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Blockchain: the technology behind Bitcoin has more opportunities than a new currency

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Blockchain: the technology behind Bitcoin has more opportunities than a new currency

2017 / 20/04
Blockchain technology is most commonly associated with Bitcoin - however, it is not only the bank sector in which blockchain could have a dramatic effect. Let’s see how it works and what the technology may be used for.

What is Bitcoin?

Let us start with the simpler part: most people already know about Bitcoin - even if just from stories or movies. A few years ago this cryptocurrency shook up both the world of technology and that of the bank sector - because it is a currency that uses encryption to manage transactions and to create new units as well. When paying by Bitcoin, you don’t need personal data or your card number, so in this system, all transactions can be made anonymously.

Besides that, thanks to the technology behind the system - called blockchain - there is a digital currency which is completely decentralised. This means that it is the exact opposite of the bank system. Transaction fees, account management fees and all other costs connected to the bank can be avoided. How this is possible with blockchain will be discussed in the next section.

To make a payment via Bitcoin, you need two things: a wallet (which is kind of a personal account that the user creates for themselves) and an address. The task of the address is to provide the connection between a wallet and the rest of the users. One user may create more than one address - one for each transaction if they wish. You put an amount of Bitcoins onto each address, and the sum of these will give you your wallet’s balance.

Transactions and moving money is exceptionally trustworthy since transactions are done with the help of a pair of keys. The public key may be seen by every member of the system, so basically anyone can confirm where the transaction originates from. (The other key is a private one which is available for only the user who owns the wallet.)

You arrive at the point of complete decentralisation when a third party comes in besides the sender and the recipient. The third party is the miner, who is supposed to validate the transaction. The hardware environment that does the mining will “wrap up” the transactions of the last ten minutes. The units which are created are called blocks - that form the blockchain itself.

Blockchain

The blocks that had been created by the miners contain some information from the preceding block (and also the block preceding that, and so on). Then in the end, the whole block is reduced to a random sequence of digits.

From the sequence of the digits generated from the blocks, a difficult mathematical equation is created, which can only be calculated through the trial-and-error method. So the computers of miners are trained to solve such mathematical problems in the shortest time possible. If a miner has found the solution to one problem, another hardware (which is similar to it) also checks whether it is right (it is easier to check it than to solve it), and if everything is alright, then the block is attached to the blockchain, and the process starts over again with the next block.

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This is why the technology is really secure, since this way, if you want to rewrite a block that had already been built into the blockchain, you would need difficult methods and automatisms. Moreover, there are always more and more blocks on the chain. Whenever a piece of data is rewritten within a block, it has an effect on the next block (and the next after it and so on), too. According to calculations, to hack only one block of the system you would need 4 months and a lot of computers that operate with the most modern technologies and at a fast speed.

Besides this, the security of the technology is also provided by the miners: because of the randomness of the mathematical operations, you cannot tell in advance which miner will find the solution and attach the block to the chain.

Back to Bitcoin

Thanks to this, blockchain is very difficult to hack. Moreover, in the Bitcoin system, money can only be tracked until real money is changed to Bitcoin - after that, all transactions are anonymous. Bitcoin is widely used because of these reasons: by people who do not trust the centralised financial world dominated by banks - but since it cannot be tracked, it is very popular amongst drug dealers and users of the “dark web.”

There is one huge backdraw to this currency: even within one day there can be very big changes in the exchange rates. This has caused many users to become bankrupt who did not want to trust a bank with their financial issues but they changed all their money into Bitcoins.

The opportunities of blockchain

Don and Alex Tapscott, the authors of the 2016 book Blockchain Revolution said that blockchain can be used not only for transactions involving money, but anything that is associated with some kind of value.

Shared databases

Let’s stay in the world of finance a bit, and let’s see how for example banks handle transactions. When there is a transfer from one account to another, one action may be done at a time: one account is closed for a short time (to decrease the balance by the appropriate amount) and then opened again. After that, the other account is closed as well to put the money onto it. There is no complication in the system since only one person can access an account at a time - it is impossible to do a transaction twice, because two algorithms tried to do the same task at the same time.

Blockchain, however, can be imagined more like a Google Drive document which can be accessed by more than one person at a time. Of course, this also means that more people can edit it, too, and the modifications are seen real-time by all the participants.So it is excellent not only for transactions that involve money. Imagine the use of technology when it comes to professional documents, specifications or any contract that has to be supervised by more than one person. There would be no need to print out the documents multiple times, send them to the appropriate person who then sends them back with their modifications - only to be modified by another partner again, until you don’t even know what the original document contained.

By using blockchain, you can avoid all that. Everyone who needs these data can edit the given papers real-time, and they can also see the modifications others made. All these modifications will be included in the blockchain, and everyone who is part of the given system can verify the time and the nature of the modifications, as well as who they come from. In this case, the chance for an error is almost zero.

Election results

Imagine an election process based on blockchain. The results of any governmental election would be transparent and undoable. Voters would be informed (from a trustworthy source) about the current real-time results of the election; and corruption would be completely impossible.

Sharing economy

We are living in an era when sharing economy is on the rise: Uber and AirBnb have inspired other startups to create apps based on sharing economy. However, if users wish to pay for a ride, a mediator (Uber) is needed to complete the transaction, which makes it a centralised solution. With blockchain, direct paybents between users would become viable - which means that there could be a decentralised but still functional system where the possibility of error is almost zero.

The future of blockchain

Nowadays the most common use of blockchain is still cryptocurrencies and mostly Bitcoin. It has already been discovered by banks as well (by Goldman Sachs, JP Morgan, UBS and Credit Suisse for example), who also plan to introduce a unified, standard version of it. However, if the technology becomes widespread in other fields of study as well, then commerce and sales, the world of stocks, and even copyright can undergo a dramatic change.


Source: Medium, Blockgeeks