Blockchain Explained: The Complete Guide [2018 Update - Part 2]

Before we get started, make sure you've read Blockchain Explained: The Complete Guide (Part 1) so that we're all on the same page.

Welcome to Part 2 of the Blockchain Explained series.

In today's post, we dive a little deeper into understanding the importance of blockchain technology in the business world and how it solves problems for the end user - me and you.

Before we begin, let's recap what we've learned so far.

Blockchain is a form of distributed ledger technology (DLT) that allows cryptocurrencies (like Bitcoin) and other digitized information to move freely from one person to another without the involvement of a central party (like a central bank).

Blockchain technology utilizes computers (or nodes) on its network to verify a transaction simultaneously. Anyone with a computer can join the network and act as a transaction validator (think bitcoin miners).

These nodes approve the transaction, which is stored on multiple devices as a block of code. Any subsequent transaction of the same data-set is added to a chain (hence blockchain) to keep a historical record on the DLT (hence distributed ledger), virtually eliminating the possibility of hack-attacks.

This secure exchange of data without a third party is what makes Blockchain Technology so appealing.

Yet, some businesses aren't quite fond of the public distribution of sensitive data and thus created what's called a permissioned blockchain. This type of blockchain technology allows an entity to designate transaction validators (nodes) on the DLT. In simple terms, adding access restrictions to the DLT provides yet another layer of security and a lot more control.

Now that you're caught up, let's discuss how blockchain is shaping the business world today.

Blockchain patents on the rise

Having worked with dozens of Patent Agents and Attorneys in the past, one thing I check to gauge market interest is the number of patents for a certain product, technology, or idea.

So of course, I searched "How many Blockchain patents are there today?". What I found was quite astounding.

According to Thomson Reuters, as of March 2018, a total of 406 blockchain patents have been filed with the World Intellectual Property Organization (WIPO). China leading the pack at 225, United States in second place with 91, and Australia with 13 total blockchain patents filed.

Let's dissect these blockchain patents a bit further.

What we want to know is how many blockchain patents have been filed, how many are pending, and is there a number that's active yet not for the public domain.

The difference between the statuses is quite straightforward:

• Patent Filed = approved patent
• Patent Pending = in processing
• Active = Isn't ready for the public eye but it exists

To find some of this data, I searched for companies with the highest number of blockchain patents. This will not only tell me what businesses are gearing up for the blockchain takeover but also which industries.

Here's a list of the top US Blockchain Patent Owners:

*Corporations with fewer blockchain patents did not make my list, but you can read about them here.

Based on the list above, you can come to a quick conclusion as to which industries are leading the blockchain technology adoption curve.

But let me do the work for you, here's the breakdown:

• 20% are in the Financial Services industry (think banks)
• 13% come from Technology companies (IBM, Intel, Dell, etc.)

The rest is a mix of "Other" and actual blockchain-specific companies. Let's ask an important question now...

What is this distribution of blockchain patents telling us?

In other words: What do you get when you put Financial Services and IT Industry in one pot and spice them up with blockchain technology? A new way we do business with one another.

Technology companies, on one hand, are dedicated to developing products and services around blockchain technology. Whether that's on the software side like Hyperledger (collaborative effort created to advance cross-industry blockchain technologies) or designing the latest hardware to handle the processing power needed to run blockchain technology.

On the other hand, the Financial Services industry is steadily investing resources into utilizing blockchain technology to make it part of their infrastructure.

In short, those creating the products and services around blockchain technology have a customer ready, willing, and able to test and try it.

A match made in heaven.

To understand the impact of the two industries coming together, we need to cover a topic most blockchain experts avoid due to its complexity or lack of information available.

Oddly enough, over the last year, I have acquired a vast amount of knowledge on the subject working with some of the world's best Engineers designing tomorrow's high-performance computing solutions.

Don't worry, I will explain everything in layman's terms.

Let's go!

Hardware that runs Blockchain Technology

Often referred to as high-performance computers or HPCs, Financial Institutions (among many other businesses) depend on these powerful computers to perform a task at high speeds without errors or interruptions.

A business, in most cases, will contact a computer manufacturer and provide a set of specifications and requirements that need to be met in order for the computer to be selected to perform the desired functions.

These specs and reqs can be anything from processing power, memory, storage, plug-ins to environmental restrictions such as shock, vibration, temperature fluctuations, and humidity ranges.

All possible scenarios have to be accounted for.

Think about it, what happens if the cooling system in the server room fails? Suddenly, your powerful computers become overheated and could face catastrophic failures. Something a financial institution like VISA (which runs an average 150 million transaction per day) cannot afford.

The core component of a High-Performance Computer

In today's business/tech world, the focus is primarily set on CPUs (Central Processing Unit) aka Processors.

Think of a CPU as the brains of the system. It performs high-level tasks that manage the entire computer. A better CPU means greater performance which equals faster completion of assigned tasks. Simple.

There's much more to this but we'll get into technical details in Part III of the Blockchain Explained Guidebook.

For decades, this was the norm. Correction. It is still the norm today.

But blockchain technology is changing the way we think about processing power altogether.

Blockchain and GPUs

Wait, don't you mean CPUs?

Nope.

I mean Graphics Processing Units, or commonly known as Graphics Cards. A GPU is specialized for handling display functions of a computer, such as video rendering.

I'm sure you're wondering how a display device benefits blockchain technology.

To explain, let's take another trip down memory lane.

In the old days of Cryptocurrency Mining (which is done on a DLT like blockchain), the processing of blockchain code was assigned to the CPU.

Things were okay but turned sour rather quickly.

A CPU, although great at performing multiple high-level functions simultaneously, simply could not keep up with the demand of processing many streams of repetitive data at high speeds, such as executing blocks of code within a chain.

As the problem became more apparent, the big question was: "What can perform repetitive calculations faster than a CPU?"

Answer: GPU.

Why doesn't everyone use a GPU instead of a CPU then?

A GPU is designed for high compute-density, meaning more computations per second with one major caveat: the calculations cannot be too complex.

Think of it like this:

A CPU hires a GPU and offloads these tasks so it can focus on other important calculations a GPU simply cannot perform.

What's the correlation between blockchain and GPUs?

In simple terms, blockchain blocks are made up of exactly the type of data GPUs calculate best.

The blockchain 'block' consists of three parts:

1. Hash of previous block
2. Data
3. Hash of current block

Starting at the top...

A hash of the previous block is always included to 'chain' the blocks together. Any minor change in the block will fire off another block of code, append it to the existing block, thus creating a chain. 

The first block in the chain is the only exception since it does not have a previous block to append to. This block is called the Genesis Block.

The data within a block depends on the blockchain used. It can hold all sorts of data like personal information, the amount of cryptocurrency you are sending, the recipients name, and so on and so forth.

A hash is just an identifier of a block.

When you think of blockchain data in this sense, you notice that the only pieces changing are the hash of the blocks and minor parts of the data. This repeats over and over again in parallel. The perfect job for a GPU.

Enough tech talk, let's get back to business

While the IT Industry is actively working on designing hardware to meet blockchain applications demands, businesses are gearing up as well.

Implementing processes and testing parts of the business using blockchain technology with existing IT infrastructure until new products become available to tackle specific blockchain applications.

One great example that comes to mind is Spanish banking giant, Banco Santander. It announced the launch of an international payments app for customers across four countries using none other than blockchain technology.

It is the first bank to use blockchain in transferring live international payments. What used to take days to complete (cross-border transactions) can now be made at any time of the day and will appear in the recipients account the very next business day.

THAT is blockchain's potential on a global scale.

At the end of the day, we will have a financial institution whose processes have been revamped with blockchain in mind. A clearly defined path for the new form of transactions with the right application to support it all running on high-performance computers specifically designed and optimized to run blockchain technology.

What's keeping IT and Financial Services from reaching this goal?

Roadblocks on both sides of the fence. Let me explain.

Technological Roadblocks

On the IT front, we have limitations on both the software and hardware side of blockchain.

Software

The software itself, the actual DLT, the blockchain network, has varying limits on how many transactions per second (TPS) it can perform.

Bitcoin, the most popular public blockchain, is estimated to run an average of 4.75 transactions per second. Ethereum, the second most popular public blockchain, runs roughly 15 transactions per second at its peak. Compare this to VISA, which runs an average of 45,000 transactions per second and you'll quickly see how far blockchain has to go in order to attract big business.

In recent news, Vitalik Buterin (founder of Ethereum) stated that with new technologies which incorporate second-layer solutions such as Sharding (reduces the total number of rows in a database and spreads it across multiple servers which improves performance) and Plasma (technique for making off-chain transactions while relying on blockchain's security), Ethereum will be able to process 1 million transactions per second and eventually scale to more than 100 million transactions per second.

To learn more about Ethereum, head over to CoinCentral's Ethereum Classic | Beginner's Guide for a great read!

Quite a stretch from the current max at 15 TPS but not much of a stretch when you look at CREDITS (newer blockchain platform) which tested the TPS on their blockchain and amazingly enough attained over 400,000 transactions per second! Here's the link to a quick video showcasing the test.

Hardware

As blockchain software is optimized, there are still issues pending on the hardware front as well. The goal, as you could've guessed, is to cram as many GPUs into one single high-performance computer to utilize as many cores (processing units - the more the merrier) as possible.

You can approach this problem using different methods.

• Plug the GPU directly into the motherboard or backplane
• Use extension cables from the motherboard or backplane to the GPUs which would not be physically located on the board itself to make room for larger GPUs
• Utilize PCIe expansion systems to connect 2 motherboards or backplanes together to increase the number of PCIe slots available

Whichever method you try, you're going to run into the same problem - resource allocation limitations.

In simple terms: how many resources a GPU needs from the CPU in order to run efficiently. And there are only that many to go around.

So the two hardware problems are:

1. Physical availability of PCIe slots (plug-ins for the GPU)
2. A limit on resources allocated to each GPU within the system

One of the newest motherboards on the market boasts 20 PCIe slots, but in order to utilize all 20 slots, you have to cable out to the GPUs (no direct plug-ins). Due to the resource allocation limitations, one would also have to utilize different brands of GPUs to make it all work correctly.

For large scale business use cases, this simply isn't enough.

So the solutions are still a work in progress.

Speaking of which!

Make sure to check out the Blockchain Supercomputer in the making. The latest update successfully deploys 20+ GPUs (from the same manufacturer) in one system and is on course to attain a total of 250 GPUs in one system by utilizing a combination of the methods mentioned above.

Financial Services Roadblocks

Just as the IT industry is innovating the newest products for blockchain, the Financial Services sector has its own share of hurdles to overcome.

One major problem is to incorporate the new technology into their existing business models.

Think about it, what do you do with all the existing high-performance computers that are CPU-intensive?

Do you optimize for blockchain? Do you move to another part of the business? Which part? Do you have the resources to implement these changes?

What about new products? Do you buy them? Rent them?

What about transactions? Do you move all of your clients' sensitive data onto a new system and provide one major update? How do you do it?

You get the idea.

The Financial Services sector is preparing for a major technological breakthrough while making sure all their ducks are in a row in case it happens soon.

Hence the patents, pilot groups, testing, etc.

All this, to appeal to the masses.

What does blockchain technology in the Financial Industry do for me and you?

Now we're getting personal.

What's in it for us? Why should we care?

For one, the way we do business with one another will change for the better - so much better. Instead of having a 3rd party mediator that approves or declines our transactions, we move to a distributed ledger system.

Much faster yet with robust security features built into the system.

You can send money to anyone in the world and they will receive it within minutes.

Regulatory bodies immediately lose all value since the regulations are built into the system. No transaction can occur without a high-performance computer assisting in complex algorithms that take care of that for you at the transaction level the moment a transaction is initiated.

The paper-trail is recorded, it's transparent, virtually impossible to hack, and happens almost instantly, no matter where you are on the planet.

What about the other use cases mentioned in Part I?

Exactly!

Imagine applying the above benefits across multiple industries. Say, medical records.

Your records get transferred to a blockchain network. Any doctor you visit, anywhere in the world, can access your file in an instant once you grant them permission to your medical blockchain. Whatever procedure or medications are given to you, it is recorded on the same blockchain available for the next medical professional. In an instant. Always protected.

What to make of it all?

Just as I stated in Part I, my mission is simple: share the knowledge, spread awareness.

I want to help others understand blockchain technology and how it affects what we do daily. The potential impact it will have on business and ultimately our personal lives.

All I ask in return is that you contribute to the cause.

This is our blogchain. Contribute by leaving a comment below. Let me hear what you have to say. Tell me something I don't know. Teach us a thing or two.

Let's build this blockchain guidebook together and prepare for this revolutionary technology.