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@ -1,11 +1,11 @@
[[ch12]] [[ch12]]
== Blockchain Applications == Blockchain Applications
Let's now build on our understanding of bitcoin by looking at it as an Let's now build on our understanding of Bitcoin by looking at it as an
_application platform_. Nowadays, many people use the term "blockchain" _application platform_. Nowadays, many people use the term "blockchain"
to refer to any application platform that shares the design principles to refer to any application platform that shares the design principles
of bitcoin. The term is often misused and applied to many things that of Bitcoin. The term is often misused and applied to many things that
fail to deliver the primary features that bitcoin's blockchain delivers. fail to deliver the primary features that Bitcoin's blockchain delivers.
In this chapter we will look at the features offered by the Bitcoin In this chapter we will look at the features offered by the Bitcoin
blockchain, as an application platform. We will consider the application blockchain, as an application platform. We will consider the application
@ -37,7 +37,7 @@ payments.
long term, the Bitcoin system offers certain guarantees, which can be long term, the Bitcoin system offers certain guarantees, which can be
used as building blocks to create applications. These include: used as building blocks to create applications. These include:
No Double-Spend:: The most fundamental guarantee of bitcoin's No Double-Spend:: The most fundamental guarantee of Bitcoin's
decentralized consensus algorithm ensures that no UTXO can be spent decentralized consensus algorithm ensures that no UTXO can be spent
twice. twice.
@ -78,7 +78,7 @@ Nonexpiration:: A valid transaction does not expire. If it is valid
today, it will be valid in the near future, as long as the inputs remain today, it will be valid in the near future, as long as the inputs remain
unspent and the consensus rules do not change. unspent and the consensus rules do not change.
Integrity:: A bitcoin transaction signed with +SIGHASH_ALL+ or parts of Integrity:: A Bitcoin transaction signed with +SIGHASH_ALL+ or parts of
a transaction signed by another +SIGHASH+ type cannot be modified a transaction signed by another +SIGHASH+ type cannot be modified
without invalidating the signature, thus invalidating the transaction without invalidating the signature, thus invalidating the transaction
itself. itself.
@ -121,12 +121,12 @@ Predictable Issuance:: Less than 21 million bitcoin will be issued, at a
predictable rate. predictable rate.
The list of building blocks is not complete and more are added with each The list of building blocks is not complete and more are added with each
new feature introduced into bitcoin. new feature introduced into Bitcoin.
=== Applications from Building Blocks === Applications from Building Blocks
((("blockchain applications", "examples of")))The building blocks ((("blockchain applications", "examples of")))The building blocks
offered by bitcoin are elements of a trust platform that can be used to offered by Bitcoin are elements of a trust platform that can be used to
compose applications. Here are some examples of applications that exist compose applications. Here are some examples of applications that exist
today and the building blocks they use: today and the building blocks they use:
@ -372,7 +372,7 @@ whereas RGB can technically support both.
_Payment channels_ ((("blockchain applications", "payment (state) _Payment channels_ ((("blockchain applications", "payment (state)
channels", id="BCApayment12")))((("payment (state) channels", channels", id="BCApayment12")))((("payment (state) channels",
"defined")))are a trustless mechanism for exchanging bitcoin "defined")))are a trustless mechanism for exchanging Bitcoin
transactions between two parties, outside of the Bitcoin blockchain. transactions between two parties, outside of the Bitcoin blockchain.
These transactions, which would be valid if settled on the Bitcoin These transactions, which would be valid if settled on the Bitcoin
blockchain, are held off-chain instead, acting as _promissory notes_ for blockchain, are held off-chain instead, acting as _promissory notes_ for
@ -485,8 +485,8 @@ image::images/mbc2_1205.png["Emma purchases streaming video from Fabian with a p
In this example, Fabian and Emma are using special software that handles In this example, Fabian and Emma are using special software that handles
both the payment channel and the video streaming. Emma is running the both the payment channel and the video streaming. Emma is running the
software in her browser, Fabian is running it on a server. The software software in her browser, Fabian is running it on a server. The software
includes basic bitcoin wallet functionality and can create and sign includes basic Bitcoin wallet functionality and can create and sign
bitcoin transactions. Both the concept and the term "payment channel" Bitcoin transactions. Both the concept and the term "payment channel"
are completely hidden from the users. What they see is video that is are completely hidden from the users. What they see is video that is
paid for by the second. paid for by the second.
@ -699,7 +699,7 @@ to wait for their funds too.((("", startref="PSCtrust12")))
((("payment (state) channels", "asymmetric revocable commitments", ((("payment (state) channels", "asymmetric revocable commitments",
id="PSCaymetric12")))A better way to handle the prior commitment states id="PSCaymetric12")))A better way to handle the prior commitment states
is to explicitly revoke them. However, this is not easy to achieve. A is to explicitly revoke them. However, this is not easy to achieve. A
key characteristic of bitcoin is that once a transaction is valid, it key characteristic of Bitcoin is that once a transaction is valid, it
remains valid and does not expire. The only way to cancel a transaction remains valid and does not expire. The only way to cancel a transaction
is by double-spending its inputs with another transaction before it is is by double-spending its inputs with another transaction before it is
mined. That's why we used timelocks in the simple payment channel mined. That's why we used timelocks in the simple payment channel
@ -717,7 +717,7 @@ Network.
To explain revocation keys, we will construct a more complex payment To explain revocation keys, we will construct a more complex payment
channel between two exchanges run by Hitesh and Irene. Hitesh and Irene channel between two exchanges run by Hitesh and Irene. Hitesh and Irene
run bitcoin exchanges in India and the USA, respectively. Customers of run Bitcoin exchanges in India and the USA, respectively. Customers of
Hitesh's Indian exchange often send payments to customers of Irene's USA Hitesh's Indian exchange often send payments to customers of Irene's USA
exchange and vice versa. Currently, these transactions occur on the exchange and vice versa. Currently, these transactions occur on the
Bitcoin blockchain, but this means paying fees and waiting several Bitcoin blockchain, but this means paying fees and waiting several
@ -1130,7 +1130,7 @@ Network implementations use the IRC protocol as a convenient mechanism
for nodes to announce routing information. Another implementation of for nodes to announce routing information. Another implementation of
route discovery uses a P2P model where nodes propagate channel route discovery uses a P2P model where nodes propagate channel
announcements to their peers, in a "flooding" model, similar to how announcements to their peers, in a "flooding" model, similar to how
bitcoin propagates transactions. Future plans include a proposal called Bitcoin propagates transactions. Future plans include a proposal called
http://bit.ly/2r5TACm[Flare], which is a hybrid routing model with local http://bit.ly/2r5TACm[Flare], which is a hybrid routing model with local
node "neighborhoods" and longer-range beacon nodes. node "neighborhoods" and longer-range beacon nodes.
@ -1223,7 +1223,7 @@ a route can see payments propagated across their channels, they do not
know the sender or recipient. know the sender or recipient.
Fungibility:: A Lightning Network makes it much more difficult to apply Fungibility:: A Lightning Network makes it much more difficult to apply
surveillance and blacklists on bitcoin, increasing the fungibility of surveillance and blacklists on Bitcoin, increasing the fungibility of
the currency. the currency.
Speed:: Bitcoin transactions using Lightning Network are settled in Speed:: Bitcoin transactions using Lightning Network are settled in
@ -1231,7 +1231,7 @@ milliseconds, rather than minutes, as HTLCs are cleared without
committing transactions to a block. committing transactions to a block.
Granularity:: A Lightning Network can enable payments at least as small Granularity:: A Lightning Network can enable payments at least as small
as the bitcoin "dust" limit, perhaps even smaller. Some proposals allow as the Bitcoin "dust" limit, perhaps even smaller. Some proposals allow
for subsatoshi increments. for subsatoshi increments.
Capacity:: A Lightning Network increases the capacity of the Bitcoin Capacity:: A Lightning Network increases the capacity of the Bitcoin
@ -1239,7 +1239,7 @@ system by several orders of magnitude. There is no practical upper bound
to the number of payments per second that can be routed over a Lightning to the number of payments per second that can be routed over a Lightning
Network, as it depends only on the capacity and speed of each node. Network, as it depends only on the capacity and speed of each node.
Trustless Operation:: A Lightning Network uses bitcoin transactions Trustless Operation:: A Lightning Network uses Bitcoin transactions
between nodes that operate as peers without trusting each other. Thus, a between nodes that operate as peers without trusting each other. Thus, a
Lightning Network preserves the principles of the Bitcoin system, while Lightning Network preserves the principles of the Bitcoin system, while
expanding its operating parameters significantly. expanding its operating parameters significantly.