Securing the Future of Banking – Exploring the Synergy of Blockchain and Cybersecurity

Human error is one of the biggest reasons behind data breaches, and by significantly removing this factor, organizations are making their transactions tamper-proof and less susceptible to interceptions. Blockchain is becoming synonymous with every industry vertically and is sweeping the globe as it integrates with essential business operations.

Blockchain technology is fully decentralized and uses a ledger-based system to record data and process transactions using multiple computers over networks. The best part about blockchain is that you can put any digital asset onto the chain and initiate a transaction. Unlike traditional banking systems, the data will always stay secure, and no intermediaries will be involved.

In this blog, we will explore how the banking and financial services industries are exploring various applications of blockchain. We will discuss its benefits, cybersecurity implications, and what lies ahead.

Use Cases of Blockchain in Financial Services

Blockchain is expected to revolutionize the banking business, and it’s no surprise that it is changing how customers conduct transactions. It replaces and streamlines the traditional banking processes with innovative approaches that are more secure, efficient, cost-effective, and transparent. The following are some of the ways that blockchain is revolutionizing digital banking.

1. Blockchain expedites international transfers.

Capital markets comprise issues and investors matched according to corresponding risk and return profiles. Firms suffer from a lack of stringent monitoring and regulatory practices and have liquidity risks, interest rate volatility, and other financial issues. Blockchain shows potential in transforming capital markets by eliminating operational hazards responsible for fraud and human error and reducing overall counterparty risks. The digitization and tokenization of financial products and assets make it much easier to trade, promote global inclusivity, increase connectivity, and practice fractionalized ownership, all of which reduce capital costs and increase liquidity (Consensys, 2023).

2. Blockchain creates an audit trail.

Blockchain can improve the security of banking transactions by eliminating financial fraud and data redundancies and by maintaining a clear audit trail. Thousands of ledgers protect blockchain networks; data cannot be changed unless all network users approve it. This makes it exceedingly difficult for hackers to penetrate and compromise sensitive information, thus saving victims from losses of hundreds or thousands of dollars.

Organizations may add an extra layer of protection by using VPN services to enhance security alongside blockchain services (Originstamp, 2023).

3. Blockchain reduces costs for customers and banks.

Blockchain can automate banking processes, translating to faster processing of payments, loans, and seamless transactional workflows. Poor record-keeping and reconciliation costs are very high and can potentially lead to cases of fraud. Many facets of digital transactions may be automated using blockchain, which increases productivity and reduces vulnerability to cyber threats. Financial institutions can address most of the challenges associated with speed and costs by implementing blockchain ledgers. The technology significantly reduces overheads and additional expenses by eliminating traditional paperwork involved with banking. There is no need for third parties or intermediaries.

4. Blockchain ensures compliance.

Blockchain improves network governance by standardizing processes and automating compliance. It is necessary for financial institutions to ensure that they stay compliant in the landscape of complex regulatory changes, especially when operating beyond borders. Regulatory compliance is crucial in trading and eCommerce spaces as well. Blockchain simplifies financial operations in real-time and streamlines reporting and transaction verification. Its immutable ledgers and asset digitization eliminate the risk of fraud and enable faster settlements.

5. Blockchain secures private messaging and cyber-physical infrastructures.

Hackers increasingly turn to social media to attack users and target platforms like Facebook and Twitter. Millions of accounts get breached every year due to information falling into the wrong hands, and messaging systems get intercepted. Blockchain can be used to standardize communications across various messaging channels and enhance security for enterprises. It can encrypt communications between parties and ensure that data doesn’t get intercepted.

When properly implemented, it can prevent unauthorized parties from tampering with financial transactions, eliminate identity impersonation, and safeguard digital interactions. Blockchain can be used for cyber-physical infrastructure to ensure authentication, security, and traceability. It can also simplify payment flow and prevent fraud and counterfeiting. This can help combat internal threats and prevent unauthorized access to data by ensuring overall trustworthiness and integrity.

We have seen many cases where hackers infiltrated networks and gained complete control over critical functions. Such incidents can be avoided by verifying data on blockchains for adding new entries or editing them.

Can Blockchain Help Reduce Cyber Risk?

Organizations can address potential security gaps by shifting their focus from enterprise to network-level cybersecurity. Several industry regulators can enjoy the open dialogue, and policymakers acknowledge the unique advantages of blockchain technologies, including their cybersecurity benefits. Cyber threats plague the financial industry, and as new threats emerge, it is imperative to safeguard personal information. Retail banking sectors are investing significantly in blockchain frameworks, and most new initiatives haven’t been rolled out at scale. The regulatory requirements are demanding, and the future regulation of blockchain technology will stay uncertain.

The UK’s Financial Conduct Authority (FCA) is formulating policies for using blockchain, while the United States is convinced it has inherent risks. Blockchain-based ETFs have been blocked by the Securities and Exchange Commission (SEC) in the U.S., though traditional banks lose up to USD 20 billion due to identity fraud, and blockchain ledgers help combat fraud by protecting data and preventing money laundering through automation and standardization.

Blockchain enables customers to use a unique identifier via a digital fingerprint and helps prevent the overlap of KYC and AML checks. Individual management of private keys can help customers safe keep their data and control with whom they share it (Higginson et al., 2019).

Furthermore, blockchain decentralizes financial exchanges and promotes greater interconnectedness among global financial ecosystems. While banks explore the use of permissioned blockchains, the technology’s distributed architecture increases overall cyber resiliency. This prevents sensitive information from being compromised via a point of failure or single access point.

A key feature of blockchain is its various consensus mechanisms, which improve the integrity of shared ledgers. Blockchain enhances the robustness of financial systems and makes consensus a prerequisite for network participants. All blocks in chains must be validated before new information is added or edited. It’s challenging to corrupt blockchains since participants are given enhanced transparency, and blockchains hosted on the cloud come with additional cybersecurity protections. The takeaway is that blockchain technology can improve an organization’s overall cybersecurity posture by enhancing cyber resiliency against emerging threats.

What Does the Future Hold?

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is working with banks worldwide on global payment initiatives and trying to improve the cross-border payments experience. SWIFT implements blockchain technologies by working with active providers and enabling banks to allow customers to pay with fiat currencies and cryptocurrency. Blockchain technology is being leveraged to significantly reduce the number of participants needed to resolve banking-related queries and to ensure compliance, which means we are already seeing some significant improvements.

The growth of blockchain-based payment solutions will continue to progress, and enterprises will witness the adoption of the technology at scale. Several companies are experimenting with “tokenization” to encrypt digital assets for secure transactions, though this is still in its early stages of development. Banks are using blockchain for digital fingerprinting and universal customer identification due to its decentralized nature. They will continue to disseminate information while it is updated and reduce the information burden during the authentication and verification processes. Blockchain will be used to verify firmware updates and patches and prevent unauthorized access or attempts to install malware.

Smart contracts show users the potential to automate payments by using predetermined conditions and automatically reducing fraud by reducing human interference. The technology manages complex reconciliation activities like invoice creation, financial decision-making, loan approvals, and application processing. A significant benefit of using blockchain is increased access to banking services and the opening of new economic streams to the global unbanked population (Baig, 2023).

The future of blockchain in cybersecurity for the banking industry is uncertain, but one thing is clear – it will continue to improve asset security and payment outcomes for organizations.

Source: eccouncil.org

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Programmable Money: Opportunities & Benefits of Digital Currency

Programmable money technology is regarded by many as the most valuable sector of the cryptocurrency market. Furthermore, programmable money helps to deliver banks, currencies, and financial instruments with new utility, and its potential value is in the trillions of dollars. Although many people are interested in programmable money, fewer people know what it means.

More Info: EC-Council Certified Security Analyst (ECSA v10)

This post will explore the concept of programmable money by explaining if this is possible using smart contracts on blockchains.

Is Programmable Money Automated Payments

You may be wondering if it is programmable money if you click on make a payment on your bank’s online banking website and the bank’s computers help move the money. Contrary to popular belief, it is not programmable money because you instruct your bank to make a payment.

Programmable money technology is not only about the ability to write arbitrary code for moving money. Furthermore, it is not programmable money if it includes complex business logic and external data as the decision-making process. Nowadays, many businesses send payment instructions to banks using the computer programs running on the corporate servers.

You may be wondering if programmable money then has to do with automation of payments at the bank’s side instead of the customer’s side. Most banks are already performing client-instructed automated tasks with rudimentary. Banks can even allow you to upload code, run the code, and then use the code result as a payment instruction from you. However, this can create liability for the banks when the code goes wrong.

If Programmable Money Is Not Automated Payments, Then What?

In the above scenarios, a bank can hold back payment even when they got a payment instruction. Regulators also require them not to tell customers why they even withheld the payment. In such cases, you are not assured that the payment is going to work in the end.

Opposite to the traditional payment methods, programmable money means that no intermediary or bank can stop the code’s instructions and it will be carried out once executed. As a customer, you’ll find the freedom to hold and control money outside the banking system.

A transaction like this can then be achieved using stable coins on public or permissioned ledger. This way, you can upload programs known as smart contracts that will indeed run. However, smart contracts will lead to creating instruction to the smart contract that defines the money. The smart contract that defines money may also decide not to make payment, for instance, when the payment instruction is made to a blacklisted account.

Programmable Money Is A Designer Money

The best way to describe programmable money is that it is designer money. It is money created by someone (an issuer) that will work in a certain way and has a specific constraint no matter the owner of the funds at any point in time.

Bank cannot do this because money in banks is usually different. For instance, money kept in JP Morgan is quite different from that at Citibank. JP Morgan’s scenario means there is a legal agreement that JP Morgan owes you money, while Citibank’s case means Citibank owes you some dollars.

Before the money in each bank can behave a certain way, both banks will need to use the same logic and constraints. This task is costly and complex because there is no ledger for more references while any transactions are made.

Problems Faced By Banks

◉ The loans can be used for other items than what a borrower told their lender they would use the money for.

◉ The funds meant for a specific purpose end up somewhere else.

◉ Grants are used for paying for things not intended for.

Benefits Of Designer Money

Designer money helps to create money where the money has control logic built into it. Designer money can be created using a Smart Contract level. The Smart Contract helps to define:

◉ The characteristics of the money like how many units there are, etc.

◉ How the users can interact with the capital, such as making a payment, asking for balance, etc.

The designer can then code the constraints in the second part of the smart contract. This way, all the payment requests come with conditions no matter who is controlling the money. The benefit is that the money only goes to the intended destinations.

After the special purpose money has gotten to the destination, it can then be redeemed for general-purpose cash when needed. Developers can also create certain types of money that you can only send with additional data; for instance, the proof of payment supports an import or export. You can also put a constraint on the money flows or wallet balances.

Furthermore, designer money offers endless possibilities. The whole point of special-purpose funds is to reduce fungibility.

Source: eccouncil.org

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Decentralized Finance: What It Is and How It Helps Businesses?

Blockchain has gained momentum over the past few years, and industries from every sector are keen on implementing blockchain technology to develop protocols, applications and benefit from its decentralized and distributed structure. The financial industry is no different and is looking for technologies that provide security and convenience. Therefore, the use of crypto assets has been increased as an individual from anywhere can access their purchases, make payments and benefit from other advantages as well. Decentralized Finance (DeFi) is the new path used to manage and monitor finances in a decentralized environment with no interference from an intermediary.

With crypto being used in various industries and proving to be a benefit for them, it can be expected that the majority of financial services will look forward to implementing DeFi in their infrastructure. It can bring revolution in the insurance industry due to its applications in lending and borrowing activities. 

What Is Decentralized Finance?

Decentralized Finance (DeFi) refers to the financial transactions that eradicate intermediaries between participants. It uses cryptocurrency and blockchain technology to eliminate central authorities and provide peer-to-peer facilities to carry out financial services such as banking, loans, mortgages, and more. The primary purpose of DeFi is to establish an open-source, transparent, and permissionless ecosystem without any central authority owning the power over financial transactions. It allows participants to control their assets, efficiently conduct peer-to-peer exchanges and build decentralized applications (dApps).

Once a transaction is carried out in a traditional banking system, its details are recorded in a private ledger owned and monitored by a financial institution. However, in DeFi, the financial transactions are stored in a computer code on a decentralized public ledger. All participants using DeFi applications and platforms have an identical copy of the general ledger. This ledger holds the information of every transaction in encryption code. Since decentralized blockchain platforms and applications are immutable, the records of ownership cannot be modified or deleted by a third party providing security in verifying transactions and storing their data.

Decentralized Finance (DeFi) works on the traditional financial system and replaces the intermediaries or central authorities with smart contracts. A smart contract is an automated merger, enforces agreements without intermediary involvement, and is easily accessible by anyone with an established internet connection. Most of the DeFi protocols work on the Ethereum blockchain, and the decentralized applications are often created using Ethereum.

Applications of DeFi

Some of the applications of decentralized finance are:

Decentralized Exchanges (DeX)

Decentralized Exchanges (DeX) allow participants to exchange tokens with other assets in their possession without a need of a custodian. It will enable them to transact peer-to-peer and monitor their funds. It reduces the risk of theft as crypto assets are not in the exchange custody itself. Some DeX includes Uniwasp, Curve, SushiSwap, AirSwap, etc.

Lending and Borrowing platforms

The lending and borrowing protocols are some of the widely used applications in the DeFi ecosystem. Decentralized lending platforms offer loans to businesses or individuals without any involvement of an intermediary. DeFi lending protocols also help individuals to earn interest in their supplied cryptocurrencies and stable coins. The lending and borrowing platforms use smart contracts to eliminate intermediaries such as banks, financial institutions, etc., creating an ecosystem where borrowers and lenders can participate in open infrastructure. It assists borrowers by offering them liquidity without selling off their possessed assets and providing lenders the chance to earn interest by loaning crypto assets.

Payments

One of the primary applications of DeFi is for making payments and other banking services. DeFi payments will create payments and banking systems to eliminate the third party, and therefore, individuals can directly transfer their cryptocurrency through a secured channel. With DeFi, faster payments and processes can be ensured. It helps large financial institutions streamline market infrastructure and serve wholesale and retail customers in a disciplined manner. It also assists in reaching out to people in a systematic way.

Predicting Market

Blockchain-based prediction marketplaces allow users to vote, trade, or bet on the outcomes of future events. DeFi prediction markets combine the knowledge of a particular event through various oracles. These markets have smart contracts that decide how much the individuals will get paid if a specific event occurs. The platforms operate similarly to the traditional prediction markets without an intermediary. Examples of the DeFi prediction market are Augur, Gnosis, and FTX.

Advantages of DeFi

Programmability

New financial instruments and digital assets can be built rapidly by taking advantage of the highly programmable smart contracts and their automated execution, which helps run everything smoothly.

Immutability

Blockchain’s decentralized nature offers immutability. It indicates that a record, once stored, cannot be modified or deleted through any form. Therefore, decentralized finance is built on the exact nature and provides increased security and audit precision.

Interoperability

New DeFi applications or products can be built or modified by combining the existing product with another DeFi product. Developers have the flexibility to create new products on top of existing protocols, customize the user interface and integrate third-party applications. Therefore, DeFi products are often referred to as ‘Money Legos.’

Transparency

Public Ethereum blockchain allows every individual participant to broadcast and verify transactions on the network. It boosts qualitative data analysis and ensures that every user can access the network’s activities. DeFi protocols are built with open-source code, allowing individuals to read, modify and use the code to make other DeFi products.

Permissionless

Every individual is allowed to use DeFi applications and products as well as build them without any restrictions. It also enables users to direct smart contract contracts through their crypto wallets without any minimum amount of resources.

Challenges Faced While Using DeFi

Data feed centralization

Blockchain protocols cannot access off-chain data records or information. Many blockchain technologies use third-party services that allow access to external information. They work as bridges between blockchains and the outside information. The central point of trust in a decentralized infrastructure proves to be the vulnerability for a smart contract. If an external third-party feeds corrupted information, then it would disrupt the DeFi protocols.

Security risks with smart contracts

As smart contracts form the fundamental backbone of any DeFi protocol or application, the security risk related to them can disrupt the entire application or protocol. Smart contracts are open-source, enabling users and programmers to review them before investing in the DeFi protocol. They tend to miss flaws in the smart contracts, which raises the threat of a cyberattack. Therefore, developers must ensure their smart contracts go through various audit levels.

Decentralized Finance (DeFi) can prove to be the next big thing in the technology world since it provides advantages to all the sectors looking for a secured financial infrastructure. With blockchain technology as its backbone, DeFi is has a high probability of getting incorporated by various organizations.

Source: eccouncil.org

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Distributed Ledger vs. Blockchain Technology: Do You Know the Difference?

Blockchain is increasing in popularity because of bitcoin and other cryptocurrencies. Many traditional centralized bodies such as governments and banks are starting to take an interest in blockchain technology.

A new term that is starting to make waves in the cryptocurrency space is the distributed ledger technology. However, many people usually confuse distributed ledger with blockchain and vice versa. In this article, we will highlight everything you need to know about distributed ledger vs. blockchain.

What Is a Distributed Ledger?

A distributed ledger is a database that can be found across several locations or among multiple participants. However, most companies still use a centralized database with a fixed location. Unlike a centralized database, a distributed ledger is decentralized, which helps to remove the need for a central authority or intermediary for processing, validating, or authenticating transactions.

Furthermore, these records will only be stored in the ledger after the parties involved have reached a consensus.

What Is Blockchain?

A blockchain is a form of distributed ledger that has a specific technological underpinning. Blockchain creates an unchangeable ledger of records maintained by a decentralized network after a consensus approves all the records.

The significant difference between blockchain and DLT is the cryptographic signing and linking groups of records in the ledger that forms a chain. Furthermore, there is a chance for the public and users to determine how a blockchain is structured and run based on the specific application of blockchain.

What Is the Difference Between Distributed Ledger and Blockchain Technology?

Although both blockchain and distributed ledger sounds similar, there are some differences between the two. Blockchain can be categorized as a type of distributed ledger, but you cannot classify every distributed ledger as a blockchain.

We have listed some of the unique aspects of blockchain and distributed ledgers to help you better understand the distributed ledger vs. blockchain technology comparison.

Block Structure

The first difference between blockchain and distributed ledger technology is the structure. A blockchain usually comprises blocks of data. However, this is not the original data structure of distributed ledgers. This is because a distributed ledger is just a database that is spread across several nodes. But you can represent this data in numerous ways in each ledger.

Sequence

All the blocks in blockchain technology are in a particular sequence. However, a distributed ledger does not need a specific data sequence.

Proof of Work

In most cases, blockchains usually use the proof of work mechanism. However, there are other mechanisms, but they typically take up power. Distributed ledger, on the other hand, does not need this type of consensus, which makes them more scalable.

Blockchain is just a subset of distributed ledgers, and it has additional functionality aside from the traditional DLTs scope. Proof of work adds a significant difference between distributed ledger vs. blockchain.

Real-Life Implementations

Implementation is an essential point to consider when understanding the differences between distributed ledger vs. blockchain. Blockchain has many implementations in real life as it is more popular, and many usages are developed in due course of time. Since a lot of enterprises are adopting the blockchain nature and are slowly integrating it into their systems, you will also find big giants like Amazon, IBM, etc., that offer good blockchain as a service solution.

In comparison, developers recently started to dive deep into the distributed ledger technology core. Although there are several types of DLTs in the tech world, there are few real-life implementations. However, they are still being developed, and we will start to see the real-life implementations very soon.

Tokens

Tokens create a major difference between distributed ledger vs. blockchain. There is no need for tokens or any currency in a distributed ledger technology. However, you may need tokens to block and detect spam.

Anyone can run a node in blockchain technology. However, running a full node requires a considerable network that may be difficult to manage. Furthermore, there is usually some token economy, and it takes a fundamental role in blockchain technology. However, modern blockchain technology is looking for a way to leave the cryptocurrency shadow.

Distributed Ledger and Blockchain Comparison Table

	Distributed Ledger	Blockchain
Block Structure	It is a database spread across different nodes, but the data can be represented differently in each ledger.	It contains blocks of data, but the structure is not a genuine data structure of distributed ledgers.
Sequence	It does not require a specific sequence of data.	You will find all blocks in a particular sequence.
Proof of Work	It is comparatively more scalable as it does not need proof of work.	It is a subset of distributed ledgers, but it has additional functionality beyond the traditional DLT’s scope
Real-Life Implementations	There are not many real-life implementations	There are loads of real-life implementations.
Tokens	It is not necessary to have tokens or any currency on the network.	There is some sort of token economy.

Advantages of Using a Distributed Ledger like Blockchain

Using blockchain technology offers a secure and efficient way to create a tamper-proof log of sensitive activity. Blockchain has the potential to give an organization a safe and digital alternative to banking processes.

We can use distributed ledgers like blockchain for financial transactions as they help reduce operational inefficiencies and save money. Since distributed ledgers like blockchains are decentralized in nature and the ledgers are immutable, they offer greater security to the organization.

Distributed Ledger Technology Beyond Blockchain

Although the popularly known distributed ledger technology is blockchain, the distributed ledger technology future will depend on the collaborative effort of the two technologies. According to James Wallis, the Vice President of Blockchain Markets and Engagements for IBM, the uses of DLT will be greater than what we can think of today, but it will require a level of sharing that does exist before.

Furthermore, if DLTs become standard, they can revolutionize the Know Your Customer (KYC). KYC is the process that a business use for identifying and verifying the identity of its clients. It will then help make broader identity management much more straightforward.

Source: eccouncil.org

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Is Blockchain a Linked List?

A blockchain is a collection of transaction blocks that is finite, organized, and back-linked. If you want to learn about Blockchain thoroughly, you must first understand linked lists. A linked list is a set of linear data structures linked together by links. Each link in the blockchain is connected to its corresponding link.

Read More: EC-Council Certified Encryption Specialist (ECES)

If this sounds confusing to you, don’t worry. This article will break down the similarities and differences between blockchains and linked lists so you get a clear understanding of both.

What Is a Linked List?

A linked list is a set of linear data structures linked together by links. Each link in the linked list is connected to its corresponding link. Every node stores data called an element. In a linked list, each node has at least two parts:

1. The first part contains Data.

2. The second part contains a Pointer to the next node.

A linked list does not store the elements at contiguous memory. A pointer represents the first node of the linked list, and the first node is called a Head. The value of the head is NULL if the linked list is empty. Linked plans can increase in size, and inserting and deleting elements from them is simple since we need to adjust the pointers of the previous and next elements to insert or remove an element.

Linked lists are generally used to create file systems and hash tables.

What Is a Blockchain?

A blockchain is a network of peer-to-peer nodes that stores transactional records, also known as blocks; in many databases, it is referred to as chains.

This type of storage is generally called a digital ledger. Any transaction in this ledger is found with the owners’ digital signature, verifying the transaction and protecting it from tampering. As a result, the data in the digital ledger is highly stable.

Data is organized in a blockchain by dividing it into subsets known as blocks. The notes on the linked list are similar to blocks. There are several elements in each block, and they are divided into a block header and its transactions. The transactions in a block account for most of the data. The block header includes important information about each block, such as the timestamp and the block height.

A digital ledger is like a Google spreadsheet that is exchanged between multiple devices in a network. It stores transactional records based on the actual purchase. The main advantage here is that everyone can view the data, but nobody can manipulate it.

A block consists of a header and transactions. A Merkle tree is used to generate a 256-bit summary of all transactions included in the block header.

A transaction is a message to the network that specifies which unspent transaction outputs are being spent and which new UTXOs are being created.

Differences Between Blockchains and Linked Lists

Blockchain	Linked List
In a blockchain, the reference is cryptographically encrypted and tamper-evident.	The Pointer is a linked list that can be frequently changed without disturbing the data integrity.
A hash function is used to define a previous block in the blockchain.	Linked lists use a pointer function to define a previous node.
As a structure, a blockchain is far more complex.	A linked list is a structural way of storing and organizing data.
Blocks are available for storing all data related to transactions. These blocks chain link with their parent hash with the unique hash number.	The complete list in the linked list works as a chain, so it is easy to trace the previous node.
Tampering and data manipulation are almost impossible in a blockchain.	A linked list is a simple list where data manipulations can happen.
A blockchain is a completely functioning autonomous system.	The linked list lacks data validations which ensure the integrity of the linked list.
Deleting data in a blockchain is impossible.	A linked list can delete data.
Rearranging blocks in a blockchain is possible.	Rearranging nodes is not possible in a linked list.

Are Blockchains Related to Linked Lists?

Blockchains can be represented as a singly linked list. While they have a close structure to that of a linked list, they are not a linked list. A linked list is a programming language data structure. In contrast, a blockchain is an incredibly high-end technology. Blockchains have a hash function, whereas linked list have a pointer function. Each block contains a hash of the parent block or previous block and has a unique number, which can be viewed as a pointer to the last block. In a blockchain, each transaction is stored in one Merkle Tree. So yes, blockchains do have several characteristics in common with a linked list data structure.

Final Verdict: Blockchains vs. Linked Lists

To answer the original question this article put forward, no, a blockchain isn’t a linked list. While they do have things in common, such as the data in a blockchain being divided into blocks similar to that of a linked list, they are still separate entities. Every block in a blockchain is connected to the previous block via a cryptographically secure connection. On the other hand, a single linked list is a data structure for storing data in which a pointer connects the nodes. In the case of blockchains, Merkle trees are used to store data in each block. Merkle trees, in turn, use the hash to connect each block. Furthermore, the cost of creating and maintaining a public blockchain is very high.

If you interested to know more about blockchain, check out EC-Council’s Certified Blockchain Professional (CBP) program. It provides in-depth knowledge of blockchain fundamentals, applications of blockchain technology, and advanced blockchain development by the topmost experts in blockchain from around the world.

Source: eccouncil.org

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Designing for Blockchain: The 5 Principles You Need to Know

Blockchain is now regarded as serious stuff, as lots of its projects deal with people’s identities, sensitive information, large amounts of money, and replacing legacy systems that we may not understand fully. Furthermore, blockchain technology is gradually redefining the concept of trust and changing the way we think about issues ranging from our identity to our economy.

It also forces blockchain designers to think in an orderly fashion, considering things from a wider perspective and rethinking their role in building a decentralized crypto future. Despite the media hype about the rise and fall of cryptocurrencies, blockchain technology is still in its infancy, making it the perfect time for blockchain designers to build new systems.

This article will break down everything you need to know about blockchain designs, from how you can design for trust to the design principles.

Designing for Trust 1.0

Blockchain designers need to address a wide range of challenges when it comes to blockchain design. It can be used to help people like the undocumented, the on-the-edge cases, the trafficked, and those with stolen identities. Design Trust 1.0 offers designers the chance to give people back control of their data and even help them monetize their data.

When you remove all the barriers and give control to the people, it will be easy for small businesses to compete with the big fish. Some design ethics when designing for trust are:

◉ Avoid jargon and non-actionable data.

◉ Use existing UX patterns.

◉ Be consistent and have a design system that you use.

◉ Create active guidance and feedback.

◉ Design for the global nature of blockchain.

◉ Allow for and anticipate mistakes.

A big part of designing for blockchain is to make it look legitimate. This can be done via consistent visual design. Avoid the use of pointless animations and excess amounts of guiding users through a process.

Designing for Trust 2.0

When it comes to design Trust 2.0, designers must utilize a human-centered design process before incoporating mechanism design, system thinking, and game theory. Nowadays, designers are urged to get to the interfaces quickly and make them look slick. While this is understandably the result of a high-pressure environment, it is a mistake to jump through hoops so quickly.

Some of the things you can do to design for trust are:

◉ Design thinking

◉ Low-fidelity

◉ User research

◉ Collaboration

Design Principles for a “Trustless” Machine

Although blockchain technology is designed to eliminate the reliance on trust, this does not mean that users will trust the network or machine. This is why it is important for a blockchain designer to build interfaces that feel more trustworthy. However, many designers usually confuse user needs with network or system needs.

Here are some ways that a designer can use design for trust.

Trust the Machine

You can use the first design layer to mitigate the aspects of why users can trust the blockchain. You can do this by creating a blockchain design around an existing system that helps the user interact with the machine as easily as possible, while educating users about what is happening.

However, designers must understand the way blockchain works to better understand what can and cannot be changed before designing experiences around things such as wait times, gas, smart contracts, and private key management.

Trust Others

After creating trust in the blockchain, designers also need to help users have trust in the mechanisms that they use to collaborate with one another. Apart from smart contracts, some ways a designer can use to foster trust with others are:

◉ Micro-tipping

◉ Staking

◉ Token curated registries (TCRs)

◉ Governance

◉ Crowdsourcing

Indicate Trust

Blockchain designers need to create an overt demonstration of trust, i.e., things that humans perceive as trustworthy. These blockchain design principles are usually from design Trust 1.0. Some of the ways you can signal trust are:

◉ The user interface should behave in a way the user expects.

◉ It should reduce anxiety and cognitive load.

◉ It should respect the established conventions.

◉ The guides should have consistency.

5 Design Principles for Blockchain

Here are 5 blockchain design principles that you can follow when designing a cryptocurrency.

Avoid Jargon

Cryptocurrency and blockchain are formidable industries to be involved in. It is important for the core group to be passionately involved in the process. However, an average person or designer outside of the hype bubble finds it hard to get excited. This makes it difficult for an average person to get involved in cryptocurrency, coupled with the fact that the industry has a bad reputation as a get-rich-quick scheme.

Dismantle Barriers to Entry

The cryptocurrency market is filled with people inside the bubble, i.e, those who understand the industry. However, it is an unwelcoming and impenetrable bubble to outsiders. People need to be very determined before they get involved in the industry.

Security or Friction?

Dealing with cryptocurrency requires a lot of risks. This is because funds are kept in a digital wallet and there is no way you can get them back if the funds are stolen or hacked. This is why a designer needs to implement security to make users feel safe and trust the product.

Transparent is Key

When deploying something into the blockchain, it can take a lot of time before it is finalized. The length of time it will take to make the changes a designer made public depends on how busy the network is. However, a designer cannot determine if processing the action will take minutes or hours.

Design Thinking is King

Blockchain has a lot of potential and the industry is actively looking for a problem to solve. A blockchain designer’s role is to define problems and make valuable products that can solve real problems. This is why blockchain designers need to educate their companies and call for research and user testing. This will help fight the hype while gaining real user insight.

What Should I Study for Blockchain?

The most important aspect of designing for trust are ethics and the protection of users. However, the trust machine fails if users end up getting harmed by what a blockchain designer has built. The blockchain industry is actively seeking designers who can make changes and bring new insights into how things can be done. With EC-Council’s Certified Blockchain Professional, you will learn about all this in-depth and attain the credibility you need to enter this growing industry.

Source: eccouncil.org

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What Is a Smart Contract in Blockchain?

Smart contracts are considered one of the most essential tools in blockchain as they enable the transfer of everything right from bitcoin to goods transported across the globe. Smart contracts essentially remove intermediaries from a business contract, thereby streamlining the contractual process.

If you’re on this page, chances are you’re curious about smart contracts and how they can be applied to your business. This blog will help you understand what are smart contracts, how they work, and how you can leverage them using the secure blockchain network to conduct contractual transactions with ease, all while reducing loss of time.

What Is a Smart Contract?

Smart contracts are business automated applications or lines of code which are self-executing and function on a decentralized network like blockchain. This code manages the executions of transactions that are irreversible and trackable. Smart contracts allow trusted agreements and transactions to be undertaken among distinct anonymous parties without needing a legal system, external enforcement, or a central authority. Due to their functionality to remove administrative overhead, smart contracts are one of the best features of blockchain technology. They also make financial transactions transparent, simple, and efficient.

What Does a Smart Contract Do?

Smart contracts streamline a complex transaction process (like a loan or financing) involving several intermediaries. Usually, when more than one party is involved in a transaction, there is a probability of a lack of trust among the participants. Blockchain comes into the picture here as it stores the identity of the dealer. Using this data, the lenders can decide about credit. Post this, a smart contract will be created between the bank, lender, and dealer. The funds get released to the dealer and the repayment is initiated as per the contract. This transaction will get recorded to the blockchain and can be viewed at any time.

What Are the Types of Smart Contracts?

Smart contracts and protocols can be classified into the following categories:

Smart Legal Contracts

These contracts are the most obvious types of smart contracts. Most smart legal contracts are enforceable legally and include strict legal recourses for scenarios where the parties involved end up not fulfilling their end of the agreement. With clearly defined laws, smart contracts can simplify processes involving strict regulatory oversight like transactions in the real estate and financial market.

Decentralized Autonomous Organizations (DAOs)

DAOs are defined as communities that are present in the blockchain. These communities are defined by the rules set and implemented as code in the smart contracts. Each participant’s activity is subject to these rules, which are enforced and reached at recourse when a break is left to the program. Most smart contracts have these rules, and they work together with policing and managing participants.

Application Logic Contracts (ALCs)

ALCs have application-specific code that works together with other smart programs and contracts on the blockchain. They help in communicating with and verifying communication among devices in the IoT domain. ALCs are important in multi-function smart contracts and always work when managing a program.

How Does a Smart Contract Work?

A smart contract can work individually, but it can also be implemented along with other smart contracts. They can function interdependently as well. Successful completion of one smart contract can trigger another one and the process keeps going. If implemented properly, entire businesses and organizations can run successfully on smart contracts. This has already begun in various cryptocurrency systems wherein the laws are pre-defined. This allows the network to function independently.

What Are the Benefits of Smart Contracts?

The benefits of smart contracts are very similar to that of a blockchain.

◉ Speed: Smart contracts are digital and automated. It saves time as compared to manual documentation and the scope of errors is also less.

◉ Trust: They operate on pre-determined rules which are encrypted and shared among all the participants. This reduces any probabilities of malpractices and tampering.

◉ Security: Blockchain transactions work on the principles of cryptocurrency and they are encrypted. This makes it exceedingly difficult to hack into the network.

◉ Savings: Smart contracts eliminate the need for intermediaries as the transactions are transparent and do not require any third-party interference.

What Are Smart Contracts Used For?

Due to the ease of its functioning, smart contracts are used for all kinds of transactions across various industries, including:

◉ Insurance companies: Smart contracts can be used for simpler insurance processes like underwriting and payouts. With smart contracts in insurance, no third-party involvement is required, it speeds up the claim processing, and it also lowers the administrative costs.

◉ Health systems: Data is recorded and transferred safely. This makes it secure and does not allow access from third parties.

◉ Governments: Smart contracts can make voting systems completely secure and eliminate the possibilities of fraud.

◉ ICOs: An ICO is a crowdfunding system that uses blockchain technology. You can create a smart contract and a token for it to generate funds.

Smart contracts have enormous potential to capture global markets. It saves a lot of time and money, reduces frauds and delays, and is extremely reliable.

As smart contracts are an application of blockchain, learning about blockchain will provide you with the knowledge you need to succeed in your industry, whether you’re just starting out or looking to upgrade your company’s business model. EC-Council’s blockchain training program teaches you the ins and outs of smart contracts, with an overall focus on practical blockchain knowledge and the skills required to make you job-ready, all packaged within a flexible learning module that caters to your needs.

Source: eccouncil.org

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What Is Ethereum 2.0 and Why Does It Matter?

 

Blockchain technology has revolutionized global markets. It has disrupted various sectors like banking, fintech, agriculture, and healthcare. It works on the principles of cryptocurrency, which has made transactions simple and secure. Cryptocurrency in layman’s terms is nothing but digital currency. There were more than 2,000 cryptocurrencies in January 2020. Ethereum is the second largest cryptocurrency and it functions on a decentralized software platform through which smart contracts and decentralized apps can be built very easily.

If Ethereum kindles your interest and you want to learn more about it, this blog will serve as a trusted handbook and answer all your queries.

What Is Ethereum 2.0?

Ethereum 2.0 is an upgrade to the already existing Ethereum blockchain. It aims to increase the speed, efficiency, and scalability of the Ethereum network, enabling it to address the bottlenecks and increase the number of transactions. The pseudo names for Ethereum 2.0 are Eth2 or Serenity.

Ethereum 2.0 has some fundamental changes in its structure and design as compared to its previous version. The two major changes are “proof of stake” and “sharding.” Let us look at both these terms to understand the functioning of Ethereum 2.0

What Is Proof of Stake?

In a proof of stake consensus mechanism, there are validators instead of miners. Their major role is to propose new blocks, provide computing power, storage, and the bandwidth to validate transactions. The validators are given periodic payouts in ETH. There is a deposit contract of 32 ETH that should be locked in by these validators. It is a type of a security deposit that gets forfeited fully or partially in an event of any malpractice. This method is very effective in curbing malpractices.

What Is Sharding?

Sharding is the process of splitting one blockchain into multiple blockchains known as shards. It makes the entire network more efficient as a single validator does not have to handle the workload alone. Every validator maintains information related to “their” shard. These validators are also shuffled between shards regularly to avoid any kind of manipulation. The Beacon Chain is used for the communication and coordination of the shards.

How Does Ethereum Work?

The validators are the most important aspect of Ethereum 2.0 as they are solely responsible for its infrastructure and maintenance. Every validator has two keys: a signing key and a withdrawal key. A signing key is used to perform “work for the blockchain.” There are three main functions of a validator:

◉ To propose and add blocks to the Beacon Chain or one of the shard chains.

◉ To attest the validity of the beacon and shard chain.

◉ To report malicious behavior by other validators.

Due to these reasons, the signing key must be online 24/7. The withdrawal key performs actions on the funds. It is not necessary for the withdrawal key to be available all the time. However, it needs to be secured as the person has control over all the funds. If you want to become a validator, you need to lock up 32 ETH in the beacon chain. Validators do not work alone. They mostly work in committees wherein groups of minimum 128 validators vote on the head of the blockchain. The votes cast are of different types. They are:

◉ LMD GHOST votes: Attestations are for the head of the blockchain, specifically for the most recent block that the validators have agreed upon.

◉ Casper FFG votes: Attestations are for the checkpoint in the current epoch.

A checkpoint is the most recent block in the first slot of an epoch. Epochs comprise of 32 slots. Once 2 or 3 validators agree upon the most recent checkpoint, it gets justified. Once the previous checkpoint is justified, the last block gets finalized. So, after two epochs one block is finalized.

What Is the Difference Between Ethereum and Ethereum 2.0?

The major difference between Ethereum 2.0 and its counterpart is the consensus mechanism which they use. Ethereum uses proof of work (PoW) mechanism, while Ethereum 2.0 uses proof of stake (PoS) mechanism.

The proof of work mechanism is an energy-intensive process in which complex mathematical puzzles are decoded by miners with the help of computer hardware processing power. This is also used to verify new transactions. Whoever decodes the puzzle first, adds a new transaction which contains the previous transactional records making up the blockchain.

In the proof of stake mechanism, crypto is used to verify a transaction by the transaction validators instead of miners. The validators must propose a depending on the time and amount of crypto they hold. When a majority of validators claim to have seen the block, it is added to the blockchain and they are rewarded for conducting the block proposition successfully. This is how “forging” or “minting” takes place.

PoS is a more energy efficient mechanism as compared to PoW since it uses less computing power to secure a blockchain.

How Will Ethereum 2.0 Be More Secure?

The most important advantage of Ethereum 2.0 is its scalability. Ethereum 2.0 will have shard chains due to which it can conduct up to 10,000 transactions per second whereas Ethereum can support only 30 transactions per second. This also leads to a lot of delays and network congestion which will not be the case in Ethereum 2.0. The implementation of shard chains speeds up the network and can scale more easily as the transactions are handled in parallel chains instead of consecutive ones.

The main idea behind devising an upgrade to the existing Ethereum is to exercise more safety in the entire transaction. Many proof of stake networks have a very small set of validators. This accounts for decreased network security. Ethereum 2.0 requires a large set of validators, approximately 16,384, which makes it more decentralized, secure, and less prone to manipulation.

The Future of Ethereum 2.0

Ethereum is the largest general purpose blockchain in today’s market since its launch in 2015. More than 1,400 Ethereum projects are being built . The upgrade will roll out in three phases: phase 0, 1, and 2.

Phase 0 was launched in December 2020 with the implementation of the Beacon Chain. It stores the registry of validators and deploys the proof of work consensus mechanism.

Phase 1 is anticipated to launch in 2021 and the shard chains will be integrated. 64 shards are expected to launch.

The Ethereum 1.0 chain will become a shard of Eth2 in Step 1.5, and transfers will be enabled, resulting in Eth2 resembling a “perpetual debt- and equity-like bond” and a floating rate, as validators can now freely enter and exit the scheme.

In Phase 2, the shards will become fully functional and compatible with smart contracts. It is scheduled to launch in 2021/22. It will be an upgraded version with added features.

With its added advantages and scalability, Ethereum 2.0 will garner more and more interest from investors in the years ahead.

What Are the Risks Associated with Ethereum 2.0 Participation?

As an ETH holder interested in Eth2 by staking, the key risks you face are:

◉ One-way Beacon Chain transfers and locked funds until Phase 1.5 (unknown timeline). The client app bugs (the software one runs as a validator) can be slashed.

◉ Shutdown of the service provider prior to Step 1.5.

Make your debut as a Certified Blockchain Professional (CBP) through our blockchain certification program as it will help you understand Ethereum and various other aspects of the blockchain world. The training program focuses on the information and skills necessary to keep you abreast of the latest tech trends and industry updates. The best part is that everything is packed in the form of a series of versatile learning modules that helps you define your own learning pace.

Enroll today to become a certified expert in blockchain!

Source: eccouncil.org

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