What is crypto?
If you try to dive into this mysterious thing called a blockchain, you will be forgiven for retreating in horror at the opacity of the technical jargon often used to frame it. So before we learn what a cryptocurrency is and how blockchain technology can change the world, let’s discuss what a blockchain is.
Simply put, a blockchain is a digital ledger, unlike the books we have used for hundreds of years to record sales and purchases. The function of this digital book is, in fact, very similar to that of a traditional book in that it records debits and credits between people. This is the basic concept of blockchain; the difference is who keeps the book and who confirms the transactions.
In traditional transactions, a payment from one person to another requires a kind of intermediary to facilitate the transaction. Let’s say Rob wants to transfer 20 pounds to Melanie. He can either give her £ 20 in cash or use a banking application to transfer the money directly to a bank account. In both cases, it is an intermediary that confirms a banking transaction: the robot is checked when withdrawing money from an ATM or verified by the application when making a digital transfer. The bank decides whether to continue the operation. The bank also keeps records of all transactions made by Rob, and Rob is solely responsible for updating someone when he pays or receives money from his account. In other words, the bank holds and controls the ledger and everything passes through the bank.
It’s very responsible, so it’s important for Rob to feel that he can trust the bank, otherwise he wouldn’t risk his money with them. He must be sure that the bank will not deceive him, that he will not lose his money, that he will not be stolen, and that he will not disappear overnight. This need for confidence supported every major behavior and feature of the monolithic financial industry, even when banks were found to be irresponsible to our money during the 2008 financial crisis, the government (another intermediary) chose to allow them to collapse instead of risking the last crumbs of trust. to save, to rescue.
Blockchains operate in one key way: they are completely decentralized. As a bank, there is no central clearing house and no central ledger maintained by an institution. Instead, the notebook is distributed among a wide network of computers called nodes, which store a copy of the entire book on their respective hard drives. These nodes are connected to each other through a program called a peer-to-peer (P2P) client, which synchronizes the data on the node network and ensures that everyone has the same version of the book at a given time. .
When a new transaction enters a blockchain, it is first encrypted using the most modern cryptographic technology. Once encrypted, the transaction becomes something called a block, a term commonly used for an encrypted group of a new transaction. This block is then sent (or broadcast) to a network of computer nodes, where it is validated by the nodes and, after approval, transmitted over the network so that the block can be added to the end of the book on everyone’s computer, under the list of all previous blocks. This is called a chain, so the technology is called a block chain.
The operation can be completed after confirmation and entry in the notebook. Cryptocurrencies like Bitcoin work that way.
Eliminate accountability and trust
What are the advantages of this system over a bank or central clearing system? Why does Rob use Bitcoin instead of normal currency?
The answer is trust. As mentioned earlier, with the banking system, it is very important that Rob trusts his bank to protect and manage his money properly. To ensure this happens, there are large regulatory systems to monitor the activities of banks and ensure that they are appropriate. After that, governments regulate regulators, the sole purpose of which is to create a kind of level-based inspection system to help prevent mistakes and misconduct. In other words, organizations like the Financial Services Organization exist because it is impossible to trust banks. Banks often make mistakes and behave badly, as we have seen many times. When you have only one source of authority, you are prone to abuse or misuse of power. The relationship of trust between people and banks is awkward and dangerous: we don’t really trust them, but we don’t think there are many alternatives.
Blockchain systems, on the other hand, you don’t have to rely on. All operations (or blocks) in a block chain are validated by nodes in the network before they are added to the log, ie there is no single failure point and no single validation channel. If a hacker wanted to successfully break into a notebook in a blockchain, he would have to hack millions of computers at the same time, which is almost impossible. A hacker will not be able to bring down a blockchain network at the same time, because he still needs to be able to shut down every computer in the world-wide network of computers.
The encryption process itself is a key factor. Blockchains, like Bitcoin, use deliberately difficult processes for the verification procedure. In the case of Bitcoin, it is confirmed in the form of blocks, direct puzzles, or complex mathematical problems by a deliberate processor and nodes that perform a series of time-consuming calculations, indicating that verification is neither immediate nor accessible. Nodes that owe the source to checking the blocks are rewarded with a transaction fee and the grace of the newly issued Bitcoins. It also has the function of encouraging people to become a junction (because working blocks like this requires very powerful computers and a lot of electricity), as well as working to produce or mint money. This is called mining, because it takes a lot of effort (in this case a computer) to produce a new product. It is also the approval of transactions in the most independent way possible, independent of a government-regulated body such as the FSA.
This centralized, democratic, and highly secure nature of blockchains means that they can operate without the need for regulation (self-regulation), government, or other non-transparent intermediaries. People still work because they don’t trust each other.
Let this importance begin to sink in for a while and the excitement in the blockchain become meaningful.
What is really interesting is the introduction of a blockchain outside cryptocurrencies like Bitcoin. Given that one of the basic principles of a blockchain system is the reliable, independent verification of a transaction, it is easy to imagine other ways in which such a process can be valuable. Not surprisingly, many of these applications are already in use or under development. Here are some of the best:
- Smart Contracts (Ethereum): Probably the most exciting blockchain development after Bitcoin, smart contracts are blocks that contain code that must be executed in order to execute a contract. The code can be anything if it can be executed by a computer, but in simple terms, you can use blockchain technology (with independent authentication, unreliable architecture and security) to create a kind of savings system for any type of transaction. . For example, if you are a web designer, you can sign a contract confirming that a new client’s website has been launched, and then automatically fund it as it is. No more harassment or billing. Smart contracts are also used to prove the ownership of an asset, such as property or art. With this approach, the potential to reduce fraud is enormous.
- Cloud Storage: The cloud computer revolutionized the web and led to the emergence of Big Data, which ushered in a new AI revolution. However, most cloud-based systems run on servers hosted on a single enterprise (Amazon, Rackspace, Google, etc.) in single-server servers. This presents the same problems with the banking system because your data is managed by a non-transparent organization that represents a single failure point. The distribution of data in a blockchain completely eliminates the problem of trust and at the same time promises to increase reliability as it is more difficult to downgrade a blockchain network.
- Digital Identification (ShoCard): Two of the biggest problems of our time are theft and data protection. The potential for misuse of our personal information is staggering, with extensive centralized services such as Facebook and a lot of information about us trying to store digital information about citizens of different developed countries in a central database. Blockchain technology offers a potential solution by wrapping an encrypted block that can be verified by a blockchain network when you need to prove your identity. These applications range from explicitly changing passports and identity cards to changing passwords. It can be very large.
- Digital voting: Extremely relevant in the aftermath of an investigation into Russia’s influence in the recent US elections, digital voting has long been questioned as reliable and highly sensitive to interference. Blockchain technology provides a way to verify that voters’ votes have been successfully sent while maintaining their anonymity. In addition to reducing election fraud, it promises to increase voter turnout so that people can vote on their mobile phones.
Blockchain technology is still in its infancy, and many applications are far from common use. Bitcoin, the most established blockchain platform, is undergoing a major volatility, indicating such a relatively new status. However, the potential of blockchain to solve some of the big problems we face today makes it an extremely exciting and attractive technology. Of course, I will draw your attention.