Today’s topic is digital transformation through the blockchain. The chain of blocks and it is at the basis of bitcoin, the electronic money. For many it is a technology destined to change the functioning of finance and commerce on the web, but is it true?
First of all, to talk about blockchain, it is necessary to tackle various issues, including the concepts of trust, responsibility and community, but also cryptography, transparency and the sharing of a result. The blockchain must be analysed from different perspectives.
THE BIRTH OF THE BLOCKCHAIN
The idea of the blockchain originated from Satoshi Nakamoto, a pseudonym conceived by a group of computer scientists who created the bitcoin based on blockchain technology. Thanks to the bitcoin, it is possible to send online payments directly from one entity to another without passing through the banks; in fact, the value of the bitcoin depends exclusively on the trust of the investors.
Although this was the initial purpose, however, things did not go exactly that way. The big banks have shown interest in developing the blockchain technology, even in closed networks, to create a new form of digital money.
The immutability of the blockchain
Immutability is the great value of the blockchain and also concerns data security. In the case of the blockchain it is impossible to violate the central authority that manages it, as it would be necessary to violate all the participants of the blockchain simultaneously. Trust and control of transactions go from the central authority to all participants. They are not centralized, but decentralized and transparent for all.
The blockchain is without authorization and there is no special authority that can deny authorization to participate in the control or the addiction of transactions.
Blockchains that require authorizations are defined as permissioned and entrust management and authority to a specific group of operators. The blockchain permissioned has the values of transparency, immutability and security of the blockchain, guaranteeing to certain subjects (banks, enterprises and Public Administration) the possibility of a control on the modalities of execution of the transactions.
The distributed ledgers are updated only after obtaining the consent and each hub is updated with the latest version of each single operation, which remains indelible and immutable on each single hub. Therefore, each participant has an immutable copy of each transaction. This revolutionary model of architecture definitely changes the relationship between people and information.
Is blockchain safe?
One of the most important features of the blockchain is security. The main feature of the model is the fact that the operation is not guaranteed by a central body, but every single transaction is validated by the interaction of all the hubs. This enables to associate a legally valid date and time to an electronic document. Thanks to the time stamp, the validation can be legally enforced to third parties.
The time stamp consists of a specific sequence of characters that uniquely and immutably identify a date, to fix and ascertain the actual occurrence of an event and define its temporal order. Thanks to the time stamp can be legally enforced to third parties. Timestamping is one of the basics of blockchain operation.
The distributed consent of the blockchain
The blockchain validation process involves a verification and approval phase by the network participants. These steps aim at solving complex problems related to distributed consent, which is very different from the consent based on third parties or on a centralized institution. Those participating in the resolution of the problem are called miner and their intervention is remunerated through virtual currency.
The logic behind this process is to avoid the risk of fraud through obstacles on the whole validation process: every hub that participates in it must also solve a complex problem designed to put all the hubs in competition. The hub that can solve the cryptographic puzzle will have the right to validate the block. In the blockchains hubs are not public, that means they are not known to each other, in order to spread trust and ensure complete collaboration in validation.
The double spending
Double Spending is the guarantee that the same digital “monetary” asset will not be reused several times, as is the case for coins. In the case of traditional money this task is entrusted to the banks, which carry out the transfer of value from an account to that of the one who gave the asset.
The Double Spending solution is essentially in the very identity of the currency. Bitcoin encryption, and therefore blockchain in general, enables to manage the identity of the cryptocurrency. In fact, it has its own specific ID code, a name and surname and its own history. By bitcoin, the coin identifies the individuals who use the same coin. Once used, no one can have available that coin or a copy of it. It is like the coin could speak and tell the whole story of the transactions it has made.
Therefore, once the theme of the identity of the participants has been solved, bitcoin can be the most traceable and secure currency in the world.
HOW DOES BLOCKCHAIN WORK?
As we know, any transaction requires a guarantee, so by eliminating the intermediary, i.e. the bank, it is possible to carry out anonymous encrypted transactions and stores all the transactions in a public register distributed on the network. Being all the data of a transaction not stored in a single PC, but on several machines connected to each other, all the physical computers participating in the blockchain act as “nodes”. It is therefore not difficult to understand how cryptocurrencies are so appealing in the eyes of criminals.
This chain of data blocks (transactions) must then be verified, a guarantee that serves to prevent a user from selling or spending money he/she does not have. To do this, there is a communication protocol that certifies and approves the transactions, and then stores them in the ledger, a sort of public register. Through a process called mining, a physical computer performs very complex mathematical calculations and gives the OK to the operations.
The main features of this still unknown technology are:
The basic components of the blockchain are:
Each block contains several transactions and a hash that records all information related to the block. The transaction contains information on the recipient’s public address, the characteristics of the transaction and the cryptographic signature that guarantees the security and authenticity of the transaction.
The blockchain is automatically updated on each of the clients participating in the network. Every operation performed must be automatically confirmed by all the individual hubs through cryptographic software.
Therefore, blockchain is safe, but also irreversible, because everything that is done with bitcoins cannot be cancelled, and this could be a problem for users.
The blockchain has the ability to create unique digital assets. While in the digital world the documents that we usually send to someone remain in possession of both, with the blockchain this does not happen and a document sent will no longer be in our possession. That document will become unique and it will not be possible to duplicate it. The guarantee of the uniqueness of the asset is an important value, since when you duplicate an asset (which represents a digital currency) you cancel the same asset.
This is the reason why the finance world was the first that understood the real value of the blockchain as a tool useful to guarantee the uniqueness of a digital asset. There are also other sectors that have understood this value in the area of products and services through exchanges and transactions managed more efficiently to avoid duplication.
The Distributed ledger
The blockchain belongs to the category of Distributed Ledger, that is distributed archive, a set of systems that refer to a register constructed to allow access and modifications by multiple hubs of a network.
All the data – which represent the transition – are submitted to an asymmetric double key signature mechanism, which is a mechanism similar to that of the digital signature. It provides for the use of cryptographic algorithms that enable the user to use the system, providing him with a private key used to sign transactions or to activate other services connected to the blockchain
Distributed Ledger is based on the mechanism of consent and participation of the hubs. This consensus represents the greatest quality of the blockchain technology.
This technology allows the creation and management of a large distributed database that manages transactions that can be shared between multiple hubs of a network and it is structured in blocks, so that each transaction on the network can be validated by the network itself. The blockchain is therefore constituted by a chain of blocks composed of transactions. The hubs of the network are entrusted to control and approve these transactions. Each block stores the transaction history, which can only be modified by the approval of the network hubs. For this reason, the blockchain is considered an immutable technology.
The previous alternatives to the Distributed Ledger:
Tokens in blockchain
The token is a digital asset based on the blockchain that can be exchanged between two parties without the presence of intermediaries. It contains a series of digital information, by which it confers a property right on a subject based on the information recorded on a blockchain and transferred via a protocol. One of the first examples of token is bitcoin.
The main benefits of the token are:
The so-called tokenization can be a financing tool used in the various phases of business development, as an alternative or together with other instruments such as the stock market, funds and banks. Here are the areas in which tokenization can be applied:
Forks in blockchain
Forks are tools used to improve blockchain performance and to manage the protocol. They are divided into Soft Fork and Hard Fork:
OTHER USES OF BLOCKCHAIN
The new technological blockchain platform revolutionises the way we obtain and exchange value, combining distributed systems, advanced cryptography and game theory.
The blockchain is a decentralized database that stores assets and transactions on a peer-to-peer network and manages data related to the transactions in the blocks, verified and approved by all hubs. Each hub contains the same information thus it becomes unchangeable. Furthermore, the technology allows the exchange of information and different types of values. Payment and smart contracts are examples of this technology.
In most cases, the first miner – who creates a valid block and adds it to the chain – is rewarded with the sum of the commissions for its transactions. Miners can also receive new currencies put into circulation as an inflation mechanism, such as bitcoins.
In addition to the exchange of bitcoins, the blockchain has many other possible uses, such as certifying the exchange of stocks and shares, “authenticating” a contract or securing the votes collected through online voting.
Security, urban transport, energy, copyright, the charity sector and the fundraising are just some of the areas where blockchain can be applied. In fact, many companies have already started using it in their business. Why should you introduce the blockchain technology into your business? Below some reasons:
The novelties about the blockchain are not over and involve the entire world population thanks to Lybra, the new digital currency of Facebook with which, from 2020, it will be possible to make purchases on the web and exchange sums of money. Perhaps the use of Lybra will also be possible in the physical world, to make transitions similar to a transnational payment.
What will happen? Analysts hypothesize that most industries could benefit from the use of the blockchain, so we have to wait and see the next developments.
In the meantime, you can take a look at our articles on other innovative technologies, such as big data, augmented and virtual reality and much more.