Today we are more than accustomed to centralized models; we give all our data to companies like Google or Facebook and send our messages through servers like WhatsApp or Telegram.
In fact, the most normal thing in the world is that if you want to send a certain amount of money to your friend Laura you carry out the operation through a bank that acts as an intermediary of this type of transactions. The problem? That neither you nor Laura have the slightest control over the process, it is the bank that has all the information and therefore you are subject to its conditions (and of course to its commissions).
In this sense, if you have been aware of cryptocurrencies and secure banking you have heard of the blockchain, which is undoubtedly one of the buzzwords of recent years.
The blockchain is a revolution of these centralized models that we are talking about. Eye! Not only in the economy, but in all kinds of sectors.
The blockchain seems somewhat complicated, I got dizzy every time I heard the word. And it certainly can be, but with Cryptolka you will see that the core concept is not something so difficult. In this article, we are going to explain what blockchain is, how it works, and in which sectors it can be applied. Are you ready?
What is blockchain?
To understand what the blockchain is, or the blockchain, it is best to compare it with a database. And what is a database? Well, a collection of information that is stored in a computer system. This information is structured in a table format that allows for easy searching and filtering. In addition, databases are designed to hold large amounts of information and allow many users to access it simultaneously. So far so clear, isn’t it?
Well, now let’s see what is the difference between a database to use and the blockchain: the structure. That’s the key difference. As the name suggests, the blockchain collects the information in groups, known as blocks, that contain a set of information. Each block has some storage capacity and, when it reaches its limit, it is chained to the previous block, already complete. This is how a blockchain is formed.
Today, as the world works, a large amount of certified information needs to be produced, managed and stored. At all times: every day, hour and second. Normally, when we store information on the Internet we do it in a single place, a server, and that has a great danger: it is hackable and the information can be modified.
What blockchain does is protect itself with its structure. Blockchain revolutionizes this system by allowing information to be stored in millions of sites at the same time, with thousands of eyes staring. This causes that if someone makes a change the rest will verify if that change is real or not hindering fraud.
Therefore, the strength of this technology is consensus, because it assumes that if we all have the same information, it is real.
So, we can compare the blockchain as a gigantic database distributed among many participants. It is an unalterable log book with all the complete history of transactions that have been executed on the network.
In short, blockchain is a set of technologies that allow information, assets and value to be transmitted from one place to another, surpassing centralized systems and without the intervention of third parties.
The blockchain is a set of technologies that allow to transmit information, assets and value from one place to another surpassing centralized systems and without the intervention of third parties.
Not bad to begin with, right? Don’t worry, later you will understand how it works better. Read!
How does the blockchain work?
To understand how the blockchain works we must take into account 3 KEY concepts:
As we have said, each chain consists of multiple blocks. Each of them consists of the following elements:
- The information of the block in question. For example, in the case of bitcoin it would be the information related to money transfers: the sender, the receiver, the date, the amount…
- The hash: which is the identification number of the block. Each block has its own and is unique and unrepeatable.
- The hash of the previous block, thus, each block is connected with its predecessor and successor (chronologically unalterable), creating the famous chain.
As we have said, one of the most important concepts of blockchain technology is its decentralization. No one owns the chain but the information is in thousands of devices. These devices are the nodes, who maintain the copies of the blockchain.
Each participant is assigned a unique alphanumeric identification number that shows all their transactions, thus maintaining the transparency of this technology.
The nodes connect to decentralized networks called P2P that use the same language, with which they transmit a message called a token. Tokens can represent any type of asset, good, or service (for example bitcoins). The information is distributed without the content being revealed, as it travels encrypted.
This is how token transfers are grouped into blocks until this is completed by making the new transfers that have not fit grouped into the next block, and so on.
As transfers are made, contracts are signed, etc. There is a need to store that information in a new block and the creators of these are known as miners. The process by which they create blocks is known as mining. To do so, miners use special software with which they solve a super complex mathematical problem to find an accepted hash (there are approximately four billion possible combinations!). When they find the right combination the block is added to the chain.
Making a change in any block involves re-mining, not just the block in question, but all those that come after. This is the key to why it is incredibly difficult to manipulate blockchain data. We will elaborate further on this later. However, when the change is accepted by the nodes of the network the miner is financially rewarded. In the case of bitcoins, for example, the current reward is 12.5BTS.
Let’s see it in an example! Imagine, as we said at the beginning, that you wanted to send a unit of value (a bitcoin for example) to your friend Laura and start the transaction.
This transaction is sent with other pending transactions and they create a block, which is sent to the network of users (miners).
Miners value transactions made using mathematical calculations and validate them. When they reach a consensus, the transaction is verified.
The block receives its hash, as well as that of the previous block, thus creating a chain with all the records.
That’s when the unit of value will move from your account to Laura’s.
Why is blockchain so secure?
We don’t trust others. That’s a reality, whether it’s in real life or in the digital universe, especially when it comes to money. That is why we usually resort to a third party that can verify our identity. Until now they were organizations such as banks, PayPal, etc.
What happens is that when an intermediary certifies our identity, they acquire our data and probably market with them violating our privacy.
And how can we avoid resorting to these intermediaries? Surely you have guessed it: through the blockchain.
As we have said, the blockchain is unhackable. This is so for two reasons:
- By the hash. Remember that it is the identification number that each block has in a unique and non-transferable way. Well, this number is generated according to the content of each block, if it is changed, the hash also changes automatically. For you to understand it better, imagine that each block is a piece of a puzzle, if this puzzle changes shape it no longer fits, right? Therefore, the chain would be invalidated.
- Thousands of witnesses. At the end of the day, each user of the blockchain has a copy of all the information and, if one of them modified his copy, the entire community would know and his version of the information would be nullified and without effect.
This is how the blockchain gives us the assurance that information will never be lost, modified or deleted.
In this sense, we can understand blockchain technology as a means to validate any information, because after all, it is a secure and decentralized registry that cannot be manipulated.
7 uses of blockchain technology
This technology is usually associated with cryptocurrencies, but the truth is that this is only the tip of the iceberg of all the possibilities offered by the blockchain. At the end of the day, the data chain is useful for any information that needs to be stored intact and securely, in a decentralized way and without relying on intermediaries.
The blockchain can be the perfect solution to securely store the medical history of patients so that they have complete confidence that the record cannot be modified. Similarly, it could be available to every licensed physician, regardless of the health facility the patient in question has gone to.
2. Internet of Things
Millions of devices connected to the internet that are currently usually managed by their providers … Do you really think that in a few years this centralized model will support so many devices? The revolution of the Internet of Things (IoT) market may also open a breach in security. With the blockchain these devices could communicate without intermediaries, securely and directly.
3. Smart contracts
Smart contracts can incorporate their information into the blockchain to facilitate, verify, or negotiate a certain contractual agreement. In this regard, they operate under a set of conditions that users accept and, when those conditions are met, the terms of the agreement are carried out automatically.
For example, if a person wanted to rent a flat using a smart contract, the landlord would agree to give him the apartment door code as soon as the tenant paid the deposit.
4. Property Registration
Blockchain technology can end the slowness and margins of error of the bureaucratic procedures that come with the registration of properties. Thus, it would allow banks, insurers, notaries, registries, buyers and sellers to securely track all phases of the process.
Similarly, there are countries like Japan or Dubai that have unified the entire property registry using this technology. In this way, they can count on a database that includes the total number of properties that exist in the country.
Today’s music distribution methods have made it possible for many artists to distribute their music around the world via the internet. This has caused numerous problems in terms of payments and compensation for their songs and performances.
The blockchain could solve this problem by offering control, independence and security. As you hear, music distribution could be about to be the protagonist of a revolution by managing the reproduction, distribution, and enjoyment of music through the blockchain. Even Spotify is betting on its own blockchain!
6. Digital identity
Without a doubt, the management of our identity is a real problem… We often hear about security flaws or data theft. Well, the blockchain could become a totally reliable system to validate identity.
7. Public services
Are there any other sectors where transparency is more valued? The blockchain could give total security to the handling of information and total transparency in public records, the management of licenses, transactions, movements of resources, etc.
Do you know any other sector where blockchain could take off? Let us know in the comments. Undoubtedly, it is a universe in constant growth and it is a matter of time to start seeing new business ideas.
And what do you think? Sound like science fiction? Believe us when we tell you that in a few years (4 or 5) the revolution of this technology will be more present than ever making the world safer, more efficient, and collaborative. Don’t feel like seeing it?
Remember that if you want to know the latest digital trends and get hold of the FUNDAMENTAL skills to face the new technological era, the Digital Transformation Certification is perfect for you. We will deposit in your hands all the experience of the best professionals in the sector.
The time has come!