Blockchain Technology Explained

The origin of blockchain is the bitcoin cryptocurrency, the first example of blockchain, which has allowed us to think about using its protocol for thousands of other things. We have known the internet of information. Now let’s go to the internet of value. The concept is not easy. But if you understand it, you’ll be licking your lips as you imagine all the good that blockchain will bring to our lives. Let’s approach it with a parable.

One Monday for an exam, four students show up in class without having studied and make up a story. They tell the teacher that, returning from a wedding the day before, they had an accident. They were unhurt but spent the night in the hospital with their injured friends. The teacher, sympathetic, tells them that he will give them the exam in a few days when the shock of the accident has worn off and they are more focused.

On the day of the exam, having already studied, they present themselves to the teacher, who places them in four separate classes, takes away their cell phones and gives them all four the same four-question exam: Who was getting married? What time was the accident? Make and model of the car you were in? Names of the injured friends? The story is a sample with people of how blockchain works. You’ll understand it later. And the most exciting thing is not its structure, which is difficult to understand, but its applications, mind-blowing. But first, let’s understand what blockchain is.

Until now, everything was governed by centralized databases. A blockchain is a distributed database. And what is it? Well, a database that is not in one place and governed by one person, but is spread across different computers or nodes that are all equally important. Imagine a ledger. This is a ledger that is replicated identically on all the nodes it is on. But every journal entry, every new transaction, or new block, occurs in all of them as well. There is no one entity that has all the information. It is distributed in real-time updated copies among all the nodes. Think of a Lego block building. Each block is a blockchain operation. And every time a new block is put in, that block carries all the information from everything before it, which cannot be modified or deleted. How do you accept that every node in the chain gets a new block put in?

That is the key: blockchain poses a mathematical challenge to the nodes and the first one to solve it sends the solution (unique, since it is mathematical) to the others.

If the majority certify that the result is true, the block is accepted by all and becomes part of the chain, with all the previous information and the indelible certification of the moment when the operation was performed. Thus, the network works by consensus among the parties. It is inviolable. Once a transaction is approved in the master ledger, it can no longer be deleted or modified.

What are smart contracts?

Another of the great promises of blockchain are smart contracts. Instead of signing a piece of paper and having a third party – be it a notary or a judge – to ensure that the contract is fulfilled, when you sign a smart contract what you do is give the OK to an application. It is a contract that is self-executing when the conditions signed by the two parties are fulfilled. Finally, here come the examples!

You buy a plane ticket for 100 euros to go to Paris and you add an insurance of 10 euros that says that if the flight leaves more than 2 hours late, you get a full refund. When you are waiting for your flight to leave and two hours go by without it taking off, you see on your tablet or your cell phone that a transfer of 110 euros has just arrived at your bank. No one gave the order: the official database linked to the smart contract was the condition fulfilled for the system to compensate you, without any human being moving a paper, saving paperwork for the company and saving paperwork, time and annoyance for the customer!

And if you insure your car, which will be full of sensors and connected? We mix the Internet of Things (IoT) with blockchain. If you give them access, insurers will be able to charge you less because they will see live that you drive very carefully. There will be no fraud, nor will you be evaluated by what you say happened: a large part of the work of the experts will disappear because most of the information will be available in real time (from how the accident happened to what the damages are, as reported by sensors and cameras).

Blockchain Examples in Real Life

  • What about a farmer’s hail insurance? The smart contract linked to the weather database will pay you immediately when it sees that it hailed on your land. Frictionless and saving travel and paperwork for adjusters. All those savings will go to improve company profits and prices for customers.
  • Another marvel of blockchain is the traceability of everything, from the ingredients of a manufactured product to the real origin of a food or the exact destination of every cent of a donation to an NGO. Transparent traceability will put an end to counterfeit drugs, which do so much damage to health and to pharmaceutical companies.
  • Generating electricity at home and selling it today is difficult. Powerpeers (Netherlands) makes it possible to sell energy on a point-to-point basis.
  • The production of things like sneakers will be decentralized. Instead of one big factory, there will be thousands. They will make us 100% customized sneakers and we will save the cost of transportation because they will be made much closer to our homes. There will be haute couture for everyone at rock-bottom prices.
  • Blockchain will make it impossible for someone to buy a lottery ticket to launder without leaving a trace. Some ‘lucky’ person is not going to like this.
  • There are also great applications for journalism: today, commissions and management make it uncomfortable to sell any product for less than one euro. The efficiency of blockchain will allow micro-payments of one cent for reading an article, and it will be the journalist himself who will be able to collect it without the intervention of a medium.
  • There could be a large kiosk (for example, Publicism, is a future platform) where each media outlet or author will charge the exact amount depending on the time a reader spends reading them. There will be better journalism: the #clickbait (news-bait) fraud will end because the media will not seek the click but that we spend time on their page (they will charge advertisers or readers by viewing time and not by number of clicks).

Blockchain gives transparency

  1. Transparency in donations to NGOs: you can see and track your money from the time you donate it until the money reaches the project and the project is finished, as is already being tested in Givetrack. NGOs are among the most scrutinized organizations, and it’s great that NGOs use part of their budgets to promote their own cause, but it’s always good for the donor to see everything with more transparency.
  2. What about invoicing issues? When a self-employed person issues an invoice, he/she will collect it live and the Treasury will keep the VAT and the Personal Income Tax at that moment as well. Goodbye to corruption. No more duplicate invoices and other scams. The same will happen in the administration and the company.
  3. In crowdfunding, a smart contract will allow that if the project that hundreds of people have funded you is not done in the marked time, the money is automatically returned to all of them without one person having to spend a second to manage it and without giving explanations.
  4. The vote in the elections with blockchain will be safer, faster to count (live), everyone will be able to audit it: journalists, government, parties even you will be able to check that your vote was the one you wanted, making a live query to the database. Followmyvote is working on it.
  5. In Australia, the government is putting police videos into blockchain to make sure they are not tampered with. In 2020, Dubai will move all its public documents to a blockchain and will no longer use paper. The government estimates it will free up 25 MILLION hours a year of people dedicated to managing stored documents.

Blockchain in Culture

An artist will be able to get paid for his songs better thanks to blockchain. A photographer or a musician can already monetize their images and songs with platforms like Monegraph, which allows with blockchain to guarantee that the author is the one who sells the rights and to send him the money generated by their use at the price he sets. It avoids finding out who has the rights and is paid and collected automatically, between machines and without intermediaries. Goodbye to the trade with our data, thanks to the decentralization that blockchain implies. This decentralization will also reach Google and Facebook, which today are walled gardens where we spend a lot of time. They will run out of the giant business of trading with our data.

Blockchains in e-commerce

Also with decentralization. What is the key to e-commerce? Trust. Whoever sells something physical, will not depend so much on Amazon to do so. Amazon’s role as guarantor won’t be important because customers and merchants won’t need to trust the other party thanks to blockchain supplying that trust. An example? Openbazaar. You buy and your money goes to a ‘bridge-account’. Only when you confirm that you have received the order, the money leaves the account to the seller.

Another brutal advance is the issue of your identity, unique and only in your hands and not in those of third parties. Can you imagine seeing anything on the Internet and clicking on it without registering anywhere, without entering your physical address or your credit card 20 times? One click, and in a few hours, the product in your home. We would all have our own digital identity, a unique identifier that would not become anyone’s property. We would only provide it with each transaction. The traceability of everything, another of the advantages of blockchain.

You will buy a bike with gps that the manufacturer registers with a unique number when you make it, and it is registered which store sells it and, of course, that you are the owner when you buy it. It won’t make sense for it to be stolen because the blockchain guarantees that you are the owner. And if you want to rent it, you make a contract for a few hours with an individual and rent it.

With blockchain you will be able to rent your bike, your car or your house without intermediaries and with guarantees. Yours will be the bike for that time and your responsibility. Giant leap for the collaborative economy. Imagine a world in which we can all rent everything without needing AirBNB or BlaBlaCar or Cabify. Because everything will be connected and geolocated. Before 2022 we will have more than 50 billion devices connected to the network.

We have seen a lot of examples and we have understood from above how blockchain works. It’s tricky and, if you’re a klutz with ears, like me, maybe you’ll float a doubt about security… All this works thanks also to cryptography. Cryptography is the art of transforming a readable message into an unreadable and unique one.

  • This is called encryption. You put in a piece of data, for example a text – the word “Dog” – and that is encrypted in hexadecimal form. That is, a double mathematical formula is applied to it, which converts it into an unintelligible combination of numbers and letters.
  • The hash is unique. But what if someone figures out the mathematical function? The system is much more complex because it uses asymmetric cryptography. You all know what asymmetric cryptography is, don’t you? Well, I’ll clarify it just in case there are any klutzes: there is a public key to encrypt a message and a private key to decrypt it. If Charles sends a message to Mary, Charles only needs to know Mary’s public key and he can send it encrypted. Only Maria, with her private key, can decrypt it.

The public key is what will allow everyone to know that a company has sold a bike, but only the buyer can see – with his private key – all the data on that invoice. And each link in the chain (the tax authorities, the bike store, its suppliers, the customer…) will be able to transparently access the part of the information that corresponds to them and not the rest (the manufacturer will not be able to see the name or any of the buyer’s data, for example).

What do you think? Science fiction, right? Well, blockchain is the present. Four or five years from now, the world we live in will not even be recognized by the mother who bore you. Companies will be more efficient, services and products will be better, we will buy them cheaper and everything will be literally personalized: there will be a product for each person, and at a much better price.

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