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A few definitions

Our education working group has much in store for a very rich education feature at MNblockchain. In the meantime, the following are a few basic definitions with some links to further learning to get you started.

What is Blockchain?

One minute video explanation

High level article on how Blockchain works from Investopedia.

What is Private Blockchain?

A private blockchain is a type of distributed ledger technology (DLT) that is developed and maintained by the owner. The private organization/owner decides who can join and participate. It can be thought of as a database where all the transactions are recorded in order and cryptographically sealed and protected. The database is stored, or ‘distributed’, on multiple computers called nodes. It is by nature ‘write only’ meaning the records cannot be deleted and cannot be changed. A private blockchain may or may not have a cryptocurrency or token enabled on its platform.

What is a Consortium Blockchain?

A consortium blockchain has all the elements of a private blockchain (see definition directly above) with the added consortia dimension, meaning a group of owners. The key ingredient in this type of blockchain is trust; the individual players in this consortia do not trust each so they are relying on the blockchain and its unique properties: the data is distributed with no central point of failure, there is no one central authority, records are time stamped and irreversible without agreement, and cryptographically secured.An example of a consortium blockchain is the CU Ledger project, a collaboration between CUNA, the Mountain West Credit Union Association, Best Innovation Group, and other credit union system partners. Once completed, the blockchain they create will require cooperation between all the owners of this private blockchain.

What is a Public Blockchain?

A public blockchain is a technology that allows digital information to be distributed but not copied, safely secured with cryptography, and incentivized to encourage behaviors such as keeping the data that lives in ‘blocks’ of information secure and reliable. Like all blockchains, it is by nature ‘write and read-only’ meaning the records cannot be deleted and cannot be changed. Different from a consortium or private blockchain, a public blockchain is permissionless and borderless. The most widely-used and first version of a public blockchain is the digital currency known as Bitcoin. The Bitcoin blockchain is both the payment system (the blockchain) as well as a currency, the Bitcoin. Bitcoin as the cryptocurrency is the ‘digital information’ that is exchanged on the Bitcoin blockchain. It’s borderless and permissionless attributes allow for someone in Mozambique to send Bitcoin to someone in Canada with no intermediary bank or third party of any kind involved. It would be a gross oversight to not recognize Bitcoin as revolutionary and transformative.

The tech community has now found other potential uses for the technology beyond cryptocurrency, this ‘digital information’ could be personal identity, access to a service, or claims to something of value, or even the means by which to vote, a virtual voting machine cryptographically secured.

What is a Smart Contract?

If you began a study of blockchain smart contracts today you would likely find multiple definitions, sometimes even conflicting. We have chosen the Investopedia definition to get you pointed in the right direction.

“Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.”

Nick Szabo, considered the creator of the ‘smart contract’ many years before blockchain popularized its use, has this to say about them:

Smart contracts can automate many different kinds of processes and operations, most obviously payment and actions conditional on payment.

Blockchain technology appears very much to be the jet fuel necessary for smart contracts to become commonplace in business transactions and beyond.”

To illustrate an original form of a smart contract, again quoting Nick Szabo:

“The humble vending machine is the original form of a smart contract. At its core, a vending machine is a security mechanism: the amount in the till should be less than the cost of breaching the till. Additionally, the machinery reflects the nature of the deal: it computes and dispenses change as well as the customer’s choice of product. “

If you would like to take a deeper dive into smart contracts, follow this link:

A simple yet comprehensive explanation in pictures

by Adil Harris

Some smart contract use cases

The Digital Chamber of Commerce has a downloadable pdf of some potential use cases of a smart contract.

12 Use Cases for Business and Beyond

What is "the coming blockchain economy"?

While the phrase is subjective, the ‘coming blockchain economy’ refers to a growing new commerce structure that is sometimes called Internet 3.0 or Web 3.0. It is building upon the cloud-based internet structure that already exists with the added and powerful dimensions of decentralized ownership and minimization or elimination of unnecessary third parties. Borderless economies, virtual citizens, user/owner micro-economies, micro-transactions and payments, frictionless commerce, and more.

Get ready.

A short video describing Web 3.0

What is a dApp?

A dApp refers to a ‘decentralized application’, a computer application that runs on a distributed computing system. dApps can be thought of similarly to an App such as the ones you use on your cell phone. But the important difference is that your cell phone App runs on a centralized database, while a dApp is supported by a smart contract that runs on a distributed network (blockchain) which has no single point of failure.

What is decentralization?

Decentralization in the context of blockchain refers to a shared network of dispersed computers (or nodes) that can process transactions without a centrally located, third-party intermediary. In practice, the term has wide interpretations and varying degrees of application.

A simple way to think about what decentralization could look like is to imagine that instead of the current model of large internet companies owning your data and making money from your behaviors and input, *you* would own your data and potentially even make money from it. Instead of one Twitter or Facebook, there would be multiple “Twitter-like” or “Facebook-like” clients to choose from and interact with your friends through, while you are in control of your data: who gets to use it — and for what, be it advertising, studies, identity-vetting, or any other conceivable reason.

A simplistic illustration of centralized and decentralized networks.

How are state governments addressing blockchain?

These are some of the ways that state governments are legislating in the area of blockchain.

  • Clarifying the treatment of digital assets, whether and when they are virtual currencies, whether a smart contract can take control of a digital asset, or how a security interest in a digital asset is handled.
  • Recognizing direct property rights for individual owners of digital assets of all types (virtual currencies, digital securities, and utility tokens).
  • Creating a Blockchain Taskforce to study regulatory and legislative applications for blockchain technologies.
  • Legislation that provisions for books and records to be stored on a blockchain
  • Creating Fintech sandboxes to provide regulatory relief to financial innovators from existing laws for a period of time.
  • The creation of a State-chartered depository institution to provide basic banking services to blockchain and related businesses. The bank in this case (this law not passed yet – as of May 2019) would be required to have 100% reserves, cannot lend, and is for business depositors only.
  • Authorizing a bank as a true “qualified custodian” of digital assets, different from how traditional securities are custodied.
  • A pilot test to use a blockchain for voting.

Where does Minnesota stand on the Legislative front in Blockchain?

The graphic below is from research by the Brookings Institute.

It shows Minnesota as an ‘unaware’ state, while 30 others have enacted pro-blockchain legislation.

The Minnesota Blockchain Initiative is working with several MN legislators currently to get a Blockchain Taskforce bill passed and educate more legislators on this coming technological change. The bill is in draft form and has sponsorship and looking for more.

Thank you for beginning your education in Blockchain. Please check back often for additions to MNblockchain education.