What is Blockchain?

Blockchain is a technology that allows the reliable and secure realization of any type of transaction between two or more people without the need for intermediaries, through the Internet. Its introduction to the world was through the cryptocurrency Bitcoin, the first blockchain platform. Originally, Bitcoin was created as an electronic peer-to-peer payment system (A Peer-to-Peer Electronic Cash System), which is why it is known as “digital money”.

Blockchain is an articulation of technologies structured in a naturally encrypted system, which provides the users involved with protection of their identities and the data of their transactions.

  • A digital ledger where all the transactions that happen on the network are recorded, grouped in blocks that are continuously linked linearly to each other, that is: the first block with the second, the second with the third, and so on (from there the name of ‘blockchain’).
  • Digital wallets, graphical interfaces to interact with the blockchain network that allow users to carry out transactions and manage their digital identities.
  • The miners, computers that are in charge of authorizing the addition of the transaction blocks made by digital wallets to the blockchain, by solving the mathematical puzzle of the consensus protocol, receiving in return rewards in the digital currency of the blockchain network.
  • The nodes, guardians of the network, are computers that are responsible for storing an exact copy of the ledger and enforcing the rules of the network. Some, known as mining pools or mining groups, are also in charge of listening to new transactions and grouping them into blocks to propose them as jobs to the miners, which after being confirmed are propagated to the network and added to the chain.

TYPES OF BLOCKCHAIN

A common transaction on blockchain begins with the sending of a digital asset from one digital wallet to another. This transaction is listened to by various nodes (depending on its latency with respect to the issuing portfolio) and grouped with other transactions that said nodes have listened to. This group of transactions is then sent to the miners as a job to solve. The miners take the work, which can be different for each group of miners depending on the node that proposed the work, and compete with each other to get a value (nonce) that solves a mathematical puzzle that authorizes the miner who finds it to propose their block, with the transactions in it, to be added to the chain. The proposed block, in addition to containing the transactions.

This whole process, known as mining, happens ‘behind the scenes’ in a blockchain transaction. The only things visible to users are the number of confirmations their transactions receive and the time they take to complete.

Blockchain technology guarantees that the records of the transactions carried out are valid and unalterable. We can see each block as each one of the pages of the same practically infinite accounting book, only that here what has been written cannot be erased or repeated: each transaction or data is protected with a unique fingerprint. This is known as immutability. However, there are initiatives to create blockchains that can be altered by an administrator, Accenture is responsible for the best known.

The first and best known blockchains, up to now, are maintained by many nodes and miners around the world and none really has the power to control it and approve or disapprove transactions according to their own criteria, which is called decentralization: the Power is not centered in a single party, but distributed among many parties that must reach an agreement.

The decentralization feature is optional depending on who develops their own platform with blockchain technology. Various private companies, such as banks, are creating their own distributed accounts, which distribute their copies among different parties, but all are controlled by the same institution, so this feature is lost. In this way, the blockchain will always be distributed, preventing it from being hacked, but it will not always be decentralized.

Although in principle the blockchain was created to be a large public accounting book accessible to anyone, the development of this technology by different entities and companies around the world has given it a private nuance that has essentially divided it into two categories and four types.

Based on the access to the stored data, we can find it public or private. In the first, there is no restriction for the reading of data or the performance of operations by users; In contrast, in the second, both reading and operations are limited to specific participants.

On the other hand, based on the ability to generate blocks, it is divided into those without permissions (permisionless) and with permissions (permissioned). In the first, there are no restrictions to be able to carry out transactions and create new blocks, so that coins or digital assets native to the network are offered as a reward to users who want to maintain the network. It is decentralization, just like Bitcoin. The latter are developed by generally private entities, in many cases for internal use, and their users need permissions from the network administrators to interact with the protocol. This is the type of blockchain that banks are testing: they are centralized, that is, controlled by the entity and not by users.

Bitcoin Blockchain

SIMILAR, BUT NOT THE SAME

The terms that refer to this technology as a whole as a database organized in blocks, encrypted and distributed among many users, are usually three: Blockchain Technology, Distributed Accounting Technology and Bitcoin Technology. However, even though they all mean essentially the same thing, they are also used to mention certain specific types of blockchain. That is, they acquire their most specific definition according to their context, since it happens, for example, as the name of ‘Salvador’: this can refer to the entire country as well as only to its capital.

In the same way, simply saying Blockchain can allude to both the technology as a whole and the original Bitcoin platform. Accompanying the word with Technology is usually appropriate for a broad context, and this, in turn, is a term that is often used in public chains, since there is some controversy as to whether or not private platforms should be called ‘blockchain’. However, this use is not limiting, since many banks use it to refer to their tests and, in general, it is the most used by all developers and users.

Distributed Ledger Technology or DLT (Distributed Ledger Technology) is also the same Blockchain Technology. It is usually used, however, in the field of private development and rather away from Bitcoin as a cryptocurrency. Unlike ‘Blockchain’ it does not have a double meaning, as it is only capable of alluding to technology in a complete way.

   Lastly, Bitcoin Technology is the most ambiguous term of the three. You can refer to three concepts: the distributed ledger technology as a whole, the Bitcoin blockchain in particular, or even the protocols that have enabled the development of all cryptocurrencies. Because of this, it is rarely overused.

APPLICATIONS

Being this a young technology, surely all its possible applications have not yet been discovered or developed sufficiently. However, there are a number of uses that are quite recurring.

– Cryptocurrencies: its main function in this field is, essentially, to transfer value, preventing a unit of digital currency or cryptocurrency from being spent twice, since it records each transaction only once and in an unalterable way. Many cryptocurrencies have developed their own blockchain, such as SolarCoin and Zcash, but others prefer to rely on the already mature structure of Bitcoin and are built on its platform, such as Counterparty’s digital assets.

– Transactions and payment systems: intrinsic qualities of the blockchain are the speed, security and privacy that it allows users to carry out transactions. This is why many companies, mostly banks and financial institutions, have taken the DLT to build their own platforms that allow, for example, to accelerate the speed and reduce the costs of international and interbank payments. A good example of this is Ripple, which even offers its services to different companies.

–  Document registry: the blockchain is a large registry that many parties can access from anywhere in the world. And it not only records assets, but virtually anything. For this reason, it is already being used to register and verify the authenticity of all kinds of documents, from university degrees and marriage certificates to medical records, an area that by the way has received a lot of attention, since it would allow to unite hospitals, insurers and lenders in a single platform , which would exponentially accelerate the sanitary process. An entire conference on blockchain in health has already been held, while the Stampery platform already allows this type of registration.

– Supply chain: knowing exactly where things come from is always a problem, but the blockchain is capable of solving it. With this technology it is possible to mark almost any object with a unique fingerprint that will follow its entire life cycle from the beginning. Thanks to this quality, it is perfect for use in the complex supply chain, something that Provenance has already proven by implementing this structure to prevent illegal fishing, or Walmart, which is in testing to ensure food safety. Along the same lines is the giant IBM, which is working to solve the problem of the last mile.

– Smart contracts and decentralized applications (Dapps): the blockchain is also capable of creating the appropriate infrastructure to create smart contracts, that is, automated digital agreements in which the need to trust third parties for compliance is again eliminated. The terms are established in principle at the convenience of the parties, and later they are fulfilled thanks to the code, as a scheduled task. In turn, these open up an almost infinite range of possibilities that can be translated into decentralized applications: computing functionalities of all kinds that are not controlled by a single party, but are distributed over the blockchain. The most famous example of this is undoubtedly the decentralized platform Ethereum.

– Entertainment: several video games and games of chance have been built on a chain of blocks or relying on a digital asset of its own. The speed, transparency and, above all, the rewards, are assured. In this area we have Spell of Genesis, a card game, Takara, an augmented reality application, and vDice, a decentralized betting platform.

On the other hand, there are also social networks that offer micro-payments in cryptocurrencies to their users in exchange for the content they provide and that is stored in a transparent, unalterable and public way on a blockchain. Such is the case of Steemit.

– Commerce:  transparency and security are certainties of the code, so its use in commerce was inevitable. Electronic buying and selling platforms such as OpenBazaar and LBRY have been built on their own blockchains; where the latter even allows authors to put the price they want on their creative work and collect all the profits, without intermediaries.

But surely this is only the beginning. The blockchain has also been used to authenticate charity funds, related to energy processes and is even used to improve the online advertising system. At this rate, our entire daily lives will soon change.