What is Blockchain: The Definitive Explanation for the Most Fashionable Technology

What is the blockchain? Among other things, it is one of the buzzwords of recent times.


What is the blockchain? Among other things, it is one of the buzzwords of recent times. The chain of blocks is also a concept that raises a huge revolution not only in our economy, but in all kinds of areas.

Understanding what this chain of blocks is is not so difficult, and since this concept is being used more and more, we wanted to make a kind of quick introduction to the blockchain, to explain what it is, how it works and what is the revolution that it poses the chain of blocks.

Goodbye, sir (banker) intermediary

Let’s get in situation. The normal thing is that if a person called for example John wanted to send 1,000 euros to another person called for example Mark, it is normal for the transaction to be carried out through a bank. That bank acts as an intermediary of that and many other transactions, effectively centralizing the movement of capital from one side to the other.


John would ask his bank to withdraw 1,000 euros from his account and transfer them to Luis’ account: in just a few hours (depending on the bank, of course) that bank will have written down in his account the transaction, subtracting 1,000 euros in his account and communicating to the other bank that you must add 1,000 euros to Mark’s account. Someone in Mark’s bank (at this point, we already know that someone is a computer program) will note that in Mark’s account there are 1,000 euros more coming from John’s bank account.

This management has not needed a transfer of bills from one place to another, but simply there has been one or two banks that have been responsible for making the money pass from one to another with a simple change in the balance of their accounts.

Everything great and fantastic, except for one problem:

That neither John nor Mark have any control over the process, of which only those banks have all the information. Both depend on those banks and their way of doing things to complete that transaction. They are subject to their conditions (and their commissions, of course).

Hello, block chain

That’s where the chain of blocks comes in, which basically eliminates intermediaries, decentralizing all management. The control of the process is of the users, not of the banks -we are talking about money, but the example can be extrapolated to other types of transactions-, and it is they who basically become part of a huge bank with thousands, millions of nodes , each of which becomes a participant and manager of the bank account books.

What then is the block chain? As a gigantic book of accounts in which records (blocks) are linked and encrypted to protect the security and privacy of transactions. It is, in other words, a distributed and secure database (thanks to encryption) that can be applied to all types of transactions that do not necessarily have to be economic.

That chain of blocks has an important requirement: there must be several users (nodes) that are responsible for verifying those transactions to validate them and thus the block corresponding to that transaction (in each block there is a large number of transactions that yes, it is variable ) register in that gigantic account book.

This is how a transaction works in the block chain

The process is relatively simple, but as we say it involves more people. Now John and Mark are not alone, and will be part of a large group of users who are responsible for checking that the entire process occurs as it should occur.

If John wants to withdraw a bitcoin from his account to give it to Mark, he first warns everyone with a peculiarity: nobody knows that John is John and that Mark is Mark. They only know that from a digital portfolio (what would be a bank account) you want to transfer that amount (which is known) to another.

John, therefore, warns of his intentions, but without revealing his identity: “Hey, guys, I want to send you a bitcoin from my portfolio to this other, please update your account books!”. When sending that message, all the users of that network first check that John the home portfolio has enough money to send it to the destination portfolio. If so, they all write down that transaction, which happens to be completed and to be part of the transaction block. That’s right: they are not yet registered in that database in a definitive way.

As time passes, more and more transactions are completed and moving to that block, which has a limited capacity that depends on the structure of the block chain and the size of each transaction. When a block no longer supports transactions, there comes an important moment: the “validate” or “seal” it, which is what users do when doing bitcoin mining.

This mining of blocks consists in the realization of a series of complex calculations that require time and (increasingly) electricity, but when the process those blocks are permanently registered in that chain of blocks, and can not be modified without being alter all the blocks that are linked to it, an operation that would also require that most nodes validate it.

One Block

In that P2P network, the miners receive notices of new transactions and gather them in a new block, but they also compete with other miners, because the first one that manages to create a valid block and seals it receives bitcoins (if it is mining bitcoins, of course) for that service. Thanks to the use of a common block chain that is synchronized between the nodes, the irreversibility of transactions is achieved, which allows nobody to “trick” the system or make fraud to benefit, modifying the account book to divert money (bitcoins) from one side to another without others knowing.

In fact adding new blocks is an increasingly expensive process, which usually makes miners work in groups (the famous “pools” that work in a similar way to a cooperative) instead of working for themselves (“just mining”, with very low probabilities of success / reward). When one of the miners solves the cryptographic problem represented by the calculations to “seal” a block, it warns the others, that they verify that this is indeed the case and they add that block to the complete chain of blocks they have in their computers.

This account book is not only distributed and secure: the linked blocks (hence the blockchain) have a hash (encoded) pointer that links to the previous block, plus a timestamp and transaction data, and that information is public. What does that mean? That the chain of blocks, although it protects the privacy of its users, does allow to control the traceability of those transactions.

Or what is the same: it is to know the way that the bitcoin of the portfolio that belongs to someone has followed (in this case to Mariano, although his identity is not known by the other users) before arriving at the portfolio of another someone (Luis, although his identity is not known by the other users).

The design of the block chain itself has clear advantages, and for example it confirms that each unit of value (for example, each bitcoin) has only been transferred once, which avoids the traditional problem with the double spending of digital currencies or with false money , which reduces the confidence of users in that currency and also in the circulation of it.

From ICOs and block chains

One of the concepts that are appearing most when talking about cryptocurrency and block chains is the ICO, the Initial Coin Offerings.

Ico Ethereum

An ICO is how we explain in depth a way of financing a business project that instead of offering shares offers virtual tokens, or what is the same, new critpodivisas.

These new crypto currencies have some hypothetical value due to their scarcity and demand, and they are directly associated with the business project that creates them, as is the case with well-known examples such as the Brave browser: if that project succeeds, the cryptocurrencies on which its financing gain value and that ends up offering an interesting return on investment for investors.

The operation is therefore similar to that of public sales offers, but instead of buying shares in a company – one that also has a product in the market and has gone through rigorous financial controls before being able to make its IPO – we buy cryptocurrencies in an operation with a much more uncertainty, without any regulation and in which we are “betting” on the future of this business project with much less evidence or guarantees that this future success will occur.

The speculative component, as in everything that surrounds cryptocurrency, is very high, and in fact there are those who qualify the ICO as the biggest scam ever seen, but there are also clear advocates of an increasingly attractive financing model.

All these new crypto currencies rely on a chain of blocks that supports the structure of this new virtual token. The most used is that of Ethereum for its versatility and for the ease that this poses. A developer recently explained how to create one of these block chains easily from Geth, one of the best-known implementations (in this case, in the Go language, hence the name, “Go Ethereum”) of the ethereum protocol.

The chain of blocks beyond the economy

Although the chain of blocks is intimately related to the new cryptocurrency or cryptocurrency, it is logical to ask if this system would be valid for other types of transactions, and the answer is a resounding yes.

In fact that is what the Ethereum platform, which has its own chain of blocks (you can check out at sites like and its own currency, called Ether, is trying to achieve from its inception. Unlike bitcoin, the transactions here are smart contracts -the programmers love this concept-, which can be more or less complex and allow defining all types of transactions.

As with bitcoin, the good thing about these transactions is that they will remain in the chain of blocks, unalterable and accessible throughout the life of that chain of blocks. If we go to the extreme, Ethereum could basically replace any intermediary, substituting products and services that depend on third parties to be totally decentralized.

Of course this is just one of the alternatives that have originated with the chain of blocks as a protagonist, and in fact there are many ideas that try to exploit the benefits of a technology that has a virtually unlimited scope. Let’s see some examples:

R3 Consortium: the very financial entities that many are trying to replace with bitcoin or Ethereum have created the R3 consortium to find out how to take advantage of the block chain in traditional financial systems. One of the first problems of the application of this scheme is the anonymity that the design of the block chain provides, something that has been solved with the so-called “authorized ledger”, a very peculiar variant of the bitcoin block chain, for example, that does identify users that add blocks and that makes system transactions can only be accessed by certain parties.

Registration of properties: the Japanese government has initiated a project to unify the whole register of urban and rural properties with block chain technology, which would allow to have an open database in which the data of the 230 million could be consulted of farms and 50 million buildings that are estimated to exist in the Asian country. In Dubai they are planning something very similar.
Payments in the real world: a startup called TenX has created a prepaid card that can be reloaded with different crypto currencies and then pay with it anywhere as if that card had conventional money, regardless of whether that establishment accepts or not this type of coins virtual

Carsharing: the company EY, subsidiary of Ernst & Young Global Ltd is developing a system based on the chain of blocks that allows companies or groups of people to access a service to share cars easily. The so-called Tesseract would allow to register who owns the vehicle, the user of that vehicle and generate costs based on insurance and other transactions in this type of service.

Cloud storage: storage services are usually centralized in a specific provider, but Storj wants to decentralize this service to improve security and reduce dependence on that storage provider.

Digital identity: the last and gigantic security failures and data thefts have made the management of our identities become a very real problem. The chain of blocks could provide a unique system to validate identities in an irrefutable, secure and immutable way. There are many companies developing services in this field, and all of them believe that applying chain block technology for this purpose is an optimal solution.

Music: although there are critics who affirm that this option does not have validity, some affirm that the musical distribution could undergo a revolution if a system based on the chain of blocks was managed to manage its reproduction, distribution and enjoyment. The very Spotify is betting heavily on its own chain of blocks.

Public / government services: another of the most interesting areas of application of the block chain is in public services that could boast an absolute transparency. The areas of activity are multiple: from the management of licenses, transactions, events, movement of resources and payments, property management to identity management. In fact, the massive theft of data in Equifax has led some to propose the replacement of social security numbers in the United States with a system based on the chain of blocks. There are even initiatives to “decentralize government”, and Bitnation is one of those projects that try to call us becoming “citizens of the world”.

Social security and health: although it could be encompassed within the aforementioned public services, public health could undergo a real revolution with a block chain system that would serve to record all types of medical records and solve one of the classic problems of management of health.

Management of authorship: although related to what is mentioned for the world of music, Ascribe is a platform that tries to help creators and artists to attribute the authorship of their works through the chain of blocks. There are many other platforms in this field (Bitproof, Blockai, Stampery, for example) that, among other things, allow you to generate stores in which you can buy original works in a safe and simple way.

There are just some examples of the application of the block chain to all types of fields, but there are many more: the versatility of this technology is so huge that it is difficult to think of an area that can not be transformed by this idea.

At the moment, yes, all these ideas are only projects in full development, so the revolution, although possible, seems distant, especially when intermediaries (in all areas) have become an integral part of the economy and society. Decentralizing all these industries is much more complex than it seems, especially because those same intermediaries will try to reject these changes or adapt them to their own needs.