Bitcoin vs Ethereum

Let’s compare two most popular blockchain networks. Bitcoin has been dominant in the cryptocurrency field for a long time and is not planning to stop.

It was launched with the intention to bypass government regulations and create online payments without the need of intermediary to confirm transactions. Ethereum is another cryptocurrency project, however with much greater possibilities.

Ethereum introduced so-called smart contracts and a way to perform actions by the rules defined in the contract. Simply speaking Bitcoin is a platform for decentralised currency while Ethereum is a platform for decentralised currency and most important — engine for applications which can be run without a need of trusted third party (some central server).

I personally like the analogy of the Ethereum as a global computer to which anyone has access to.

Smart Property

A tangible or intangible property, such as cars, houses, or cookers, on the one hand, or patents, property titles, or company shares, on the other, can have smart technology embedded in them. Such registration can be stored on the ledger along with contractual details of others who are allowed ownership in this property. Smart keys could be used to facilitate access to the permitted party. The ledger stores and allows the exchange of these smart keys once the contract is verified.

The decentralised ledger also becomes a system for recording and managing property rights as well as enabling the smart contracts to be duplicated if records or the smart key is lost.

Making property smart decreases your risks of running into fraud, mediation fees, and questionable business situations. At the same time, it increases trust and efficiency.

Smart Contracts

A smart contract is a computer protocol intended to facilitate, verify, or enforce the negotiation or performance of a contract.  Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both. The aim with smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting.

Smart contracts have been used primarily in association with cryptocurrencies.

One real-world smart contract that gained mainstream coverage was The DAO, a decentralized autonomous organization for venture capital funding, running on Ethereum, which was launched with US$250 million in crowdfunding in May 2016 and was hacked and drained of 3,689,577 ETH three weeks later.^[2]

Blockchain Usage

Because blockchain technology is so new, it’s difficult to predict exactly how they will end up being used. To understand the opportunities presented by blockchain technology, we also need to understand its technological risks and limitations.  A recent UK government report on blockchain technologies provides a good overview and examples of the use of blockchain.

One of these is Everledger, a company founded by Australian woman Leanne Kemp.

Everledger uses a blockchain to record information about the provenance and ownership of individual diamonds and other valuables. Here, rather than the blockchain recording transfers of digital currency, it records transfers of ownership of identified physical assets.

This globally accessible provenance trail could reduce fraud and theft, and enable new or improved kinds of insurance and finance services.

The same general idea could be used for any supply chain, such as in retail, agriculture or pharmaceuticals.

The drivers for improving assurance of supply chain quality vary in different industries. It could be brand reputation in retail, or safety in pharmaceuticals, or a combination in agriculture.

It is worth observing that blockchains don’t totally do away with the need for trusted third parties. A blockchain is only a digital record, but we need others to determine if those records actually match the corresponding physical assets in the real world.

Everledger relies on major diamond certification companies to measure identifying information about individual diamonds. These measurements can be independently cross-checked. But in some sense, companies such as these become trusted third parties for this blockchain-based system. One can imagine the adoption of blockchain technologies creating opportunities for new kinds of trusted third-party organisations.

Underlying all of these applications is the need for data integrity, which is the key security property for commercial systems, and the primary property for blockchain technologies.

For financial transactions, data integrity means you can’t spend money you don’t have, and you can’t spend money twice. For physical supply chains, this means you can’t fraudulently acquire record of ownership for an asset.

What is Blockchain?

A blockchain is a continuously growing list of records, called blocks, which are connected and secured using cryptography. Each block typically contains a hash pointer as a link to another block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of the data. Harvard Business Review defines it as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.

Blockchains are considered to be suitable for the recording of events, medical records, and other records management activities, such as identity management, transaction processing, documenting provenance, or food traceability.