There are applications other than Bitcoin that use blockchain technology. And that blockchain is not the only form of DLT; there are others like Ethereum, Ripple, Hyperledger and MultiChain. But, by virtue of being the earliest and most famous example, Bitcoin, blockchain and DLT are used synonymously by many, and that is not always right.
In fact, blockchain technology can be used to develop apps more advanced than just supporting digital currency. This evolution is often known as Blockchain 2.0.
ToneTag’s blockchain approach.
“Blockchain was implemented as a way to keep record of all Bitcoin transactions. The payment system enables users to pay each other directly, without having to rely on a third party. Since Bitcoin is a digital cryptocurrency, it cannot be contained physically. There had to be an effective way to manage all transactions in the system, without giving control to any single party. This is where blockchain comes in. It is a distributed public ledger that records all transactions in a particular system,” says Abhishek.
ToneTag follows a similar approach to Bitcoin blockchain, but the application varies. The way in which payment transactions are recorded at present is inefficient. The current system involves many entities and players, which leaves greater room for fraud. Every year hundreds of billions of dollars are lost due to fraudulent transactions. To address these security issues, ToneTag introduced blockchain technology to contactless payments.
Blockchain technology has the potential to completely redefine the way transactions take place, as it brings unprecedented advancements in fraud prevention.
“ToneTag payments are tokenised, where a unique identifier replaces sensitive transaction information and none of the actual customer or merchant transaction information is revealed or shared, hence making the entire process highly-secure and fraud-proof,” says Abhishek.
ToneTag enables contactless payments that are traceable, transparent and secure. Every party involved in the transaction is protected by the blockchain since it maintains a public record of every transaction that ever took place in the system. While paying through ToneTag, customers can identify whether the merchant outlet they are dealing with is exposed to risks or if it has witnessed fraudulent transactions in the past. Similarly, merchants can ensure whether a customer is genuine or not. Further, all transactions are validated to ensure these are authorised.
Miners, the quiet workers
We keep saying that, in a distributed ledger, data is stored in a distributed, decentralised way, spanning multiple digital locations across the globe. What makes this possible? The answer is mining.
Mining is the distributed computational review process performed on each block of data in a blockchain, which allows a consensus to be achieved despite each party not knowing or trusting the other.
Let us take the example of Bitcoin to understand this better. In order to conduct a transaction, a Bitcoin user has to sign it with his private key or seed. This helps prove that the transaction has been initiated by the right person, and also prevents third parties from altering the transaction in any way. After this, the transaction is confirmed through a process of mining and then included in the blockchain.
According to Bitcoin, “To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that are verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all the following blocks.
“Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the blockchain or replace parts of it to roll back their own spends.”
Mining makes computer hardware do mathematical calculations for the Bitcoin network to confirm transactions and increase security. Any computer across the world can be a miner. As a reward for sharing their computational power, miners get a fee for each transaction confirmed by them, along with newly-created bitcoins. The reward depends on the amount of mining done. There are strict rules and procedures for this, and mining is not to be thought of as an easy way to make money.
Blockchain mining hardware.
The blockchain mining process is mostly software based. In reality, anybody can become a miner using their personal computer. However, the speed and reliability demanded by upcoming mining protocols pose an opportunity for hardware innovation. We now have industrial-grade mining hardware (servers in data centres) and specialised application-specific integrated circuits (ASICs) for mining.
Antminer, Avalon6, SP20 Jackson and 21 Bitcoin Chip are some well-known ASICs for mining. Experts say you have to look at hash rate, efficiency and price when selecting a mining chip. Hash rate is the number of hashes per second that the Bitcoin miner can make. Usually, if the hash rate is more, the price will be higher. So you have to balance it with efficiency, which measures the electricity usage. This is important because miners usually consume a lot of power. Remember, we told you it is not an easy way to make money!