Ethos Universal Cryptocurrency Wallet

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What Is Blockchain Technology Explained

What is Blockchain?

What is Blockchain Technology?


The blockchain is a breakthrough technology that powers many of the cryptocurrency networks that we recognize today. At a general level, blockchain technology showcases some of the most groundbreaking solutions to networking issues in human history. To explain what a blockchain is and how blockchain technology works, we will explain networks on an abstract level and then discuss the pros and cons.

Before Blockchain Technology – The Traditional Network System

A network, in precise terms, is a collection of points (nodes) with connections in between certain nodes. A practical example of this that has stood the test of time throughout human history is the mail network. If you want to create and support a system that allows messages to be sent between any two parties, you must first pinpoint their locations and find a courier to carry out the transaction. All systems that allow users to make transactions of any type, such as a telephone service or a shipping agency, use systematic networks to carry out their respective transactions.

Unfortunately, networks come with a set of inherent issues. The largest of these is security, both in ensuring that a transaction is recorded and processed, and preventing any outside interference from jeopardizing the transaction.

Imagine that you want to send a paycheck to an employee who lives in another neighborhood. Firstly, if the transaction is not recorded properly, there would be no legal evidence to certify  that the transaction ever took place. Secondly, if the paycheck is intercepted by a thief, the transaction is immediately compromised. Security issues like these are allow for modern-day fraud, theft and other crimes that imperil our financial security.

The next big issue of networking is network maintenance, or more specifically, how to maintain the connections, reliability and security of a network given a limited number of resources. When the Medicis ruled the financial world of Renaissance Italy, they required both thoroughly-inspected accounting books and physical groups of mercenaries to protect their wagons of gold from highwaymen en route to their destinations. It remains clear that whenever an individual or organization wishes to establish a reliable network, these issues must be taken into consideration. The blockchain as a network innovation addresses these very problems.

Blockchain Technology Explained – An Evolution of Traditional Network Systems

The first Blockchain was implemented by an anonymous person/organization known as Satoshi Nakamoto in 2008. It used a digital, public ledger to record transactions over a network of digital tokens known as Bitcoins. At the time, cloud computing and peer-to-peer networking was gaining popularity for its decentralized approach to network security and data storage. The goal behind both of these technological advancements was to process and store data across a network of computers instead of in one single place, thereby allowing users to enjoy a greater level of network and data security. The problem with the solutions at the time was how they used resources to maintain the network. The computers in the network that supplied the network’s power were personal computers used by network participants, but the security and encryption of data across the network had to be supplied by the large organizations that owned the networks. This made cloud computing costly, effectively becoming a privilege only for those who could afford to pay high fees to such corporations. However, the technology behind the Bitcoin blockchain posed a different solution.

The overall goal of the Bitcoin Blockchain’s implementation was to make network security the effort and responsibility of the crowd instead of the corporation. To do this, Satoshi Nakamoto created a network that could be used to send tokens from one node on the network to another. To record these transactions, the network would place these transactions inside a chain of connected blocks, or in other terms, the blockchain. Securing these blocks requires volunteers to contribute computing power toward solving cryptographic puzzles whose solutions would be used to encrypt the blocks. This would therefore complete the blockchain, creating an immutable, visible, public ledger of Bitcoin transactions.

In exchange for solving these puzzles and securing the ledger, these “miners” are rewarded with newly created tokens or Bitcoins. However, if a miner places a new block on the blockchain, their block is still subject to review and crowd validation. This process is called blockchain consensus.

Blockchain Consensus can either approve or reverse a transaction based on how it views the overall validity and security of the new block. If the transaction is reversed, the block is deleted and the miner will not receive the coin. Users can tell if their confirmation has been secured correctly based on the number of blocks placed after their transaction. This number of blocks is known as the number of blockchain confirmations. The more confirmations, and the greater the velocity of confirmations on the blockchain, the more secure and reliable you know the blockchain is in carrying out your transactions. It was in this fashion that Satoshi Nakamoto created the first peer-to-peer network powered and secured solely by anonymous contributors. Therefore, networks that utilize blockchain technology provide peer-to-peer networking services that come with completely decentralized data storage and security.

The Blockchain After Bitcoin

Since Bitcoin’s inception, numerous other blockchains have been created to expand upon the potential uses of decentralized, peer-to-peer networks. Ethereum brought forth a network in which users could implement applications for any digital transaction in exchange for using the Ethereum token. These self-executing, digital transactions are known as smart contracts; a contract between two parties that executes itself as an automated digital transaction once it has been signed.

Bedrock’s powerful abstraction layer is designed to make blockchain and cryptographic protocols as accessible to financial institutions as internet protocols. Our flagship application, the Ethos Universal Wallet, is built entirely on Bedrock, giving users the opportunity to safely store and transact a multitude of cryptocurrencies and digital assets all on one platform using one private SmartKey. We do all of this and more as a part of our mission: to bring into being a new, accessible, digital world economy.


blockchain confirmations

What are Blockchain Confirmations?

What are Blockchain Confirmations?


Blockchain Confirmations allow users to know that their transactions over blockchain networks have been secured. When a transaction is made on a Blockchain Network–for instance, when you send a few coins to your friend’s digital wallet address– that transaction must be recorded on that blockchain’s digital immutable public ledger. The digital immutable public ledger is a sequence consisting of digital blocks attached to each other, ordered down to the millisecond in a chronological chain, thereby known as a “Blockchain”. After being placed on the blockchain, each transaction must be validated through a process called consensus. Consensus validation is performed by miners on the network using a Proof of Work scheme that rewards miners new coins in exchange for securing and validating transactions, as long as their new blocks are approved by the other miners on the system through participant consensus. However, if your transaction is on the latest block on the blockchain, it is still subject to rejection and reversal by the network. This is because a malevolent user on the network could want to make copies of the same transaction immediately after, pretending as if the previous one did not happen. In this case, the Blockchain Network can check its own transaction history on its own Blockchain Immutable Public Ledger before reversing the transaction. So yes, while a true transaction is not reversible, mistook transactions and malevolently copied transactions can be reversed. If a user is in fear that their true transaction is in jeopardy of being reversed, there is a security protocol that is built into all blockchains. This is where Blockchain Confirmations become useful.

Simply put, a Blockchain Confirmation is a number of times another block or transaction is placed chronologically after your transaction’s block. For example, if your transaction is placed on one block, it is very likely that a new block will be appended to your block soon after as more transactions are made on the network. If a malevolent agent on the network wishes to reverse or corrupt a transaction, not only will they have to get through that block’s security by decrypting its encrypted data, but they will also have to decrypt all of the other data on the blocks ahead of this block since the blocks are all linked together in a chain. Blockchain Confirmations therefore work as a measure of security, since for every block that is added after your transaction, your transaction is much less likely to be reversed and is therefore more secure. In a definitive sense, if you make a transaction on a block, each block afterwards is a confirmation. If there are 3 blocks after your transaction’s block, there would currently be 3 blockchain confirmations on your transaction.

 

Blockchain Confirmations and Security Standards

In terms of financial blockchain applications, most cryptocurrency exchanges, wallets, and networks require a minimum of 3 confirmations for a transaction to be fully valid and irreversible. Each case is different given the various security protocols of each Blockchain Ecosystem, but it really boils down to the size of each transaction made on the network. Using this logic, it is correct to assume that larger transactions require more confirmations before they are validated by a network and secured on both sides, while a smaller transaction requires fewer confirmations. For example, the Bitcoin Blockchain claims that 1 confirmation is enough to secure a transaction under $1000 United States Dollars while 6 confirmations will be needed to secure transactions greater than $1,000,000 United States Dollars. Fortunately enough, the average time to create a block on the Bitcoin Blockchain is 10 minutes; likewise, almost all Bitcoin transactions will be secured and irreversible after an hour’s time.

Unfortunately, there are some innate issues with this process. While early stage Blockchains like Bitcoin made efforts to seek alternatives to traditional financial networks, their confirmation speeds are not nearly fast enough to compete with current supercomputers on Wall Street. Bitcoin made only 3-7 transactions per second at the beginning of 2018, while the more efficient Gas System running the Ethereum Blockchain was unable to break 30 transactions per second on most days. Fortunately enough, Blockchain Confirmations are not to blame–instead, the culprit is the data storage waste of Proof of Work. Proof of Work gives all nodes or computers access to all of the data on the blockchain for viewing purposes. Newer Proof schemes, such as Proof of Stake, make use of database sharding techniques to break the Blockchain across nodes in the network. This links each set of data with another set with corresponding keys, so that miners must combine their power together to access the whole blockchain if desired, while individual users who do not wish to keep all of the blockchain data are not compelled to.

 

Blockchain Confirmations as an Industry Standard

While the Blockchain Community is cranking out more innovative solutions to simplify transaction velocity and security confirmation every day, Blockchain Confirmations still remain an important feature for our Blockchain Networks, especially on the user side. Blockchain Confirmations allow us to tell our users the security status of their transactions on our networks. This feature has become an industry standard and will maintain its presence in the Blockchain Industry for the foreseeable future. Blockchain Confirmations are one of the most important aspects in evaluating both the legitimacy and the security of a given Blockchain, as a blockchain that requires more confirmations and can produce more confirmations in a given time interval is considered  more secure and reliable than others.


Smartkey for Cryptocurrency Wallets

What is a SmartKey?

What is a SmartKey?


A SmartKey is an Ethos service which lets users create a single key for all of their cryptocurrency wallets. The underlying technology is from a Bitcoin Improvement Proposal – or BIP – commonly known as BIP32. Using BIP32, a single 256-bit seed, or small piece of data, can encrypt information for multiple wallets addresses across multiple blockchains. Even better, these wallets can be nested like a folder structure. This is known as Hierarchical Deterministic Wallets, and is an enormously powerful mathematical structure. Ethos integrated this technology as a SmartKey. This means consumers can have the convenience of a single key that is represented by a 24 word phrase that can secure all of their wallets. There are estimated to be a billion possible SmartKeys for every atom on planet Earth, so you can rest easy knowing that your key is yours alone. Your SmartKey lets you take unprecedented control of your assets and lays the foundation for an open, safe and fair financial ecosystem for everyone.


ASIC Miners Cryptocurrency Mining

What are ASIC Miners?

What are ASIC Miners?


ASIC miners use ASICs, Application Specific Integrated Circuits, which are specialized pieces of hardware designed to perform a single activity. In contrast, the majority of computer hardware in your home, such as the circuitry in your smartphone or in your laptop computer, is utilized to perform a variety of tasks. For example, if you have multiple programs open on your computer, such as a web browser and a text editor, then your computer is running multiple tasks and needs hardware that can specifically manage both those tasks. CPUs, or Central Processing Units, usually do the job in this scenario.

The issue with using hardware that is designed to run multiple tasks at once is that the hardware will generally not be the best option if you only want to perform a single task extremely well. ASICs, by their very name and definition, are designed to specialize in one type of task. Much of the computational work needed to maintain a blockchain network’s transactions, connections and account security is usually limited to a small number of power-intensive tasks.

Cryptocurrency mining is required to sustain a blockchain network that operates by using a Proof of Work scheme. In terms of complexity, mining is a very simple process that will usually only utilize one software program, racks of hardware, electric power and time. This is where ASICs become useful for the blockchain.

 

Bitcoin & Cryptocurrency Mining

In the early days of Bitcoin, most miners used CPUs from home computers to make a profit mining bitcoin. It was simple; if the value of the Bitcoins you received for your mining efforts exceeded your electric bill and the cost of your computer hardware, then you were in the black. As blockchains have become more complex, CPUs and home electric power supplies no longer make mining a profitable endeavour.

More and more transactions occur every day, and the computational resources necessary to secure and validate these transactions has been increasing exponentially. Mining organizations have done everything in the books to cut costs, from moving to cheap power supplies near dams in upstate New York and rural China, to investing in warehouses full of ASICs. Greater research in both the areas of computer science and computer engineering have brought forth advancements in algorithm efficiency, software efficiency and hardware efficiency, and that advancement will continue for the rest of time itself. Whether or not these developments can arrive faster than blockchain’s puzzles’ complexity can increase is the real issue. If accessible progress in hardware and software cannot win the race against the blockchain’s computational complexity, then cost-cutting and other profit-maximizing strategies will have to make an appearance. Whether or not Satoshi Nakamoto saw this coming in his initial conception of the blockchain, cryptocurrency mining has seen huge barriers to entry develop in recent history due to these strategies.

 

Issues With ASIC Miners

Increasing barriers to entry in mining is an issue of recentralization after decentralization. While the purpose of blockchain is to decentralize the security and processes in maintaining a peer-to-peer network system, Proof of Work mining and ASICs have increasingly become a centralized matter. In other words, only individuals and corporations with deep pockets have the ability to enter the mining arena and still turn a profit. While users of Proof of Work blockchains can still appreciate the security and anonymity of utilizing these networks, it is troubling to know that the largest chunk of both the power running these networks and the collection of newly created tokens and coins will go to a select group of ‘central’ organizations and corporations.

Fortunately, creators of newer altcoins have taken these concerns into account when designing more decentralized block creation and mining schemes. While some blockchain developers adopt alternative mining algorithms to deter ASIC rigs, other blockchain ecosystems have been becoming more popular for their use of alternative proof schemes, such as Proof of Stake. Currently, we are going through a period that will test the blockchain community for the most efficient and accessible consensus schemes and most secure decentralized networks. The influence that ASIC investment has had on cryptocurrency ecosystems has nonetheless pushed blockchain technology in new directions, and has definitely started necessary conversations about revising blockchain algorithms, mining, and block creation schemes.

So you might be asking yourself by now, how does this affect my decisions as a prospective investor? First and foremost, if you are looking at investing in blockchains that use Proof of Work, such as Bitcoin and Ethereum, there are a variety of variables to take into consideration. Since the relative value of a given cryptocurrency is based on both the total volume (the amount of existing coins) and the velocity at which transactions take place over the network, we can infer that the rate at which coins are mined and how mining validates transactions both affect the value directly. If coin mining is too expensive, then we can expect that there will be a limited amount of coins in the near future, making the asset scarce and therefore more valuable. This holds true as long as the velocity of transactions stays the same or speeds up, which is still dependent on the efficiency of mining. Since this is ambiguous terrority, it is more efficient to consider the case in which we hear news that large organizations are investing in mining a specific blockchain. There will be a high chance that through that investment in mining, the blockchain’s volume of coins will increase, as will the efficiency of the blockchain. This would make room for greater transaction velocity and a greater likelihood of a secure, quick and more valuable blockchain.

Here at Ethos we seek to educate our users by bringing them the latest and most reliable information about various blockchain ecosystems. Ethos wants its readers and users to make well-educated, informed decisions and we recommend you check out all the other resources we have on the Universal Wallet and Ethos.io!


What is Proof of Work? Cryptocurrency Mining

What is Proof of Work?

What is Proof of Work?


Proof of work refers to the computational puzzle that miners have to solve which allows many open blockchain networks to remain secure and decentralized.

Proof of Work uses cryptographic functions that essentially guarantee a certain number of computer cycles were spent to solve the puzzle.

In other words, by solving this puzzle, you are proving that you did some amount of work – hence the term Proof of Work.

How much work that takes is dictated by the difficulty, which scales the amount of work it takes to solve the puzzle.

This puzzle can be thought of like a lottery.  Every computer cycle that is used to try and find a solution is a lottery ticket, with the winning reward of issuing the next block and claiming a reward.

Proof of Work is the foundation of many open blockchain networks aligning economic incentives in order to build a system that serves everyone equally.


verified wallet domains

What are Verified Wallet Domains?

What are Verified Wallet Domains?


Each cryptocurrency wallet has an address – often a long set of digits and characters.  An Ethos Wallet domain is a plain English name – like “Johns Wallet” or “ABC Car Rental” – that users can reserve for their wallet.

You can think of a Wallet Domain like an email or a website address.  Once a Wallet Domain is registered, it is unique and linked directly to your wallet.  This can be used to protect a brand, or simply reserve your name on the blockchain.

Ethos tokens are used to reserve wallet domains.  By keeping a minimum amount of tokens in a wallet, the domain is reserved and dynamically linked to the underlying blockchain address. This process reduces domain squatting or and fraud by forcing utilization of a limited resource, similar to how Ethereum allocates compute resources on its network.

Wallet Domains can also be verified.  In this process, the identity of the user or business is confirmed and certified.  This builds trust by turning anonymous blockchain addresses into confirmed identities.

Because the Ethos Universal Wallet supports a wide variety of cryptocurrencies, a single wallet name can be used to accept a wide variety of coins.

Wallet Domains are simple way to protect your brand, create single payment point and build trust – all important things to make cryptocurrencies accessible to a mass audience.


Blockchain Developer Platform

What is Ethos Bedrock?

What is Ethos Bedrock?


Ethos Bedrock is a developer platform designed to make blockchain protocols as easy and accessible as internet protocols.

Bedrock can be thought of as an abstraction layer that sits above lower level blockchain protocols like Bitcoin or Ethereum.

Some of the applications that can be built on Bedrock include Verified Identities, Remittances, Verified Source of Funds and Tokenized Securities, creating the foundation for a safe and regulatory compliant blockchain solution.

This allows Ethos, developers, institutions and regulated partners to harness the innovation pioneered by blockchain technology while creating a traditional financial industry level of professionalism, security and compliance.

The goal of Bedrock is to allow developers and institutions to create sophisticated next-generation financial applications that will power the decentralized economy of the future.


What are Cryptocurrency Verified Sources of Funds?

What are Verified Sources of Funds?

What are Verified Sources of Funds?


Bad actors in the cryptocurrency space are a problem and regulators often struggle to identify legitimate companies.

When you open an account at the bank, they verify your identity. But on the blockchain, nobody is attesting to the legitimacy of a transaction.

However, blockchains can be used to create a safer, more ethical financial ecosystem through a standard that Ethos calls Verified Source of Funds, or VSF for short.

Using VSF, entire financial structures can be moved to the blockchain allowing good actors to access its full potential.

VSF records an ID with the block transaction for source of funds, protecting consumers while keeping institutions honest through auditable histories. This holds institutions to a high regulatory standard while bridging the existing financial system with the rapidly growing digital economy.

VSF is an important proposal that can bring industry level regulatory standards to the digital asset space helping to create an open, safe and fair financial ecosystem for everyone.


key sharding cryptocurrency

What is Key Sharding?

What is Key Sharding?


What is Key Sharding?

Key sharding, or Shamir’s Secret Sharing, is a process by which a private crypto key is split into separate pieces, or shards, rendering each shard useless unless enough are assembled to reconstruct the original key. For example, if there are 5 shards and only 3 are needed for access, the holders of 3 shards can combine their efforts for access. This process is uniquely deeply rooted in cryptographic concepts, and makes way for more decentralized risk in the new economy. This secret sharing can be used in applications like clearing houses without custody or for recovery mechanisms in which nobody has the single key.

Key sharding was inspired by database sharding when it was adopted by the blockchain community. In this article, we will go in depth about how blockchain sharding and key sharding work, the reasons for sharding in the first place and its potential uses. If you are a new reader in the blockchain space, worry not. We will start from the very basics and gradually work our way up to more complex material. If you wish to learn more about some of the terms in this article (such as Proof of Work or Private Keys), feel free to check any of the other video articles and glossary definitions on the site!

 

The Problem with Proof of Work

The earliest blockchains, such as Bitcoin, used a revolutionary security encryption process known as Proof of Work. In this case, anonymous contributors known as miners, encrypt the network’s transactions onto blocks stacked on an immutable public ledger (the blockchain). They do this in exchange for a newly minted token that can be used in transactions over the network. What is so ingenious about this process was that it presents a seemingly brilliant way to decentralize peer-to-peer network maintenance and security, shifting these processes from corporations and technology giants into the public technology space. Through the method of consensus, in which every node (computer) on the network checks the consistency and legitimacy of the miner’s newly encrypted block before rewarding that miner for their work (hence, Proof of Work), every node on the network has a copy of the blockchain public ledger.

While Proof of Work makes network data storage and maintenance completely decentralized and secure from centralized attack efforts, it also keeps transactions slow, since the transactions must be accounted for by every node on the network. For example, at the beginning of 2018, the Bitcoin blockchain could only record 4-6 transactions per second while the Ethereum blockchain, with its more economically advance gas powered system (see “What is Ethereum Gas?”) could not break 30 transactions per second. Despite its 9 year streak of improvements and innovations, Proof of Work still does not seem fast enough to compete with other financial transaction networks that power our international financial hubs, which record millions if not billions of transactions per minute.

 

Sharding as a Solution

In looking for a solution, brave blockchain developers looked towards contemporary database solutions for inspiration. In the database storage industry, the process of dividing the database’s data body into linked layers or shards known as sharding has become a bit of an industry standard. By linking the layers, access to stored information is much faster, since the query travels a linked route versus traversing the entire database of information bit by bit.

In the corresponding blockchain solution, developers divide the public ledger into shards, distributed amongst the many nodes in the network, in which one who wishes to access a limited set of the ledger can do so by traversing down a selected path of nodes to find the correct node with the right set of information.

In sharded blockchains, if one wishes to assemble and examine the complete Iedger, they can do so thanks to key sharding or Shamir’s Secret Sharing. Key sharding divides the data of the blockchain and each data set’s respective access key across the nodes of the network. When someone on one node wishes to access all of the data, they must find a few other users on other nodes who have access to the other shards of data. On a sharded blockchain, only a few different keys are required for full access, such as 3 or 4 different keys when there are thousands.

 

Proof of Stake

So how does this all work? That is to say, if all of the nodes cannot contribute to a consensus process for security, then how does a sharded blockchain run on Proof of Work? Well, sharded blockchains do not use Proof of Work. Instead, current sharded blockchains use Proof of Stake, the process by which certain nodes will stake their coins for access to mining. That is, when a miner wishes to mine blocks, they must show proof that they hold a minimum amount of coins before being allowed to mine. The more coins the miner holds and is able to stake, the more network transactions they can mine and secure at one time.

Proof of Stake is in itself a multidimensional approach to the issues with Proof of Work. Proof of Work for one is somewhat susceptible to motivated attacks in cryptocurrency mining, while Proof of Stake makes attacks counterintuitive since the attacks would be hurting the miner’s digital assets. Proof of Stake is also a solution to the Tragedy of the Commons issue that Proof of Work poses, in which mining becomes less profitable for smaller miners on Proof of Work blockchains and the majority of mining increasingly is performed by corporations with large sums of financial capital and warehouses of hardware components such as ASICs (Application Integrated Specific Circuits).

In these ways, blockchain sharding, key sharding and Proof of Stake solutions work to solve the inherent issues of Proof of Work blockchains. To review, these are: slow transaction velocity, Tragedy of the Commons, motivated attacks and unwanted access to the entirety of the blockchain’s data. As always, we remind our readers to educate themselves as much as possible using the information provided by us and other reliable sources in the blockchain community before making substantial decisions. We do this in line with our overall mission at Ethos; to provide accessible blockchain solutions and to generate a culture of responsibility in the global blockchain space as we step forward into the age of the Digital Economy.