Blockchain technology

Blockchain basics

Blockchain is one of the major technological breakthroughs of the past decade.

A technology that allows large groups of people and organizations to reach agreement on and permanently record information without a central authority, it has been recognized as an important tool for building a fair, inclusive, secure and democratic digital economy. This has significant implications for how we think about many of our economic, social and political institutions.

At heart, a blockchain is simply a shared database, which is why it is also known as a distributed ledger (though there can be distributed ledgers that are built with technology other than blockchain). The difference to traditional database technology is that, instead of having a singe database stored by a database owner who maintains and shares the data, in a blockchain network, all participants on the network have their own copy of the database. Thanks to the way blockchain works, it is possible to ensure that everyone can agree as to the correct contents of the data, that everyone has the same copy of this agreed-upon data, and that no one can cheat by altering the data after the fact.

This makes it possible for large numbers of individuals or entities, whether collaborators or competitors, to come to consensus on information and immutably store this agreed-upon record of the truth. For this reason, blockchain has been described as a “trust machine”.

The first example of blockchain protocol was invented by a person or persons going by the name of Satoshi Nakamoto. The purpose of the original protocol was to power Bitcoin, the world’s first cryptocurrency.

For reasons known only to him, her or them, the inventor(s) of blockchain chose to remain anonymous, publishing the original protocol under a pseudonym on a public forum and collaborating with a small group of other interested parties on improving the early versions of the protocol while still not revealing his, her or their identity. Nakamoto last communicated with the early Bitcoin group in 2011, and has not been heard from since.

While there has been much speculation on who Satoshi Nakamoto really is, to this date the identity is still unknown.

The original blockchain protocol was released as open source code, and so is in the public domain. That means no one owns it. Since then, people have developed many other variants of blockchain technology for different purposes. These can be divided into two types:
  • Public blockchains are, like the original blockchain protocol, open source projects and so not owned by anyone. As the name implies, public blockchains is that they are open to the public, meaning anyone can join and participate in the network. In many cases, governance of these platforms is however managed through a central entity, typically a foundation, and typically with a means for the community to be involved in decision-making about developing the platform.
  • Private blockchains are not open to the public but only to those who are accepted onto the platform. While a single entity can develop and thus “own” a private blockchain, they are typically developed and governed by industry consortia.

ICOs

The term ICO stands for “initial coin offering”. It is a way for blockchain projects to raise funds by issuing and selling their own crypto-asset, either to investors or to potential future users of the project’s new platform or product.

ICOs are seen by many as an exciting and important new means for direct capital raising through tokenization, and as an enhancement or even replacement for the venture capital model. By "democratizing" venture capital, the ICO can provide interesting investment opportunities to a broader range of investors, including retail investors, than is possible today. On the other hand, as with blockchain technology, the ICO phenomenon is very new, and largely unregulated. That can make it difficult to properly evaluate investment opportunities, and also differentiate serious projects from scams. ICOs raise significant legal, tax, regulatory and consumer protection issues, many of which are yet to be solved. Absent a strong regulatory framework, investing in ICOs can carry significant risks, and no one should ever invest more than they can afford to lose.

There is a great deal of debate on the nature of ICOs and how they should be regulated. Different jurisdictions around the world have taken different stances, from outright bans to clear guidelines supporting the practice. In most parts of the world, ICOs are not illegal per se, but there are great discrepancies in terms of what laws and regulations apply to them.

Blockchain technology

Blockchain is a shared, peer-to-peer database, a type of distributed ledger. While there are currently several different kinds of blockchains in existence, they share certain functional characteristics. They generally have a means for nodes on the network to communicate directly with each other. They have some sort of mechanism for nodes on the network to propose the addition of information to the database, usually in the form of some transaction, and some sort of consensus mechanism by which the other nodes on the network can validate this information and then store it. Blockchain gets its name from the fact that data is stored in groups known as blocks, and that each validated block gets cryptographically sealed on to the previous block, forming an ever-growing chain of data. Instead of being stored in a central location, all the nodes in the network share an identical copy of the blockchain, continuously updating it as new valid blocks are added.

The term “mining” in blockchain refers to the process, or consensus mechanism, used by nodes in a blockchain network to validate information. In the original blockchain protocol used to power Bitcoin, and in many subsequent blockchain protocols, those nodes in the network that successfully validate a block are rewarded with some new cryptocurrency. This helps create - or mine - new coin.

A smart contract is an agreement between parties that is written in the form of a computer program. Such “self-executing” programs can be stored on a blockchain and programmed to run when certain conditions are met. For example, a smart contract could be written to hold funds in escrow and then automatically make a payment when some goods are delivered. With smart contracts it becomes possible to radically automate business processes, and to ensure the enforcement of contract terms.

Blockchain use cases

Blockchain is a technology that can be used to decentralize and automate processes in any number of contexts. The potential use cases for blockchain are vast. People are looking at blockchain technology to disrupt most industries, including from automotive, banking, education energy and e-Government to healthcare, insurance, law, music, art, real estate and travel.

Blockchain holds great promise for disrupting and decentralizing many industries and markets. In future, people should be able to benefit from blockchain technology in the form of reduced costs for transactions, enhanced privacy and data security, and great efficiencies.

For example, blockchain technology can allow us to introduce "self-sovereign identity" paradigms in the digital realm, allowing individuals to own and control access to their personal data, and to better be able to trace how their data is used online. This could help support a more secure, safer Internet. 

While there is a great deal of work going on in this space, most of it is still in the development phase. Today, the most prominent way to “use” blockchain is to invest in cryptocurrencies or use them to buy and sell things in certain markets.

Cryptocurrencies

According to coinmarketcap.com, there were just under 1600 cryptocurrencies in existence as of the middle of May, 2018, worth a collective USD 367 billion.

The term cryptocurrency refers to a decentralized, digital currency running on a blockchain. The name is derived from the fact that cryptographic techniques are employed to create, transfer and secure the currency. Generally, cryptocurrencies function without any central authority. Because transfers of funds typically take place directly between parties and are immediate and irreversible, you can think of cryptocurrencies as digital cash.  

EU Blockchain Observatory and Forum

What is it?

The European Blockchain Observatory and Forum is a European initiative to accelerate blockchain innovation and the development of the blockchain ecosystem within the EU. Its mission is to:

  • Identify and monitor blockchain initiatives and trends in Europe and globally.  
  • Produce a comprehensive, publicly available source of blockchain knowledge.
  • Create an attractive and transparent forum to share experience, debate issues, and reflect on the future of this new technology.  
  • Make recommendations on the role the EU could play in accelerating blockchain innovation and adoption while also protecting investors and consumers.

Blockchain is one of the major breakthroughs of the past decade.

A technology that allows large groups of people and organizations to reach agreement on and permanently record information without a central authority, it has been recognized as an important tool for building a fair, inclusive, secure and democratic digital economy. This has significant implications for how we think about many of our economic, social and political institutions.

As a key component of the next generation World Wide Web, blockchain is also expected to become an important industry in its own right, catalysing new, decentralized, and highly automated digital markets that will create new businesses and be an ongoing source of innovation and economic growth.

As they did from the first and second generation Internet technologies (so-called Web 1.0 and 2.0), Europe and its citizens should benefit from a prospering, blockchain-driven, Web 3.0 industry in many ways. It can be expected to create new jobs, both directly related to the industry and in ancillary products and services. The highly-efficient, multi-sided, open and flexible digital markets that can be built with blockchain should also catalyze new business models and thus open new opportunities for business and economic growth throughout Europe.

Areas where blockchain can be particularly transformative include in the public sector, where it can contribute to greater efficiency and transparency in government, as well as reduce or eliminate data redundancies, while also better protecting data and individual privacy. Blockchain technology can also be used to improve life-essential supply chains such as those for food and medicines by providing transparency and traceability throughout the chain, as well as to improve efficiency, trust and transparency in other important sectors of society, from energy and land registries to health care and e-voting.

Finally, by focusing on blockchain (along with other important emerging technologies), Europe can ensure that it defends its position as a leading location for technological and economic innovation, helping to ensure Europe’s continued competitiveness on the global stage.

To carry out the work of the EU Blockchain Observatory and Forum, DG CONNECT has partnered with ConsenSys, a globally leading blockchain venture studio with a strong European presence, as well as such prominent blockchain academic institutions as the University of Southampton, the Knowledge Media Institute at the Open University, University College London, and the Lucerne University of Applied Sciences.

While ConsenSys and the academic partners will form an important core, the EU Blockchain Observatory and Forum is conceived as a broad, pan-European effort, actively seeking input from a wide variety of stakeholders. These contribute to the Forum in different ways.

The Observatory and Forum’s two thematic Working Groups, each of which consist of ca. 25 European blockchain thought leaders, are responsible for identifying and researching existing initiatives and identifying issues and potential needs for EU action.

The Observatory and Forum also actively solicits input and exchange of views with non-EU-based entrepreneurs, researchers and professionals who contribute on an ad hoc basis, and welcomes views and opinion from the public through the @EUBlockchain Community online platform.

ConsenSys AG, the main contractor that is supporting DG CONNECT in setting up an running the Observatory and Forum, was chosen out of submissions received as part of a public call for tenders released in the middle of last year.

A global player now well established in Europe, ConsenSys has established itself as an important actor in the blockchain community. The academic and other partners working in the Observatory and Forum were part of the ConsenSys bid.

The EU Blockchain Observatory and Forum Working Groups consist of 30 members each chosen from over 350 applications received by the Observatory and Forum during the open call that took place between March 15 and April 9, 2018. The selection processed focused on expertise as well as diversity of background and experience.

What are its activities?

The Observatory and Forum also actively solicits input and exchange of views with non-EU-based entrepreneurs, researchers and professionals who contribute on an ad hoc basis, and welcomes views and opinion from the public through the @EUBlockchain Community online platform.

To get involved in the conversation, simply join our platform.

The European Blockchain Observatory and Forum is a two-year initiative to accelerate blockchain innovation and the development of the blockchain ecosystem within the EU, and so help cement Europe’s position as a global leader in this transformative new technology.

Conceived as both a watchtower for gathering information and a lighthouse to guide Europe into the new world that blockchain is shaping, the EU Blockchain Observatory and Forum will make a substantive contribution towards fulfilling the European Commission's blockchain objectives. These include building upon existing European blockchain initiatives, ensuring they work across borders, consolidating expertise, and above all seizing the opportunities that blockchain’s new paradigms hold out for the benefit of the EU's citizens and economy.

Considering its size, academic resources, culture of innovation and deep pools of talent, Europe is in an excellent position to take a globally leading role in the development and adoption of this exciting new technology.

The EU Blockchain Observatory and Forum’s public-facing activities include:

  • Mapping. The Observatory and Forum will create a comprehensive, dynamic mapping of existing blockchain initiatives, events and resources in Europe and across the globe.
  • Analysis and reporting. The Observatory and Forum will engage in analysis and reporting on a wide range of important blockchain themes based on input from its Working Groups and other stakeholders.
  • Education and knowledge sharing. The Observatory and Forum will offer a number of educational initiatives including public courses via webinars and similar channels, as well as make a comprehensive set of educational resources available on its website. It will also continuously report on its progress and share news and views through its newsletter, social media and other communications channels.
  • Events and Interactive discussion. The Observatory and Forum will hold a regular series of thematic workshops as well as other events geared to facilitate healthy debate and the exchange of ideas.

Disclaimer

The EU Blockchain Observatory & Forum is an initiative sponsored by the European Commission, Directorate-General of Communications Networks, Content & Technology. The information and views set out in this platform are those of the author(s) and do not reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this platform. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein.