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 cryptocurrencies, read about the innovative solution behind them.
Blockchain - a technology that will change the world
Blockchain is a database (Swan, 2015). Unlike traditional databases, blockchain is not located in any particular institution (eg bank, office, company). All the more, it does not consist of paper documents that can be destroyed as a result of a fire. It is also not written on the discs of only selected computers that are in someone's possession, which may give rise to the suspicion of manipulating this data. Blockchain is the base without a central storage, control and management center.
Blockchain he is called sometimes New generation internet. Why is he compared to the Internet? Just 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 a blockchain, no servers and network participants store the database on their disks. Thanks to this solution, the whole database is safe, 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 attacksbecause to falsify or delete data, it would be necessary to break into more than half of the computers that co-create this network. As a result, blockchain is objective because it is independent. There is no managing entity that supervises the trust authority or the institution of a state, company or organization that could influence its content. This blockchain feature can be used, for example, in transactions between superpowers, because neither side is able to falsify information, or simply when organizing votes (eg, 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 the definition that you certainly have for your ears is related to - "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. The funds accumulated on the cryptocurrency portfolio are secured with 256-bit private key, that is, proof of ownership and the right to use 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 participant of the network can see information about all entries.
Thanks to the application cryptography, blockchain is immune to cyber attacks. It functions 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's good to know that there are now hundreds or even thousands of different blockchains. The most famous of them is bitcoin blockchain, other cryptocurrencies have their own blockchains (Ethereum, eos, ripple). However, payments are just one of the many uses of this innovative technology.
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 writing this information in your notebook - by entering the wrong amount and / or assigning it to the wrong student and / or not for this trip, etc. Notes can be destroyed or lost. Someone may change or plot the information in it during the break, and you and John may forget that the payment took place. There are many options. The database in the form of a notebook and the process of entering data into it may contain numerous and significant detriments that affect the accuracy of the information contained therein.
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.
Examples of blockchain applications
International payments and transfers
By sending a colleague the money, first we give it to an intermediary, e.g. a bank. Our bank kindly sends them to the bank of a colleague during working hours, and only the second one sends them to our recipient. This process makes traditional transfers last even a few days, and our money goes through the hands of many intermediaries. In addition, there may be a mistake in the whole process, just as a teacher may be mistaken in saving a note in her notebook. The whole is time and cost-intensive.
Cryptocurrencies they do not need banks. There are no intermediaries. We send the amount directly from our account to your friend's account. The state borders do not matter for cryptocurrencies - just like for e-mails. There is no difference if we send an e-mail to a colleague from the next room or from the other side of the world. However, even e-mails are sent to the recipient by intermediaries - servers of postal services that may not work, someone can take over and read our message, impersonate someone or simply collect information sent by us - just like in traditional banking. In the case of transfers of cryptocurrency, the brokers simply do not exist, it works as if we gave the colleague a banknote in hand.
Sending cryptocurrencies - 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 state of our account (as well as all others) is stored in the given blockchain (ie the currency database that we want to send). In it, all operations (deposits, withdrawals) that have ever been made between all addresses (wallets) are also recorded and fully public.
The number of all coins in circulation is also fully public and determined in advance. We also know exactly how many coins are currently on which wallet. We do not know, however, who is in possession of a given 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, or cryptographic proof of ownership. It is a transaction authorizing tool. Confirming that the account belongs to us and we can dispose of the funds accumulated on it.
There is no intermediary, so if you lose your private key, nobody will remind us. There is no hotline under which we can call. There is no option to reset such a key and regain access to funds. Our resources are only in our hands and no one else. We ourselves are our "bank" (Peters and Panayi, 2016).
Information about transfer of funds from our account to another account is saved in the block chain. It is irreversible. The funds go to the address we gave. The block is "excavated" according to the mechanism of the blockchain's consensus. Zero brokers. Directly, from one address we send funds to another address, and the transfer is encrypted using cryptographic methods. Blockchain operates 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 lend their computing power to secure the cryptographic transaction. 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 2 for the transfer and you will have to wait one business day. Recently, several non-cryptocurrencies appeared to conveniently pay even such small sums (eg Revolut). However, this branch of financial services is relatively young and is growing rapidly. Currently, the game enters Facebook, who wants to allow sending money between users of their social networking sites and messengers ... for this purpose, he creates his own cryptocurrency Libra.
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 every ad display on his site. One display of the blog - the equivalent of one hundredth penny goes to his account in real time, immediately after being displayed. There are no intermediaries who can not comply with the contract. There is no need to create monthly settlements, statements, no intermediary commissions and tons of invoices. Everything is automated, decentralized, safe and reliable.
Internet of Things
Since through blockchain you can monitor network traffic and pay for displaying each ad, 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. What more often they communicate with each other. It is enough to write an intelligent contract, and the devices can pay each other for certain activities. For example, the windshield in a high-rise building may pay a washcloth for its cleaning, and an electric car for a charging station for the energy it receives.
Trade without p2p intermediaries, e.g. electricity
You have photovoltaic panels on the roof. On a sunny day you do not use all the electricity produced, so you allow it to be used by your neighbor. The neighbor has a windmill and on a windy day allows you to use his redundant power. How to settle justice fairly? For example, by using blockchain technology. An amount can be sent or downloaded automatically to your accounts tokens for every 1,000th power used per hour.
In this way, entire settlements and cities can function. You do not need middlemen who will make money on it and officials who will check the state of meters and calculate the monthly balance. Just a blockchain and a transmission network with appropriately 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 and mortgage registers
There is no need for a trust institution that will confirm the conclusion of the contract. Notary profession, as well as many offices may soon be unnecessary. Agreements can be concluded by means of records in a distributed register, i.e. a blockchain. Who is the owner of a given real estate or car? Who from who bought it and when? You can check in an explicit database. Everything is clear, available and can not be duplicated, just like the transactions in the above example of international transfers. What's more, thanks tokenizacji, you can become the owner of several square meters of a given property, for example, Atlant project.
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 world, which in a moment will 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 beginner's course. More materials 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
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