Blockchain Use Cases: DeFi, Domain Name Systems, Storage & Marketplaces
The rise of cryptocurrency and digital tokens has brought significant attention to the idea of decentralization. Originally seen as a founding principle of the cryptocurrency dream, decentralization has since become a key block of DeFi and other blockchain projects. Satoshi Nakamoto developed Bitcoin as a censorship-free digital currency, free from the purview of any government or central bank.
Blockchain technology has come a long way from its humble beginnings. Bitcoin demonstrated the application of distributed ledger in a payment system. Ethereum combined a payment system with the ability to write and execute smart contracts on the blockchain. This paved the way for decentralized finance and decentralized applications.
Blockchain technology and decentralization are core principles of Web 3.0. Software cryptocurrency wallets such as Metamask act as a bridge between the internet and digital tokens. These wallets allow users to interact with any dapp through a browser. A user could buy, send, swap, lend or borrow crypto tokens and digital collectables through such wallets.
There are more than one thousand dapps in existence. Built using the fundamental principle of decentralization, these dapps do not depend on a central authority. Decentralized Exchanges (DEXs) have eliminated the need to maintain a centralized order book. Instead, they rely on market makers for providing liquidity in the system.
Digital marketplaces for buying and selling crypto collectables are booming. They enable seamless transfer of digital assets without a middleman or central authority. The change in ownership is recorded and stored in the public ledger. Blockchain domain name systems and decentralized storage solutions are also offered by marketplaces.
Introduction to Blockchain Technology
A blockchain is a collection of timestamped records or data stored in order. Multiple blocks containing data are linked to each other. Blockchain technology was popularized by Bitcoin and other digital currencies. The Bitcoin blockchain is public and can be accessed by anyone in the network. This makes the network more secure and reliable.
Bitcoin came into existence in January 2009 with the mining of its genesis block by Satoshi Nakamoto. The first block in the blockchain is called the genesis block. It is also referred to as block 0. All other blocks in the blockchain besides the genesis block have a previous hash. It means that these blocks have a preceding block in the ledger. Only the genesis block has a hash value set to 0 as it does not have a preceding block.
In a blockchain, block height refers to the number of blocks before that given block in the chain. The block height of the genesis block is always 0 since there is no block before it. The highest block height refers to the latest block in the chain. The blockchain network relies on its member nodes to process and add newer blocks to the main chain.
Nodes are the backbone of blockchain technology. Nodes maintain, update and store a copy of all data in the blockchain. Some nodes called miners add newer blocks to the blockchain. They verify and batch transactions into blocks. These blocks are then processed and added to the blockchain. Miners receive a mining fee for the transactions they process.
New coins are introduced in the system through a process called mining. Miners receive a block reward for every new block they add to the main chain. This incentivizes the miner to dedicate his computing resources to the network. Block rewards are exclusive to digital tokens following the Proof of Work consensus mechanism. Bitcoin uses the Proof of Work consensus mechanism for securing its network.
Proof of Work (PoW) and Proof of Stake (PoS) are the two most common consensus mechanisms used by digital coins. In the Proof of Work consensus mechanism, mining is an energy-intensive process. Miners compete to solve mathematical problems based on a cryptographic hash algorithm. Miners with a higher hash rate have a better probability of finding newer blocks faster.
In the Proof of Stake (PoS) consensus mechanism, nodes stake their digital coins. The odds of a node validating a new block are directly proportional to the number of coins staked. If more coins are staked, then the odds of validating a new block increases. Nodes that validate transactions in a coin based on the PoS consensus mechanism are called validators. There is no concept of block rewards. Instead, validators receive a share of the transaction fees from the block they have validated and added to the main chain.
Ethereum is working to move from PoW to PoS consensus mechanism. The shift is a part of the steps detailed in the upgrade to ETH 2.0. It will also introduce shard chains as part of the planned upgrade.
Use Cases of Blockchain Technology
Blockchain technology is at the heart of upcoming new developments in the finance and banking industry. Several international banks and financial institutions are building blockchain-based solutions for cross border payment settlement. A distributed ledger shared between members of the network will store all data. This data is transparently accessible to members of the network and aids transparency.
The trading and clearance process on a typical stock exchange takes up to two days. A blockchain-based system could complete this settlement process within minutes and transfer ownership. It could also simplify the transfer of the underlying asset such as bonds or shares. Different exchanges across the globe could add shareholder data of all listed companies to a common blockchain. This would allow investors to buy shares of any company in the world.
Ownership records of land and housing in most countries aren’t digitally stored. The proof of burden to prove ownership of property lies on the claimant. In many cases, the claimant despite being the rightful owner or heir of the property cannot prove his ownership. In natural calamities such as floods, storms and fire, title documents get destroyed or get misplaced due to human negligence.
A blockchain-based system that stores ownership titles of all property could simplify the hassle. Digital records stored on the blockchain are tamperproof and cannot be lost. In case of transfer of title from seller to buyer, the same can be recorded and updated in the ledger.
The supply chain management system is crippled by cumbersome paperwork for international shipments. This leads to major delays in the delivery of shipment leading to losses. In rare cases, the shipment is misplaced or lost. Local supply chain networks are inefficient as they cannot track products in real-time. A blockchain-based supply tracking system solves this problem.
Every shipment could be tokenized when it enters shipping. The details of the shipment such as its manufacturer, sender, source country and destination address could be added too. When the shipment is passed over from one fulfilment agent to another, the same could be recorded and updated on the blockchain. This real-time tracking would make the supply management system more efficient and prevent loss of shipment.
Data in the healthcare domain is highly centralized and not easily accessible. Record of tests completed by patients along with their past medical history could help doctors. Electronic Medical Record (EMR) service providers, healthcare providers and other stakeholders do not share patient data with each other. A blockchain-based system that stores patient data and then shares it with other healthcare providers will solve this problem.
A distributed ledger helps pharmaceutical companies in tracing their drugs through the supply chain network. It eliminates counterfeit drugs from the distribution network while also ensuring better supply management.
Need for Decentralization
Bitcoin’s genesis block carried a message that read, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” With that message, Satoshi Nakamoto emphasized the idea of decentralization as the fundamental building block of Bitcoin.
A centralized system is dependent on a single authority for maintaining the ledger. The entire network goes down if the central point in the network goes down. Relying on a single central node could lead to manipulation of data and encourage attackers.
The Bitcoin network has multiple nodes, each carrying a copy of the blockchain. In the event where a node fails, the network continues to function normally with copies of the blockchain stored by other nodes. The absence of a singular, central point of authorization strengthens the network and builds trust.
Decentralized peer to peer networks resists control from a single entity or member. All members in the network follow a set of predetermined rules. A decentralized network is more democratic and involves the community in decision making.
The internet has brought the world closer and enabled easy access to knowledge. But it has also given rise to internet conglomerates that control the media and set the larger narrative. Fake news, snooping, user privacy and hate speech are rising as centralized internet companies prioritize revenue over ideals.
A decentralized Web 3.0 puts user data back in the hands of the user. Web 2.0 enables easy transfer of data and communication while Web 3.0 also enables peer to peer payment transfer without a central authority. Web 3.0 runs on a decentralized network of peer to peer nodes and applications run on decentralized storage systems. The computing power of the network is the sum of computing resources of all nodes in the network.
The RSK Infrastructure Framework and the RSK Blockchain are examples of decentralized, distributed computing platforms. The RSK Blockchain brings smart contracts and instant payment settlement to the Bitcoin blockchain. A two-way peg connects both networks to allow the transfer of Bitcoin to RSK. This allows developers to create smart contracts that interact with the Bitcoin blockchain.
Decentralized Finance
The diverse applications of blockchain technology and cryptocurrency go beyond payment settlement solutions. The first wave of innovation using blockchain technology is in the finance industry. Decentralized finance commonly abbreviated as DeFi refers to blockchain-based financial solutions.
Traditional financial solutions require one or more central authority for verifying and completing payment transfer. There is no such central authority in decentralized finance. It relies on nodes in the network to verify and complete transactions.
Banks and financial institutions require customers to complete KYC and AML processes. There is no such requirement in decentralized finance. Anyone can access DeFi solutions to buy and sell, borrow and lend or trade digital currencies and tokens. The ownership of the underlying token is secured using blockchain technology and cannot be tampered with or altered.
Transactions are carried out through smart contracts which get triggered automatically when certain conditions are fulfilled. A smart contract automates terms of settlement between the buyer and seller or lender and borrower.
Decentralized Exchanges (DEXs) have eliminated the highly centralized order book. They use automated market makers and decentralized order matching systems to complete trades. According to DeFi Pulse, more than $82bn worth of digital tokens is locked in DeFi systems. The DeFi ecosystem is broadly divided into lending, payments and DEXs.
The DeFi stack is broadly classified into the settlement layer, protocol layer, application layer and aggregation layer. The settlement layer is layer 0. It is the base upon which other DeFi transactions are completed. The layer has its own native token which is used for paying transaction fees.
The protocol layer consists of the rules that govern the native blockchain. This layer also provides liquidity to the system. The application layer includes decentralized apps which are used to interact with the network. The aggregation layer connects services built on top of the application layer to users. Crypto wallets, digital token lending and borrowing are built on the aggregation layer.
Stable coins are one of the most important innovations in DeFi. Cryptocurrencies are inherently volatile. A stable coin is a digital currency pegged to a fiat currency or another digital currency that has a constant value. Its price does not fluctuate and it can be used for short term liquidity.
Users can keep their cryptocurrency as a lien and seek a loan in stable coins. If the price of that coin goes down, then the user will need to add more coins or close the loan to prevent liquidation. If the price of the coin increases, then the user can borrow more coins equivalent to the price change.
This is a viable liquidity option for cryptocurrency investors who need short term capital but also do not want to sell the digital currency holdings. There has been a consistent rise in the number of total stable coins in circulation.
DeFi helps crypto investors earn interest on their idle digital currency holdings. It lets investors stake their coin and earn interest. It also allows users to add their tokens to a liquidity pair and earn rewards depending on their share in the pool. There is a huge potential and scope for DeFi products and solutions.
Decentralized Apps are Driving Innovation
Decentralized applications, commonly abbreviated as dapps are applications running over distributed computing systems. The Ethereum blockchain popularized dapps. Decentralized applications allow users to interact with the blockchain and do more than sending or receiving digital coins.
Dapps are censorship-resistant, secured by cryptography and can be used anonymously as they do not require a user to sign up or log in. Most of them follow the plug and play model where any user with an internet connection and funds in his crypto wallet can directly access any dapp.
Dapps run on smart contracts. They form the backend of every decentralized application. Smart contracts are logical statements that get triggered when certain conditions are fulfilled. These rules are universal for all members of the network and cannot be altered by any user.
A dapp uses the native blockchain network for storing data. Decentralized applications cannot be controlled by a single user or a group of users. They are purely run by the smart contracts and logic programmed by the developers.
A dapp uploaded on the blockchain cannot be deleted. It continues to work as programmed initially even if the developer discontinues further development of the dapp.
Building a simple and easy to navigate user interface is an important aspect of the development of dapps. Most dapps are similar to APIs which ensures one dapp can be connected to another dapp and data from one dapp be processed by another dapp.
Blockchain Marketplaces
A blockchain marketplace offers users the ability to buy and sell decentralized products and services. The process is decentralized and completed using smart contracts. Smart contracts are turing complete and can execute independently on the blockchain.
A centralized marketplace reserves rights to access and controls who can list products on its platform. In a decentralized marketplace, there is no such limitation and it is open for everyone. Anyone with an internet connection and a crypto wallet can access and use a blockchain-based marketplace. Users can also buy blockchain domain names and decentralized storage solutions from a blockchain marketplace.
The ownership of an asset is transferred digitally on the blockchain. OpenBazaar is an e-commerce marketplace built on blockchain technology. In a blockchain-based marketplace, blocks contain all information about transactions in the network. New entries in the marketplace, order data and transactions are stored in a block.
Crypto marketplaces also offer users the ability to buy and sell Non Fungible Tokens (NFTs) and digital collectables. Cryptocurrencies such as Bitcoin and Ethereum are classified as fungible tokens as 1 Bitcoin is always equal to 1 Bitcoin. Non-fungible tokens are unique and no two NFTs are the same which makes them valuable. Blockchain-based NFTs have gained massive popularity.
Any user can list an item for sale with an asking price. This data is stored in the network and publicly available for everyone to see. If a buyer is interested in purchasing the listing, he needs to sign the transaction from his crypto wallet. The smart contract will automatically transfer ownership of a token or asset from one public address to another once the buyer deposits funds in the seller’s wallet. Some marketplaces use an escrow account to hold funds before transferring them to the seller.
RIF Marketplace and Benefits
The RIF marketplace is the one-stop-shop that connects all RIF services with end-users and customers. It provides a vast range of decentralized services such as storage services, payment services, communication services and data services to users.
The RIF marketplace is composed of smart contracts deployed on the RSK blockchain. The front end user interface allows users to connect and browse available services and products. The third component of the RIF marketplace architecture is a read-only cache for synchronising the database and smart contracts.
The RIF marketplace allows providers and consumers to engage in direct peer to peer transactions. This helps reduce costs and improve efficiency. The marketplace is open to all participants, cannot be altered by rogue nodes and provides users with a number of services to choose from.
RIF Name Service
The RIF Name Service (RNS) helps users receive transactions in personalized domains by enabling the use of human-readable names for blockchain addresses. The RNS marketplace allows users to buy and sell .rsk domains. Buyers can search for available RNS domains in the RIF marketplace. They can take ownership of an RNS domain by paying the asking price. Sellers can list their RNS domains on the marketplace.
An RNS domain is a NFT that represents a unique name for a crypto account or wallet address. The user can share his RNS domain with other users and receive funds. It eliminates the use of an alphanumeric public address and replaces it with a human-readable name.
The seller can list an RNS domain for sale by submitting two transactions. He can specify the selling price of the RNS domain in RIF and add payment currency options. In the first transaction, the seller authorizes the domain transfer. Completing the listing on the RIF marketplace by submitting the listing is the second transaction.
A user can buy an RNS domain in a single transaction from the RIF marketplace. He can browse the list of available domain names and then click on his preferred choice. The smart contract will be triggered and direct the buyer to sign a transaction for the transfer of funds. Once the transfer is complete, the RNS domain ownership is transferred to the buyer.
RIF Storage
RIF Storage allows you to take ownership of your data. It is a decentralized, open, censorship-free and permissionless storage protocol. RIF Storage comes with out of the box content delivery service. It also allows users to become storage providers in the network. Users can offer their unused storage to others and get paid for it.
It consists of three different layers called user facing layer, developer-facing layer and storage layer. The user-facing layer contains services using the RIF Storage protocol and libraries. Three major services being built on this layer are RIF Storage Gateways, Pinning service and node manager.
The developer facing layer includes API frameworks allowing developers to interact with and utilize any supported storage provider. Using the RIF Storage JS library, developers can easily integrate RIF Storage in their dapp. The storage layer connects existing storage providers to offer a wide range of use cases.
With the RIF Storage Pinning service, storage providers can list their offers in the RIF Marketplace. It also allows them to enter into an agreement with consumers. Buyers can pay for the service using RBTC or RIF tokens.
Storage service allows providers of decentralized storage to offer their storage to users along with a subscription fee. It allows developers to upload their dapps on the blockchain without needing a central server. Data uploaded to a decentralized storage server is secure and encrypted.
In a traditional centralized cloud storage system, users upload their data to a single entity. Data uploaded to a centralized storage system may or may not be backed up. In the event of a failure, data may be corrupt or lost. In a decentralized storage network, there are multiple copies of data. If one node fails, then other nodes in the system provide an up to date copy of the same data.
Blockchain Notifications and RIF Notification Services
Decentralized services built on top of a main chain require users to repeatedly check for any updates to their actions. A user does not receive any notification when he receives funds in his wallets if he is offline. Blockchain notifications help users set up customized notifications for blockchain events.
Blockchain notifications allow users to set up notifications for certain wallet addresses. This could be further customized to include only incoming transactions or provide notification when an outgoing transaction has more than six confirmations.
An automatic notification system can be used to monitor ownership transfers of NFTs and digital tokens. Another customized notification could be used to alert the user when gas prices fall or rise sharply. This notification would alert the user to take advantage of low gas prices and complete transactions.
Developers could use blockchain notifications to trigger certain logical statements in their smart contracts. Notifications could be delivered through emails, slack messages, SMS or push notifications and API calls. Traders can set up custom notifications to alert them when there is an arbitrage opportunity on a pair at any decentralized exchange.
The RIF Notification Service allows users to set up and subscribe to blockchain events. The RIF marketplace is a platform that enables notification providers to offer subscription plans to users. Notification providers can have different subscription plans offering a number of notification methods and customizations.
Users can browse different notification providers on the RIF marketplace and select their preferred provider. The action is completed using smart contracts that handle notification subscriptions. The RIF Notifier service listens to blockchain events and sends a notification to users in an automated manner.
The Future of Decentralized Marketplaces and Blockchain Technology
Decentralized blockchain-based marketplaces are currently involved in buying and selling of digital tokens. In the future, these marketplaces could be used for buying and selling real estate and automobiles.
Assets such as real estate and automobiles could be tokenized and then listed for sale. These tokens could be added to a crypto wallet and the user could sell or take a loan against his holdings. Tokenized real estate also helps in fractional buying and selling of the same. At present, there is no system in place for investors to own real estate without investing a significant amount.
With fractional ownership due to tokenized real estate, investors could split the amount into smaller fractions. Small investors could create a decentralized fund to manage their holdings independent from influence by a single investor. This would help investors buy bigger real estate in more premium locations.
Prediction markets, decentralized storage, computing markets and data marketplaces will ride the next wave of innovation in decentralization and blockchain technology. A decentralized marketplace helps weed out fake product reviews as all data is stored on the blockchain and it requires gas.
A centralized marketplace favours few providers more than others. As a result, small sellers are marginalized and make fewer profits. A decentralized marketplace is free from bias and does not favour one listing over another or one seller over another. Every member in the network is treated equally and all listings are treated the same.
Sellers pay an average of 15 percent in platform fees to centralized marketplaces for listing their products. The platform fees in a decentralized marketplace are less than their centralized counterparts. This leads to a reduction in prices and this is passed on to the consumers.
The complaint and feedback mechanism in a centralized marketplace is difficult for the buyer. It requires the buyer to submit a complaint ticket and then continuously follow up. In a decentralized marketplace, the entire complaint and feedback mechanism can be automated using smart contracts. Anyb complaint received will be uploaded on the ledger and all communication will be updated on the same.
In case of a dispute, nodes in the network could solve the problem if it cannot be resolved between the buyer and seller. Relying on a panel of nodes to resolve disputes is a more transparent dispute resolution mechanism than a centralized complaint resolution system.