Almost everyone has heard about bitcoin. However, not everyone knows that behind this mysterious and incomprehensible for many virtual currency is a new, revolutionary technology - a chain of blocks, or block chain. There are many indications that in the coming years it will have a huge impact on the economy and our lives (Radziwill, 2018).
Blockchain - a technology that will change the world
Blockchain is a database (Swan, 2015). Unlike traditional databases, blockchain is not in an institution (eg bank, office, company). It does not consist of paper documents that may be damaged by a fire. It is also not stored on discs of only selected computers that are in someone's possession, which may be damaged or taken over by a hacker. Blockchain is the base without a central storage, control and management center.
Blockchain database it has the character of a network (Yli-Huumo et al., 2016). Network participants store it on their computers. Thanks to this solution, the whole database is safe, because it is dispersed. No data will be lost if even many computers fail.
What's more, blockchain is protected by cryptography. No one can fake data entered into the database. All entries are verified in accordance with the adopted mechanism, e.g. using the power of processors. This is what the definition that you certainly had about your ears - "digging cryptocurrencies" - is related to. This is the process of cryptographic network security using calculations made by computers. In this way, the network secures very strong passwords confirming the authenticity of data stored in the database. Data entry is an irreversible process (Gates, 2017).
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-client basis. A central, an intermediary is not needed. Clients 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 use of cryptography, blockchain is resistant to cyber attacks. It functions without any 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 these is bitcoin blockchain, other cryptocurrencies have their own blockchains (ethereum, eos, ripple). However, payments are just one of many applications of this innovative technology.
Examples of blockchain applications
When sending money to a colleague, we first give it to an intermediary, eg a bank. Our bank sends them to the bank of a colleague, and only the second one sends them to our recipient. This process makes traditional transfers last even a few days. They are also expensive because banks make money on mediation. In addition, they may be mistaken, e.g. by sending an amount of incorrect value.
Cryptocurrencies do not know national borders - just like e-mails. There is no difference if we send a message to a friend from the room or from the other side of the world. However, even e-mails are sent to the recipient by intermediaries - servers of postal services - analogically to traditional banking. So what does the message of cryptocurrency look like?
We do not log in anywhere, so the failure of any server, technical break of the operator or bankruptcy is not a threat. Nobody will ever restrict us from accessing our account.
How does blockchain work in practice?
The status of our account is saved in the given blockchain (ie the currency database that we want to send). In it, all operations (deposits, withdrawals) that we have ever made are also recorded and fully public. It is not possible to cheat or confuse the account balance. Moreover, the number of all coins in circulation is also fully public and predetermined. It is also known perfectly, on which wallet there are currently how many coins. We do not know, however, who is in possession of the given account.
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.
Cryptocurrencies offer a new dimension of micropayments. Not only do they allow you to send hundreds of pennies, but in addition, they allow you to automatically send funds after meeting certain conditions, recorded in the "smart contract".
Thanks to the use of blockchain technology, for example, a blogger can receive remuneration for every display of the advertisement on his website. One display of the blog - the equivalent of one hundred grosz 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 commissions brokers and tons of invoices. Everything is automated, decentralized, safe and reliable.
P2p trading, e.g. electricity
You have photovoltaic panels on the roof. On a sunny day you do not use up 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. Automatically, a certain number of coins can be sent or charged to your accounts for each 1,000th hourly current used. In this way, entire settlements and cities can function. You do not need middlemen who will make money on it and officials who check the state of meters and calculate the monthly balance. Just a blockchain and a transmission network with properly adapted meters (Mengelkamp et al., 2018). What's more, the use of blockchain technology can allow for more advanced monitoring of energy trading across the entire network, resulting in greater efficiency and savings (Aitzhan and Svetinovic, 2018).
Similar applications in various industries may be many, eg in IoT (internet of things). The car can independently and automatically settle with the operator of the toll motorway section, car park or power station ...
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. We can conclude contracts 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.
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 major impact on the economy, on the one hand limiting the need for many contemporary existing professions, on the other improving the operation in many areas of the economy.
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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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Ichikawa, H., Kobayashi, A., 2018. Messaging Protocol for Relaying Messages with 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
Peters, GW, Panayi, E., 2016. Understanding Modern Banking Ledgers Through Blockchain Technologies: Tasca, P., Aste, T., Pelizzon, L., Perony, N. (ed.). Banking Beyond Banks and Money. Springer International Publishing, Cham, p. 239-278. https://doi.org/10.1007/978-3-319-42448-4_13
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
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