The majority of people who, thanks to the media, have had contact with the term “blockchain”, perhaps have interpreted it as a kind of device, some other mysterious technological device of this era, to which spectacular powers are attributed. Blockchain is sold to the public as synonymous with the “last panacea” that everything can and everything makes up.
But far from the incandescent reflectors of the media, which, when convenient, all praise and magnify, the so-called block chain technology is one of those technical advances that the sleep of the just was sleeping for a long time. Ten years ago, thanks to the good offices of an individual with utopian ideas about the financial self-determination of the people and a Japanese mask, the blockchain technology came out of the shadows to put the planet on its head. The blockchain revolution promises to change not only the way money is defined, but many other elements of our current life.
So, what is blockchain?
A chain of blocks is a distributed database, which means that a copy of the same information structure is hosted and maintained by many devices that are not subject to some common central control. This database supports a growing list of sorted records, called blocks. Each block has a timestamp and a link to the block that precedes it.
Users of a chain of blocks are only allowed to change the parts of the chain of blocks over which they have authority. This authority is given by the possession of some computer parts called “private keys”, which are the keys with which the records are opened and which allow their editing. The different copies of a blockchain are synchronized with each other thanks to the use of encryption functions that participate in various chain operations.
Blockchains are secure databases by design. The concept was introduced in 2008 by Satoshi Nakamoto (pseudonym, he still does not know his true identity), and was implemented for the first time in 2009 as an essential part of the Bitcoin protocol, the first cryptocurrency. It is precisely thanks to the appearance of Bitcoin at that time, that the underlying technology of block chains has become, along with virtual currencies, the most recent technological phenomenon, snatching the headlines that previously occupied Artificial Intelligence (AI) and the Internet of Things (IOT).
Blockchain serves as the public ledger for all Bitcoin transactions and many other cryptocurrencies. By using blockchain technology, Bitcoin was the first digital currency to solve the problem of double spending, without a central authority or main server having to intervene. Unlike money and real currencies, electronic files can be copied (duplicated), which implies a potential double expense.
In a chain of blocks, security is reinforced through the distributed time stamp service (one of the elements that makes each block unique) and a peer-to-peer network. The result is a database that is managed autonomously in a decentralized manner. This makes the blockchains excellent tools for recording events, such as transactions, identity management, proofs of origin and medical records. Essentially, blockchain technology contains the potential for large-scale disintermediation in transaction processing and commercial exchanges.
How things work in a chain of blocks
Anyone can post what they want on the Internet and then others can access that information from anywhere in the world with the appropriate device. Through a blockchain, an individual can send value to any place on the planet where a copy of the chain can be accessed. As mentioned before, the trick is to have a private key, created through encryption functions, which gives us the ability to modify those blocks where the key has authority.
Using our private key and another person’s public key, we can transfer the value of what is stored in a specific section of the block chain.
Therefore, following the example of Bitcoin, the keys are used to update information contained in the blocks, which refer to units that represent financial value, that is, digital currencies. The occurrence of the transaction, which was traditionally controlled by the banks, is recorded and sealed by the blockchain.
A chain of blocks also fulfills a second function, by establishing trust and identity, since no one can alter a chain of blocks without being in possession of the corresponding keys. Modifications not authorized by these keys are rejected by the network. Of course, just as it could happen with an assault on the street, the user could suffer a hacking attack and lose control of their keys. This is a latent risk inherent in the nature of the system in question.
What we are trying to make clear here is that the intermediation functions carried out by the banks, such as verifying the identities to avoid frauds and then registering legitimate transactions, are replaced more quickly and efficiently by the mechanisms imbued in a chain of blocks.
Why blockchain will change everything
Now, most of us are used to sharing information through a distributed global online platform: Internet. Conversely, when it comes to transferring value, that is, money, intellectual property or property rights, we usually turn to traditional centralized institutions or bodies, such as banks or state agencies. Even online payment methods that are linked to the Internet for a long time, such as PayPal, for example, usually involve the participation of some element of the legacy system, either in the form of credit cards or a bank account. .
The Blockchain technology offers the astonishing possibility of eliminating these intermediaries, and does so by fulfilling three important functions: registering transactions, establishing identity and establishing contracts, all of which continues to be carried out, for the most part, by the financial services sector.
The exit of intermediaries in this equation has profound implications, since the financial services market is the industry’s largest sector in terms of profits. Replacing even a fraction of this with a blockchain system would mean a significant cut in the sector’s revenues. In this sense, the change could occur very long term. As you are already seeing, some financial institutions will seek to rely on blockchain technology in order to remain competitive and not lose the share of participation they have traditionally handled.
Automatic execution of contracts
The function of establishing contracts represents a wide range of opportunities for blockchain. Apart from a unit of value (like any of the known cryptocurrencies), block chains can also be used to store any type of digital content, which clearly includes computer programs.
These programs could be designed to be activated whenever certain actors enter their codes and establish conditions for a contract. Such contracts could, in turn, be fed from external data sources, such as geopolitical information, weather conditions, stock market quotations and others, and in this way know when the conditions agreed by the parties have been met and give execution to the contract automatically.
These types of programs already operate in block chains and are called smart contracts. The best known network for having implemented them first is Ethereum, which made them available since its inception in 2015.