Behind the blockchain hype – Three practical examples

From attic room to large business space: people everywhere are working hard on blockchain technology and they don’t just do that. Most of them are about the enormous amount of possibilities that the decentralized technology offers. What does such a blockchain actually do and what can you do with it? A blockchain refresher with three real-world examples.

Bitcoin

Everything starts with that one blockchain: bitcoin, the payment system that is praised, maligned and everything in between. These reactions are not surprising, because the technology, or rather a combination of cryptographic and game-theoretic techniques, requires a completely different way of thinking about the digital world.

To understand the basis of this, we will discuss three applications, each of which uses two different blockchains in a different way. For example, GUTS Tickets was looking for a way to use a blockchain in the existing world as quickly as possible, while Giveth is very idealistically working on using a blockchain to record and track every step of a donation process. VDT Network wants to decentralize the use of render farms, initially for video rendering. Despite the completely different applications, the three projects and bitcoin have a common denominator: transparency.

Bitcoin is in fact a combination of techniques that have existed for some time. Who combined those techniques is unknown to this day, but his/her/their pseudonym is Satoshi Nakamoto. Nakamoto published a white paper on November 1, 2008 on a somewhat obscure cryptography mailing list. The search for a possibility to make secure transactions over networks without a third party had been going on for about two decades, but had not been completely successful until then. Nakamoto put a number of techniques together, creating a chain that solves the problem of being able to spend the same digital money more than once. In other words, you cannot copy your digital money and make more than one transaction, just as you cannot put twenty euros under the copier to spend it more than once.

In the physical world, it is normal to have confidence that a transaction will actually take place. After all, you can see the other; you can rate it directly. This is difficult in the digital world. With bitcoin, Nakamoto made sure that you can assume that a transaction will take place without trusting the other party and that the recipient knows for sure that the value does not have to be shared with someone else at once. One of the components of that Bitcoin protocol is the use of a chain of blocks that are linked together by means of hashes, then without the name that the chain would later receive: ‘blockchain’.

We will not discuss the exact operation here; in short, the security of the network lies in the number of nodes in the network that are included in the transactions, the blocks themselves and the connection between the blocks. The more computers, the more secure the network through a proof-of-work principle. Changing a past transaction requires at least half the computing power of the entire network. So you see that in the beginning it was possible to change past transactions, but with the current bitcoin network this is almost impossible, because you can’t even assemble the necessary amount of hardware to change even one block. And then you also have to change the entire chain that comes afterwards.

Now ‘bitcoin’ mainly stands for electronic money. Nakamoto calls it “a completely peer-to-peer electronic cash system with no trusted third party, such as a bank or a government.” You trust the network that is maintained by nodes and miners who can also earn a little bit of the coins by contributing to the stability of the network. That earning comes in the form of a reward for being the first to ‘find’ or calculate such a block or by getting a small piece of the transaction costs that each transaction entails. In fact, when transferring bitcoins to another bitcoin address, you are performing nothing but a transaction. And for a transaction it doesn’t matter whether it represents a monetary value or something completely different.

Soon after bitcoin’s incarnation came a whole host of derivatives, including simple forms of smart contracts, which are actually scripts that are added to a transaction, enabling more than just the transaction itself. Consider, for example, oracles, say input from outside the blockchain, or the inability to carry out a transaction without it being signed by several people, or multisig.

A more complicated type of blockchain was needed to execute smart contracts. The most famous of these is currently ethereum, in which it is possible to run almost Turing-complete applications. Vitalik Buterin came up with the basics of that system in 2013 at the age of nineteen and it went live on July 30, 2015.

A combination of a smart contract and an interface is called a dApp, where the smart contract takes care of the actual actions and where the interface, often a web interface, takes care of the interaction with the contract on the relevant blockchain. However, Ethereum is not the only blockchain with smart contract functionality; also think of NEO, Cardano and Icon.

Three projects, three insights

Two of the projects we’re looking at use Ethereum and one uses NEO. Both chains consist of a main coin or token and a way to pay small amounts to run an application on that blockchain. This can be imagined as running a computer program. To run the program you have to pay some money and when the money runs out the program will stop. That’s a good thing, otherwise apps could run forever and jam the network.

GUTS

In mid-2015, one of the founders of GUTS came up with the idea that it should be possible to use the ethereum blockchain to record the ownership of concert tickets and thus prevent ticket fraud in the secondary market. Kasper Keunen, blockchain developer at GUTS, says that at the beginning of 2016 an ethereum testnet was first used for tickets for comedian Jochem Myjer. Sales immediately stalled due to an excessive influx of customers at once. It also showed that faster networks than that of bitcoin have scaling issues. GUTS has now taken a lot of steps forward and will be selling tickets together with Hekwerk Impresariaat .

The solution lies in combining a centrally and a decentrally controlled component within the GUTS system. One part is an application that also prevents ticket fraud by copying by means of a constantly changing QR code, and the other part is a smart contract and a linked token in the ethereum blockchain.

The token called GET , or Guaranteed Entrance Token, is purchased for this purpose by the organizer of an event. The price is fixed within that smart contract, so that the customer does not notice the volatility of ether. All transactions, including those for customers, are ultimately recorded in the ethereum blockchain. So everyone has their own ethereum number, but you don’t need to know that. Although you can look for it yourself.

Keunen says the main premise of GUTS is that it should be usable for normal people and for the theaters that need to use the system on the other side, when they don’t really want change.

Giveth

Charities are seen as important future customers for public blockchains because their donors expect transparency. Several initiatives have sprung up for this, including Giveth . The name says it all: it works with ethereum. One of the developers of Giveth is Satya van Heummen. He indicates that it is not a company in the classic form and that Giveth should be what it offers itself: complete transparency. Giveth calls itself a ‘charity’ and has no employees. It is a foundation with only people who help develop smart contracts and thus help other charities to build so-called Decentralized Altruistic Communities, DACs.

Giveth has committed itself to being the most transparent DAC imaginable. It gets donations in ether. Those donations are locked into the smart contract that is used for that specific purpose. Within such a project, different people have functions that enable them to carry out certain things. Suppose someone invents that part of a dApp should be translated into Dutch. Then that person can apply for it and attach a price to it, for example 0.5 eth for three thousand words. This project is approved and then that person gets to work on it. When it’s done, someone checks if something within the smart contract has met the requirements, and if it’s correct, the person gets paid.

Donors can then see what has happened with their donation and where it has ended up, completely clear and transparent. There is a catch: all your income and expenses are transparent.

At the moment, the system is still in the alpha phase and certain, frequently requested things are not yet possible, such as providing tax benefits when donating. However, organizations such as Amnesty and the United Nations are very interested in this type of technology, not least because a blockchain makes it much easier to get money from A to B. The UN itself has already used ethereum to distribute funds to ten thousand Syrian refugees, so that they can buy their own food, instead of simply dropping food. This saves a lot of costs and organization.

VDT Network

VDT Network uses NEO’s blockchain to hire decentralized video rendering services or to rent them out yourself. The inventors of VDT once built a rendering application Vidiato themselves and now use external servers for this, with which you have to take out licenses per server. Dean van Dugteren, the founder of VDT, says that they suddenly had to deal with a large price increase. That is how he came up with the idea of ​​decentralizing the process and connecting it to decentralized render farms.

Via a dApp on NEO you can use various services without knowing that you are connecting to them. You can also rent out your own CPU or GPU power via the decentralized network. All things such as file verifications do not happen on the NEO chain itself, but outside it.

The NEO blockchain is slightly younger than Ethereum, but serves a similar purpose. Unlike Bitcoin and Ethereum, NEO uses dBFT , a way to maintain the security of the network without having to constantly use extreme computing power. The other two use Proof of Work, although ethereum wants to go to Proof of Stake. How these two systems work exactly is too much to explain here, but with dBFT it comes down to the fact that owners of the tokens, in this case NEO, always automatically receive Gas. In PoW everyone has to constantly count, while there can only be one ‘winner’ at a time.

NEO has another advantage for programmers; you don’t have to learn a new programming language, like with Ethereum Solidity. You can just get by with C#, Python, VB.Net, F#, Java and Kotlin. It is planned that more will be added.

NEO is also a bit different from Ethereum and bitcoin. You cannot just set up a node yourself, it is done manually. To become a node you need to be approved.  Also, you can only own entire NEOs. The fuel for the network, the ‘gas’, just like with Ethereum, can be divided into smaller units. Ultimately, NEO wants to reach 100,000 transactions per second by 2020.

Conclusion

These three examples show in various ways that exploiting the possibilities of decentralized systems is still far removed from the normal human world. However, GUTS is trying to make a quick start with a hybrid system and useful applications are already being used on a small scale. On the other hand, all those experiments are badly needed to come up with really useful and useful services and actually make them work.

Finally, this article is about public blockchains. There is also a lot of experimentation with private blockchains, but according to many, you are acting strangely. And indeed: do something else, you would say. Use a decentralized database without the complicated extra layer of a blockchain. Blockchains deserve applications of their own; we should not want to put old wine in new bottles.