Almost everyone has heard about bitcoinie. However, not everyone knows that behind this mysterious and incomprehensible for many virtual currency is a new, revolutionary technology - a chain of blocks, or blockchain.
There are many indications that in the coming years it will have a huge impact on the economy and our lives (Radziwill, 2018).
Before you invest in kryptowaluty, read about the innovative solution that stands behind them.
Blockchain - a technology that will change the world
Blockchain is a database (Swan, 2015).
Unlike traditional bases, blockchain is not in a particular institution (e.g. bank, office, company).
Even more, it does not consist of paper documents that can be destroyed by fire.
It is also not saved on the disks of only selected computers that are in someone's possession, which may give rise to a suspicion of manipulation of this data.
Blockchain is the base without a central storage, control and management center.
Blockchain he is called sometimes New generation internet.
Why is it compared to the Internet?
Like the Internet, blockchain is a database that it has the character of a network (Yli-Huumo et al., 2016). However, in the case of blockchain, not servers but network participants store the database on their disks.
Thanks to this solution, the entire database is secure because distributed on computers located around the world. No state is able to shut down servers and block domains. No data will be lost in the event of a fire, natural disaster or failure of even many disks or servers.
Finally, what can most importantly, such a base is resistant to hackier attacks, because to spoof or delete data you would need to hack over half of the computers that make up this network.
As a result, blockchain is objective because it is independent.
There is no managing entity that supervises the trust authority or a state institution, company, organization that could affect its content.
This feature of blockchain can be used, for example, in transactions between superpowers, since neither party is able to fake information, or simply when organizing votes (e.g. parliamentary elections, referendums).
What's more, blockchain is protected by cryptography. All entries made in the database are verified in accordance with the accepted one mechanism of consensus, e.g. using processor power.
This is what is associated with the term that you have certainly heard about your ears - "dig cryptocurrencies".
Data entry is an irreversible process (Gates, 2017).
The process of cryptographic network security using the calculations made by many millions of processors around the world makes it bitcoin network it is very much decentralized and resistant to attacks.
Only funds raised for cryptocurrency wallet they are secured with a 256-bit private key, i.e. proof of ownership and the right to dispose of the account.
It is estimated that break such a private keythe fastest computer on Earth I would have to go calculate several million years.
As you can see, here there are no intermediaries, trust authorities, supervisors. Nobody will be wrong when entering or verifying data that is entered. Nobody can fool anyone. The network operates on a client-customer basis. A central, broker is not needed. Customers trust each other, as all operations are confirmed by cryptographic algorithms - using access keys that match the cipher.
Blockchain is a fully public register. Each network participant can see information about all entries.
Thanks to the application cryptographyblockchain is immune to cyber attacks.
It works without anyone's control, according to the original programming. Is transparent and no one has any influence on it. No one can turn it off. It will exist for as long as several computers are connected to it.
It is worth knowing that there are now hundreds or even thousands of different blockchain networks.
However, payments are just one of many uses of this innovative technology.
Examples of blockchain applications
A simple example of how blockchain works
Through a very simplified analogy, the blockchain network operation can be described by the following example.
At the elementary school day, a student, Johnny, pays 50 PLN for participating in a school trip. She transfers the money to your tutor, who notes this fact in her notebook. Typical?
50 PLN is not a fortune, but we can refer to the same situation to the bank, settlements between companies, election results and many other information.
You could have made a mistake by noting this information in the notebook - entering the wrong amount and / or assigning it to the wrong student and / or to the wrong trip, etc. The notebook may be damaged or lost. Someone may change or delete the information in it during the break, and you and John may forget that the payment has been made. There are many options. A database in the form of a notebook and the process of entering data into it may contain numerous and significant damages that affect the accuracy of the information contained in it.
If this analogue situation from the ordinary school class would be compared to blockchain technology, it would look like this.
Johnny, you pay for the 50 trip. The lady and all students in the class pull out their notebooks and write down this fact, thus confirming the transaction. By certifying that it was held and that 50 zlotys received a teacher. Even if someone makes a mistake or a notebook gets damaged, lost, faked, the rest of them prove that Johnny paid for the trip. In the digital world, cryptocurrency, in addition, these 50 zlotys would go from the portfolio of Jasia to the Lady's portfolio, and the location of this particular banknote (coina / token) would be visible in the blockchain network.
International payments and transfers
By sending money to a colleague, we first give it to a broker, e.g. a bank.
Our bank kindly, during business hours, sends them to a friend's bank, and only the latter sends them to our recipient.
This process means that traditional transfers take up to several days, and our money goes through the hands of many brokers.
In addition, there may be a mistake in the whole process, just like a teacher can make a mistake by writing a payment in a notebook.
The whole is time and cost consuming.
Cryptocurrencies don't need banks.
There are no intermediaries.
We send the amount directly from our account to a friend's account.
For cryptocurrencies, national borders do not matter - just like for e-mail. It makes no difference whether we send an e-mail to a friend in the next room or from the other side of the world. However, even e-mails reach the recipient through intermediaries - mail service servers that may not work, someone can take over and read our message, impersonate someone or simply collect information from the content we send - just like in traditional banking.
In the case of cryptocurrency transfers, there are simply no intermediaries, it works as if we gave a colleague a banknote.
Cryptocurrency message - how does it work?
We are not logging anywhere, so the failure of any server, technical break of the operator or the bank's failure will not threaten us. Nobody will ever restrict us from accessing our account. All you need is internet access, and soon this satellite can be delivered to any point on Earth.
How does blockchain work in practice?
The balance of our account (as well as all others) is saved in a given blockchain (i.e. the currency database we want to send).
It also records and fully disclosed all operations (deposits, withdrawals) that have ever been made between all addresses (wallets).
The number of all coins in circulation is also fully public and predetermined. It is also well known how many coins are currently on which wallet.
Also check: Safe storage of cryptocurrencies
However, we do not know who owns the account, because addresses are not personal and a given user can have an infinite number.
To make a transfer, send funds from our account to another account, we must sign the transaction with our private key, i.e. a cryptographic proof of ownership.
It is the transaction authorization tool. Confirming that the account belongs to us and we can use the funds accumulated on it.
There is no broker, so if you lose your private key, no one will remind us. There is no hotline we can call. There is no option to reset such a key and regain access to funds. Our means are only in our hands and nobody else.
We are our own "bank" (Peters and Panayi, 2016).
Information about the transfer of funds from our account to another account is saved in the block chain.
It is irreversible.
Means go to the address we gave. The block is "kicked" according to the consensus mechanism of the blockchain. Zero brokers. Directly, from one address we send funds to another address, and the transfer is encoded using cryptographic methods.
Blockchain works 24 hours a day, 7 days a week.
If it is fully decentralized, there are no breaks or failures. The transfer fee is usually much lower than in traditional banking. It goes to miners who have used their computing power to secure cryptographic transactions.
Some blockchains allow free transfer of funds (e.g. dwarf).
Do you want to give 47 a penny to someone? You will not do this by bank transfer, because you will pay PLN 2 for the transfer and you will wait one business day.
Recently, there have been several non-cryptocurrency options to conveniently pay even such small amounts (e.g. Revolut). However, this branch of financial services is relatively young and is growing rapidly.
Because it is cryptocurrencies that offer a new dimension of micropayments. Not only does it allow you to send hundreds of pennies, but in addition they allow you to automatically send funds after meeting certain conditions, recorded in "intelligent contract".
Thanks to the use of blockchain technology, for example, a blogger can receive remuneration for each ad display on his site.
Also check: BitTube a new competitor of YouTube?
One view of the blog - the equivalent of one hundredth of a penny goes to his account in real time, immediately after viewing.
There are no intermediaries who may fail to comply with the contract.
There is no need to create monthly settlements, statements, there are no broker commissions or tons of invoices. Everything is automated, decentralized, secure and reliable.
Internet of Things and blockchain
If you can monitor network traffic and pay for displaying each ad through blockchain, why not go a step further.
More and more devices have various sensors and devices for wireless data transmission. They send information about their status and location.
They are increasingly communicating with each other. Therefore, it is enough to write a smart contract and the devices can pay each other for specific activities.
For example, a glass in a high-rise building can pay a washer for washing it, and an electric car charging station for the energy it consumes.
Also check: Blockchain and security Internet of Things - IoT
Trade without p2p intermediaries, e.g. electricity
You have solar panels on the roof.
On a sunny day, you don't use all the electricity produced, so you let your neighbor use it. The neighbor has a windmill and on a windy day allows you to use its excess power.
How to settle fairly?
E.g. by using blockchain technology. A fixed amount can be sent or downloaded to your accounts automatically tokens for every 1,000th power used per hour.
This way entire housing estates and cities can function. There is no need for intermediaries who will earn on this and officials who will check the meter and calculate the monthly balance.
All you need is a blockchain and a transmission network with adapted meters (Mengelkamp et al., 2018).
What's more, the use of blockchain technology may allow for more advanced monitoring of energy trading across the entire network, resulting in greater efficiency and savings (Aitzhan and Svetinovic, 2018). Such solutions are dealt with, among others design SunContract.
Contracts, land registers on blockchain
You do not need an institution that will confirm the conclusion of the contract.
Profession notary, and many offices may soon become unnecessary.
Agreements can be concluded through entries in a distributed register, i.e. blockchain.
Who is the owner of the property or car?
Who bought it from whom and when?
You can check in an explicit database. Everything is clear, available and impossible to counterfeit, as are the transactions in the above example of international transfers.
The Spanish capital bank Santander Bank has recently announced a bond issue in the form of digital tokens, thus becoming a precursor to the use of blockchain technology on the capital market. Read more here.
Blockchain in the film industry
Alibaba Pictures decided to use blockchain technology to finance and distribute movies. Read more here.
Fiskus on the blockchain
Cannabis market on blockchain
Blockchain ensures effective quality control, which is particularly important for a product like cannabis. Its recipients, thanks to block chains, will be able to track all significant information about available marijuana. Read more here.
Gold on blockchain
The CoinShares platform has announced the launch of tokens representing one of the most valuable metals - gold. Read more here.
Blockchain in the automotive industry
new generation electric cars will be supported by block chains, which is directed, among others for more effective protection of the environment. Read more here.
Blockchain and Fashion
Blockchain in the fashion industry helps to connect individual brands that, as a rule, avoid sharing information with competitors. Read more here.
Blockchain in logistics
They use blockchain technology already customs services i border guards, so that transactions can take place without the participation of intermediate bodies, and thus directly between the parties that conclude them. Read more here.
Blockchain in art
Verisart becomes a leader in the field of certification works of art, while being the first company to use blockchain technology for this purpose. Read more here.
Blockchain in health care
With universal implementation e-records you will be able to collect the medical data of each patient on his "Personal account", which will be accessible to doctors of various specialties, pharmacists, laboratories, medical centers and insurance companies. Read more here.
Blockchain in medical records
The use of block chains in the healthcare system is primarily to ensure a higher level of patient data and medical records security. Read more here.
Artificial intelligence and blockchain
The combination of blockchain and artificial intelligence can open up completely new possibilities, and it is currently focused on areas such as crowdsourcing forecasting models, hedge funds or investment platforms. Read more here.
Blockchain in Energetics
Blockchain in the energy sector can be used primarily on the basis of transaction settlements that are carried out on the line between the supplier and the recipient. Read more here.
Blockchain and Smart City
One of the technologies that can help in the development of Smart City is Blockchain, if only because of the security with which this technology is associated. Blockchain guarantees that only the owner has access to his data, and thus, is effectively protected against the theft of this data as well as cyber attacks. Read more here.
Blockchain in banking
Blockchain technology has a chance to visit the banking sector permanently. Despite the resistance, banks are increasingly considering the possibility of carrying out financial operations with it. Read more here.
We could multiply such applications of blockchain in everyday life, industry, services, financial markets or education (Chen et al., 2018). The above examples are only an outline of the picture of the world that will soon become our everyday life ...
A database that hangs somewhere in the cloud, but not on a server that can turn off its owner at any moment, but is dispersed, decentralized, or independent, is a revolutionary technology of the future. It can change our lives the way the Internet once changed it. In this case, it will have a large impact on the economy, on the one hand limiting the need for many contemporary professions, on the other improving the operation in many areas of the economy, affecting its development.
The article is part of our free training - Cryptocurrencies - a course for beginners. More material on this topic….
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Chen, G., Xu, B., Lu, M., Chen, N.-S., 2018. Exploring blockchain technology and its potential applications for education. Smart Learning Environments 5, 1. https://doi.org/10.1186/s40561-017-0050-x
Gates, M., 2017. Blockchain. Ultimate guide to understanding blockchain bitcoin cryptocurrencies smart-contracts and the future of money. CreateSpace Independent Publishing Platform.
Ichikawa, H., Kobayashi, A., 2018. Messaging Protocol for Relaying Messages between Participants with Autonomous Distributed Blockchain Propagation, Proceedings - 2017 5th International Symposium on Computing and Networking, Candara 2017. https://doi.org/10.1109/CANDAR.2017.50
Mengelkamp, E., Gärttner, J., Rock, K., Kessler, S., Orsini, L., Weinhardt, C., 2018. Designing microgrid energy markets: A case study: The Brooklyn Microgrid. Applied Energy 210, 870-880. https://doi.org/10.1016/j.apenergy.2017.06.054
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Radziwill, N., 2018. Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World. Quality Management Journal 25, 64-65. https://doi.org/10.1080/10686967.2018.1404373
Yli-Huumo, J., Ko, D., Choi, S., Park, S., Smolander, K., 2016. Where is current research on Blockchain technology? - A systematic review. PLoS ONE 11 (10), e0163477. https://doi.org/10.1371/journal.pone.0163477