or **traded electronically.** - There are **7 main classes** of crypto assets:\ 1. **Cryptocurrencies**: Make payments similar to traditional currencies (bitcoin, Litecoin, BTC\ 2. **Protocol tokens**: Ecosystem allowing users to craft digital assets and decentralized apps (dApps). Transaction fees paid based on the resources utilized to operate, maintain, and develop the network. (Ethereum, ERC-20 tokens and dApps.)\ 3. **Utility tokens**: Tokens created to be used with dApps and raise funds for projects (e.g. ICOs). (Decentralized exchange platforms on ETH and BNB Chain.)\ 4. **Security tokens:** Represent the transferred ownership or rights of an asset within the blockchain. Tokens backed by financial securities or real-world assets: Shares, bonds, real estate etc. Require authorization from financial regulators (e.g. AMF, SEC, etc.). (Examples: Tokenized TESLA stocks.)\ 5. **Stable coins:** Tokens aiming for a "stable" price. They are often backed by traditional currency ("FIAT") such as the US Dollar or the Euro They facilitate exchanges and transactions, enhancing the efficiency of the cryptocurrency market. (Examples: USDT, USDC, DAI.)**\ **6. **Crypto collectibles/NFTs :** "Non Fungible Tokens" = unique/indivisible tokens. - They can be 100% virtual or based on tangible assets that are "tokenized" within the blockchain. - Example of virtual NFTs: \'Bored Ape Yacht Club\' artwork or certain land that exists only in the Metaverse. - Example of tokenized NFTs: Real estate NFTs (buildings and ownership certificates). - Tokens created to simplify exchanges of raw materials and natural resources (e.g. commodities). - Tokens backed by underlying assets such as gold, silver, oil, gas, etc Smart Contracts --------------- - Investopedia: \'A **smart contract is a self-executing program** that automates the actions required in an **agreement or contract**. Once completed, the transactions are **trackable** and **irreversible**.\' - Main steps in smart contracts:\ 1. **Pre-defined contract**: Terms and conditions agreed upon by all parties.\ 2. **Events: Execution** triggered by specific events (e.g., conditions met).\ 3. **Execution**: Automated execution.\ 4**. Settlement**: Transactions are recorded on the blockchain. Smart Contracts: Benefits and Limitations ----------------------------------------- Benefits:\ - **Trust:** Decentralized and transparent.\ - **Security**: Robust encryption ensures safety.\ - **Accuracy**: Reduces manual errors.\ - **Efficiency**: Swift and automated execution.\ - **Cost savings**: No intermediaries required.\ - **Immutability**: Contracts cannot be altered post-deployment. Limitations:\ - **Irreversibility**: Mistakes cannot be undone.\ - **Complexity**: Requires specialized expertise.\ - **Legal hurdles**: Not universally recognized.\ - **High execution costs**: On busy networks. Decentralized Applications (dApps) ---------------------------------- - Investopedia: \'Decentralized applications, or dApps, are **software programs** that run on a **blockchain or peer-to-peer** (P2P) network instead of a single computer.\' Decentralized Autonomous Organizations (DAOs) --------------------------------------------- - DAOs are bottom-up entities with ***no central authority***. - Smart contracts govern voting, decision-making, and token distribution, allowing token holders to participate directly. ID management ------------- - ID Management is key to execute smart contracts: - DID or "Decentralized Identity" Management allows: - Self-sovereignty: Users control personal data. - Interoperability: Seamless identity verification across platforms. - Fraud reduction: Decentralized data limits breaches. - No middlemen: Direct, P2P validation. - Adaptable: Integrates with various systems. - Secure updates: Tamper-proof changes using contracts Zero-Knowledge Proofs (ZKP) --------------------------- - Investopedia: \'A **zero-knowledge proof is a situation** in which each **of two parties in a transaction** can verify to the other that they have a particular set of **informatio**n without revealing what that information is.\' Benefits of ZKP:\ - **Higher privacy and trust**: No data is exposed during verification.\ - **Enhanced security**: Limits risk of leaks. Blockchain Layers ----------------- - Blockchain consists of 5 layers:\ - **Hardware layer**: Nodes of computers.\ - **Layer 0:** Foundational networks (e.g., Cosmos, Polkadot).\ - **Layer 1**: Networks maintaining consensus (e.g., Bitcoin, Ethereum).\ - **Layer 2**: Enhances scalability (e.g., Polygon, Lightning Network).\ - **Application layer**: Hosts dApps and user-facing applications. Blockchain Trilemma ------------------- - The trilemma involves balancing scalability, decentralization, and security: - **Scalability**: Growth while maintaining speed and low costs. - **Decentralization**: Control distributed among nodes - **Security: Protection** against hacks like the 51% attack. Use Cases of Blockchain ----------------------- - Blockchain applications revolutionize industries like:\ - **Supply chain**: Real-time tracking and anti-counterfeiting.\ - **Healthcare**: Patient data management and epidemic tracking.\ - **Real estate**: Asset tokenization and property rights management. The Blockchain Revolution ------------------------- - Blockchain is reshaping industries by introducing transparency, efficiency, and security. It has applications in finance, healthcare, supply chain, gaming, and more. The blockchain revolution will radically transform the financial sector, why? - Decentralization: DeFi products and protocols - Security: Strong encryption - Traceability and transparency - Inclusion: Finance and banking accessible to all - Cross border payments/transactions - Automation (smart contracts) - Tokenisation of assets Smart contracts and blockchain technology will revolutionize industries by offering innovative solutions to traditional challenges. Let\'s explore some use cases: - Supply chain: Real-time/provenance tracking, temperature/conditions monitoring, anti-counterfeiting etc. - Health care: Patient data management, billing and payments, epidemic tracking, research etc. - Real estate: Asset tokenization, property rights management, rental and sales agreements/payments etc.