Blockchain Technology: Understanding the Legal Landscape of Decentralized Technologies

Chapter 1: Blockchain

This type of distributed ledger is known as a blockchain. It is comprised of expanding lists of information, known as blocks, that are securely linked together through the use of cryptographic hashes.  A cryptographic hash of the block that came before it, a timestamp, and transaction data are all included in each block. Transaction data is typically written as a Merkle tree, with the leaves representing the data nodes.  As a result of the fact that every block carries information about the block that came before it, the blocks effectively form a chain (compare linked list data structure), with each subsequent block linking to the blocks that appeared before it.  Therefore, blockchain transactions are resistant to modification because, once recorded, the data in any particular block cannot be modified retrospectively without modifying all following blocks and getting network consensus to accept these changes. This makes blockchain transactions resistant to modification.  By doing so, blockchains are protected from malicious behaviors like as the creation of assets out of thin air, double spending, counterfeiting, fraud, and theft.

Blockchains are often administered by a peer-to-peer (P2P) computer network for the purpose of serving as a public distributed ledger. In this network, nodes collectively adhere to a consensus algorithm protocol in order to add and validate new transaction blocks.  Blockchains may be regarded safe by design and are an example of a distributed computing system that has high Byzantine fault tolerance. This is despite the fact that blockchain records are not unchangeable. Blockchains also have the ability to fork without losing their integrity.

An individual (or group of individuals) using the name (or pseudonym) Satoshi Nakamoto built a blockchain in 2008 with the intention of serving as the public distributed ledger for transactions involving the cryptocurrency bitcoin. This blockchain was based on the work that had been done in the past by Stuart Haber, W. Scott Stornetta, and Dave Bayer.  Bitcoin was the first digital currency to tackle the problem of double spending without the need for a trusted authority or a central server. This was made possible by the deployment of blockchain technology within one of its components.  The design of bitcoin has served as an inspiration for the development of additional applications and blockchains that are accessible to the general public and are popular among cryptocurrencies.  It is possible that the blockchain could be regarded as a form of payment rail.

It has been suggested that businesses might make use of private blockchains.  The selling of such privatized blockchains without a suitable security architecture was referred to as snake oil by Computerworld. On the other hand, other individuals have suggested that permissioned blockchains, if well designed, may be more decentralized and, as a result, more secure in practice than permissionless blockchains.

An initial proposal for a system that is similar to blockchain was made by the cryptographer David Chaum in his dissertation titled Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups in the year 1982.  In the year 1991, Stuart Haber and W. reported additional work that had been done on a chain of blocks that was cryptographically safe.  It was Scott Stornetta.  They was interested in putting in place a system that would prevent the timestamps on documents from being altered in any way.  Merkle trees were added into the design by Haber, Stornetta, and Dave Bayer in the year 1992. This facilitated the collection of multiple document certificates into a single block, which resulted in an increase in the productivity of the system.  Since 1995, their document certificate hashes have been published in The New York Times on a weekly basis. This publication has been produced by their company, Surety.

In the year 2008, a person or group of persons known as Satoshi Nakamoto came up with the idea for the first blockchain that was decentralized.  By utilizing a method that is similar to Hashcash to timestamp blocks without requiring them to be signed by a trusted party and by providing a difficulty parameter to stabilize the rate at which blocks are added to the chain, Nakamoto made a significant improvement to the architecture.  It was the following year that Nakamoto put the design into reality as a fundamental component of the cryptocurrency known as bitcoin. In this capacity, it functions as the public record for all transactions that take place on the network.

A total of twenty terabytes (GB) was reached by the size of the blockchain file for bitcoin in August of 2014. This file contains records of all transactions that have taken place on the network.  When January 2015 rolled around, the size had increased to over 30 gigabytes, and between January 2016 and January 2017, the size of the bitcoin blockchain increased from 50 gigabytes to exactly 100 gigabytes.  By early 2020, the size of the ledger had surpassed 200 gigabytes.

In the initial paper written by Satoshi Nakamoto, the terms block and chain were used in isolation; however, by 2016, the term blockchain has become the most often used term.

An application of the idea of the diffusion of innovations shows that blockchains reached the early adopters' phase in 2016, as indicated by Accenture. This is because blockchains achieved a 13.5% acceptance rate within the financial services industry in 2016.  The Chamber of Digital Commerce collaborated with other industry trade groups in 2016 to establish the Global Blockchain Forum. This forum is an initiative of the Chamber.

According to research conducted by Gartner in May 2018, only one percent of chief information officers (CIOs) reported any kind of blockchain adoption within their organizations. Furthermore, only eight percent of CIOs were planning or [looking at] active experimentation with blockchain in the near future.  In 2019, Gartner found that five percent of chief information officers (CIOs) believed that blockchain technology would be a game-changer for their company.

A blockchain is a digital ledger that is decentralized, distributed, and frequently public. It is made up of records that are referred to as blocks, and it is used to record transactions across a large number of computers. This ensures that any block that is involved cannot be edited retrospectively without also affecting all blocks that come after it.  Because of this, the participants are able to independently check and audit transactions at a cost that is quite modest.  A peer-to-peer network and a distributed timestamping server are utilized in order to facilitate the autonomous management of a blockchain database.  They are verified by wide-scale collaboration that is driven by the collective self-interests of individuals.  This kind of design makes it easier to have a solid workflow in situations where the participants' doubt about the safety of their data is minimal.  The utilization of a blockchain system eliminates the quality of limitless reproduction that is associated with a digital asset.  The long-standing issue of double spending is resolved as a result of this confirmation, which demonstrates that each unit of value was only transferred once.  Several people have referred to a blockchain as a protocol for the exchange of value.  Due to the fact that it creates a record that demands offer and acceptance, a blockchain has the ability to preserve title rights when it is put in place in the appropriate manner to document the exchange agreement.

A blockchain can be conceptualized as being composed of numerous layers, including the following:

infrastructure, often known as hardware

- networking (including the discovery of nodes, the dissemination of information, and verification)

Proof of work and proof of stake are examples of consensus.

data, including transactions and blocks

- application (smart contracts or decentralized applications, if both are applicable)

Batches of valid transactions are stored in blocks, and these transactions are hashed and encoded into a Merkle tree.  The cryptographic hash of the previous block in the blockchain is included in each block, which serves to bind the two blocks together.  These interconnected blocks make up a chain.  This cyclical process verifies the authenticity of the block that came before it, all the way down to the very first block, which is referred to as the genesis block (Block 0).  It is common practice to digitally sign a block in order to guarantee the authenticity of the data contained within it as well as the block itself.

Occasionally, distinct blocks can be formed simultaneously, which results in the creation of a temporary fork.  In addition to a secure history that is based on hashes, every blockchain has a particular algorithm that is used to score the various instances of the history. This allows the version of the history that has a higher score to be chosen over the others.  These blocks are referred to as orphan blocks since they were not chosen for inclusion in the chain.  On occasion, the peers who are supporting the database have access to a variety of distinct copies of the history.  It is only the version of the database that has the greatest score that they are aware of that they keep.  When a peer receives a version with a higher score (often the previous version with a single additional block added), they either extend or rewrite their own database and then retransmit the improved version to their peers.  It is never possible to provide a 100% assurance that a specific entry will be included in the best version of history for all of time.  Blocks are often constructed in such a way that the score of new blocks is added to the score of old blocks. Additionally, incentives are provided to encourage the addition of new blocks rather than the overwriting of old blocks.  Therefore, the likelihood of an entry being surpassed drops exponentially as additional blocks are stacked on top of it, finally reaching a point where it is extremely unlikely to occur.  For instance, bitcoin employs a proof-of-work mechanism, in which the chain that has the highest cumulative proof-of-work is regarded as the one that is valid by the network.  The demonstration of an adequate level of calculation can be accomplished through the employment of a variety of different modes of operation.  The computation is carried out in a redundant manner within a blockchain, as opposed to the traditional method of segregated and parallel