Technology

The Blockchain offers transparency

The Blockchain offers transparency

Surely lately, you have heard terms like Blockchain, Bitcoin, cryptocurrencies etc …

If you have come this far, it is important to clarify that none of the already famous virtual currencies would be a reality without the help of Blockchain technology; that is why it is very important to be clear about what it is, how it works and how it will change your life forever.

We have yet to see if Bitcoin is finally a worthwhile asset, at least for the late investors who got carried away by the rise of late 2017. No one can deny that it has brought the pioneers a profit that we would all like to.

Bitcoin was born in January 2009, but it was not until mid-2010 that a man named Laszlo Hanyecz used this currency for the first time to acquire a good.

The first transaction in Bitcoins: two pizzas

Laszlo exchanged 10,000 Bitcoins to buy two pizzas from Papa John’s, a transaction valued at about $ 40. Hopefully, he asked for a lot of garlic sauce because today, those Bitcoins would be worth more than 100 million dollars.

Now is when we have to ask ourselves why Bitcoin has risen in value so dramatically.

Many factors justify this rise, the acceptance by large investors of this paradigm shift or the long-term attitude of Satoshi Nakamoto’s coin fans who refuse to sell until each coin is worth a million dollars.

But none of this would be possible without Blockchain.

The most expensive pizzas in the world, 10,000 BTC

Blockchain for dummies

Before going into all this, believe me that it is essential that you are familiar with these basic concepts because if you do not wait for long days of despair, watching the train of the future pass in front of your eyes without you being able to do anything to catch it.

At Bitcoin, we put a Blockchain glossary at your disposal to understand all the terminology around this technology.

What is Blockchain?

The Blockchain chain of blocks is a set of data comparable to a “great global account book” that creates connections between different nodes or blocks, forming an unbreakable and, above all, unalterable chain.

Each block is connected by Hash Pointers, which connect them, thus encrypting the information inside.

Hash Pointer:

Hash: Cryptographic record of any transaction within the Blockchain

Pointer: The link that gives you access to the stored hashHash.

Storing the encrypted information in this way makes the data accessible but unalterable, which is why it is said that this technology is the safest to record any transaction since no one could alter or delete it.

The Blockchain offers transparency (all participants can see all the information contained in the distributed database), sharing and decentralization (the same copy of the database in all nodes), irreversibility (once a data is registered, it cannot be modified or deleted) and disintermediation (without a central referee, the participants make decisions by consensus). The chain of blocks links the sequence of transactions and incorporates a timestamp that gives transparency and traceability to the operations without violating the users’ privacy a priori (the path2 and the content can be known, although it is not always feasible to infer the identity user). Actors can adopt three roles: users with the right to have and consult a copy of the distributed database (accessors), participants with the right to carry out transactions (participants) and users in charge of validating transactions and creating blocks (miners). All of them have a single, validated copy of the database.

Each platform establishes its rules for participation, operation and governance. Platforms can be open (public) if accessible without restrictions (permissionless ledgers), such as the cryptocurrency Bitcoin. They are semi-public or authorized (permissioned ledgers) when participation, the right to veto new members or the possibility of deciding the consensus protocol at the beginning of the chain are conditioned. They can also be private when an actor sets the rules; in this case, the difference between a blockchain and a conventional decentralized database is blurred.

The Blockchain uses cryptographic security mechanisms to access, sign and encrypt transactions, blocks and their chaining. The private keys can be linked to the identity of the users or intermediate elements, for example, digital wallets with which the platform offers the anonymity of operations. The rules that execute the transactions can be established through smart contracts3; in the Ethereum blockchain, for example, they ensure a common understanding of the transaction between the parties, in particular about the obligations contracted, offering limited evidential visibility to the interested parties (third parties of the Blockchain outside the contract do not have access to its stipulations or its fulfillment).

Certain nodes on the network specialize in invalidating the transaction and writing it encrypted in the block, chaining it to the pre-existing ones once completed. Before a new block can be added to the chain, its authenticity must be verified by a consensus validation process. The consensus mechanism ensures that all copies of the distributed book share the same state. Once the transaction is validated, the “mining” nodes update the distributed database by adding the transaction to the block of transactions in progress (it is not yet definitively registered); When this block reaches a given number of validated transactions, the “miners” proceed to seal it and incorporate it into the chain, leaving these transactions permanently registered.

The mining nodes use mathematical algorithms to convert the information of a block into an alphanumeric code or Hash that links to the Hash of the previous block and chain the blocks together. For each block added to the chain, the mining node receives remuneration in cryptocurrencies or a share in the business that is the object of the transaction; once a block is added, it is immutable. The participation of the mining nodes follows the rules defined by each platform regarding the consensus mechanism, which largely determines the security, reliability, speed, and computational and energy cost of the process.

The technological challenges

The complexity, speed of growth, and proliferation of many different platforms or their high business potential make it difficult to solve significant technological challenges such as scalability, standardization or interoperability, aspects of which have a special impact on security.

The need for scalability is accentuated by the exponential growth of the main public platforms (for example, Bitcoin grew 450% between July 2012 and July 2016). As the network grows, the competition to perform validations increases, it takes longer, and the unit cost per transaction increases. Consequently, new consensus mechanisms are needed that reduce processing time without compromising security.

The need for interoperability is accentuated given the proliferation of different solutions and the need to share data between platforms or to use common electronic wallets. Data exchange requires a translation between protocols and the conciliation of different consensus mechanisms, which is hampered by the absence of standards. Beyond the technical aspects, interoperability between platforms will also have to respond to needs such as the ease of use of applications and the ability to transfer assets, limit the volume of transactions, prevent them or establish safeguards against fraudulent ownership changes.

A technological challenge in the endless debate is energy efficiency, given the high consumption intrinsic to the Blockchain and the significant hidden cost linked to the consensus mechanisms for the validation and calculation of blocks carried out by the mining nodes. These factors are directly related to environmental impact four and determine the need for more efficient and secure validation protocols that facilitate the participation in the blockchain platform of autonomous devices with limited consumption, for example, IIoT in the industrial field.

Blockchain, beyond cryptocurrencies

There is an infinity of blockchain applications currently under development with uses other than cryptocurrencies in practically all sectors, which shows the transversality of this technology, as reflected in figure 1. As an example, the financial sector is worth mentioning. (banking transactions between entities, means of payment, insurance policies), logistics (traceability and management of goods), energy (integration of generation means to the electricity grid), health and pharmaceutical (records, medical management, drug tracing), the audiovisual industry (management of rights through the value chain of the work), tourism (management of reservations, contracts, rates, loyalty actions, identity management, luggage tracking), Industry 4.0 (construction of secure communications in industrial networks through real-time updated registration of reliable IIoT devices integrated to the operations network) or Public Administration (management of licenses, transactions, events, movement of resources and payments, property management, identity management).

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