Author: Makoto Yano, Chris Dai, Kenichi Masuda, Yoshio Kishimoto
Book Synopsis (provided by the author)
Building a High Quality Marketplace for Crypto Data
This open access book contributes to the creation of a cyber ecosystem supported by blockchain technology in which technology and people can coexist in harmony. Blockchains have shown that trusted records, or ledgers, of permanent data can be stored on the Internet in a decentralized manner. The decentralization of the recording process is expected to significantly economize the cost of transactions. Creating a ledger on data, a blockchain makes it possible to designate the owner of each piece of data, to trade data pieces, and to market them. This book examines the formation of markets for various types of data from the theory of market quality proposed and developed by M. Yano. Blockchains are expected to give data itself the status of a new production factor. Bringing ownership of data to the hands of data producers, blockchains can reduce the possibility of information leakage, enhance the sharing and use of IoT data, and prevent data monopoly and misuse. The industry will have a bright future as soon as better technology is developed and when a healthy infrastructure is created to support the blockchain market.
If you are a smart phone user, it must be impossible to think of a day without access to the Internet. A mechanism to assign unique numbers to various things and integrate them into the Internet is called the Internet of Things (IoT). Smartphones are all recognized as IoT terminals, identified by their unique identifiers called telephone numbers, and, now, play a central role in data storage on the Internet.
With the exception of the phone function, almost all the information acquired through smartphones is provided through the Internet. At the same time, we have become an important source of information. Buying goods through Amazon is like offering part of your household account book. When using Facebook and the “like” function is used, some sort of preference is expressed toward society. Sending emails also implies providing information to society.
It is not only humans that can be connected with cyber space through IoT. Computer sensors can be placed on livestock in pasture to keep track of their health and nutritional needs. If sensors are attached to trees and every square meter of farmland, the growth conditions of trees and vegetables in every square meter of the field can be monitored. In this way, a new ecosystem of human beings and living things, with information technology as infrastructure, can be created. Sensors on a car can keep track of driving habits, which is useful to enhance driving safety. Similarly, sensors in a hospital room can monitor and report the state of each patient and give useful information to carers. In this way, we can create a new ecosystem based on information and communication technology.
In the ecosystem, all information is digitized and recorded as numbers. This is why the information exchanged in IoT is called data. With modern computer technology, huge volumes of data can be collected and scientifically analyzed in detail to gain insights into various phenomena much deeper and clearer than possible only 10 years ago. Results from data analysis have started to profoundly influence our society.
This has transformed data into a new type of productive resource, by which we can manage production processes in a much more precise manner. With data on people’s medical histories, doctors will be able to diagnose a patient’s illness much more accurately and give better or more appropriate treatments. With data on car driving, insurance companies will evaluate driving risks much more accurately, thus allowing them to reduce insurance fees where appropriate. With data on purchases in stores, both manufacturers and retailers have increased ability to market attractive products to customers. All these possibilities are brought about by the data-gathering capability of the Internet and the data-processing capabilities of modern computers.
Blockchain may still be a new term for many readers. It is, therefore, appropriate to start with a discussion on the definition of blockchain.
A ledger is a book of permanent record. The record must be correct and tamper-free. A blockchain is a ledger that is put together on the Internet in a decentralized manner by an indefinite number of contributors.
Blockchain is a chain of files containing whatever needs to be permanently recorded. A basic blockchain connects files to form a simple string of chain. A more sophisticated blockchain connects files to form a net-like structure.
A database is like an address book in which many data elements are stored systematically and organized for easy use. Blockchain is a new technology that allows us to record data and sources and recipients of data exchanged on the Internet, thereby creating an accurate, permanent, and very inexpensive database.
The first application of blockchain technology was the virtual currency called Bitcoin. Functionally, a virtual currency is much the same as a deposit currency that is based on bank accounts. Each bank account records debits to and credits from other accounts, which the bank keeps to be absolutely accurate and tamper-free. Because the record shows who owes how much to whom, and because people trust that the records are absolutely reliable, it can be used to transfer money through wire transfers; debit cards are a major means of payment nowadays. A virtual currency is a similar collection of accounts (called wallets) that record debits and credits. The difference is that the virtual currency accounts are on the Internet. Blockchain technology has made it possible to keep this record absolutely reliable by using algorithm without relying on a central authority like a bank.
Blockchain accounts record digital data, which plays the role of money because people trust that they are accurate and tamper-free. As this shows, blockchain can assign the ownership of each data piece to an account holder. This is the innovation that blockchain technology has brought to society.
Distributed computing is a revolutionary innovation in computer networks, which allows many terminal computers to perform complicated tasks independently (Holohan and Garg 2005). One good example is a category of games called “massively multiplayer online games” in which many different players participate and try to achieve their respective goals, which may vary from car racing to shooting to role playing. Blockchain technology is built on this idea of distributed computing and adds decentralization to enable individual participants to maintain a secure record of transactions, ownerships, and promises.
The initial design of a computer network, which connects many computers to share resources, is centrally managed. In building a centralized network, a network administrator is chosen, a large server computer is set up, a network connecting many computers is designed, and software is installed on the server and made available for network users. The administrator centrally manages users’ network connections, and only users with connection permission can use the network. The networks of companies and universities are designed in this way, and the same is true for online banking systems that connect automatic teller machines (ATMs). In a centrally managed network, the terminal computers perform very minimal tasks. For example, a bank ATM terminal recognizes the account number and the password, and then performs simple tasks such as deposits and withdrawals.
As a network becomes larger, it becomes more and more difficult to maintain a centralized network. The load on the central server increases, and the cost of managing the server becomes very large. Central servers can also become very attractive targets for malicious attacks, and once these servers are compromised, the entire system can be destroyed.
A distributed network is built by connecting various independent servers and computers. Various tasks are distributed to different servers, and altogether a single goal can be achieved. A large volume of tasks are assigned to terminal computers. As long as basic rules for connecting to the network are set and those rules are followed, any server and any computer can join the network.
Such rules are called protocols. In the most immediate example, the email address is separated by the at-mark, @; the part after the “at mark” is an address indicating a particular computer group; the part before is an individual in that group. This rule is a very small part of the large Internet protocol.
A distributed network makes it possible to utilize a large portion of the computing power of the computers in a network. The various computers connected to the network perform large tasks by computing independently while coordinating tasks through exchange of data. Having a large number of computers work independently can achieve great goals at very low cost.
Distributed computing has evolved as a computer network construction method. Blockchain is a technology that builds a ledger based on distributed computing in a decentralized manner. This might sound simple, but, in reality, it is not. To create a decentralized ledger, it is necessary to devise a totally new algorithm, and such work led to the creation of Bitcoin.
To create and maintain a secure decentralized ledger, it is not enough to use a security program; such security measures can be easily breached by experienced hackers. Even if many independent computers maintain ledger together with good intentions, they are still vulnerable to attacks by computers with malicious intentions. This is especially so if such a ledger maintains records that function as money or virtual currency, where absolute accuracy and permanence are required.
This problem was overcome by the first blockchain, known as Bitcoin. In most blockchain, the database is shared by a large number of servers. Each server stores the entire blockchain record and carries out similar jobs in parallel. These servers are called full nodes of a blockchain. A new server that wants to join a blockchain network is free to copy the blockchain record and download the necessary software to store the records. Once in a while, the records on participating servers are synchronized so that only one record is produced. With more nodes, the number of copies of the blockchain’s ledger throughout the world increases, which makes it extremely difficult for malicious computers to attack the blockchain.
The decentralized ledger database is linked with user accounts called wallets. A wallet is a record of a particular user’s transactions, which is kept on the user’s terminal computer. Once a transaction between two accounts is agreed upon, the account owners apply to the blockchain to record the transaction. In most of the existing blockchains, recorders of transactions are different from users who use a blockchain as a currency. In some blockchains, users of a blockchain record their transactions by themselves.
The Bitcoin blockchain uses “mining” to maintain the accuracy and reliability of transaction records.1 Mining in the context of blockchain technology is to present a computer-generated crypto puzzle to individuals (computers), to give a prize (in Bitcoin) to the individual who solves the puzzle first, and to let the individual record the transaction. In competing for the prize, many people (computers) engage in solving the crypto puzzle to create transaction records. With only one individual out of many competitors receiving the prize, this process is similar to mining; and individuals engaging in solving puzzles are called miners.
As soon as a mining computer solves the existing puzzle, a new file (block) is created and attached to the existing chain of blocks. The new block creates a new puzzle to be solved. At the same time, the solution is announced to the network of mining computers. Mining computers check if that solution is correct. If the solution is in fact correct, mining computers start working on solving the new puzzle created by the block that they have just validated.
In this entire process, it is important that there is no single individual who is in charge of checking the validity and uniqueness of records on blockchain. Instead, many independent individuals check the validity of records, which produces a unique record (ledger). This process is completely decentralized.
For Bitcoin blockchain, on one hand, simple records of several transactions are put together and recorded as a new block. On the other hand, for Ethereum blockchain, user-executable computer programs and resulting transactions of executing the programs can be written into a new block by a mining node.
A problem with blockchains is that mining consumes computer resources not directly related to records. Many miners work on solving the puzzle posed by the blockchain. Because this puzzle can be solved by a sequence of computations, anyone can find an answer so long as he/she is prepared to spend enough computing resources.
As a result, if there are 1,000 miners, the computational resources used by 999 miners (i.e., electricity to run computations) will be wasted. As the value of virtual currency soars, the number of miners has increased dramatically, and it is said that about 10,000 miners are active around the world. Given that the average time required to solve the puzzle is 10 min, it is possible that a huge amount of electricity is being wasted. To maintain the accuracy of the blockchain, a certain number of miners must be involved. Whether electricity is wasted is related to the number of miners required to maintain accuracy.
