Blockchain: What is it and what it will bring, Explained

Blockchain: What is it and what it will bring, Explained

What is blockchain, how it works, which spheres of life use it, what are the pros and cons of the blockchain technology's application

Introduction to blockchain

In 2008, Satoshi Nakamoto (still unknown it is one person or a group of people) introduced the concept of the blockchain, which in 2009 was implemented through Bitcoin - the first cryptocurrency.

The blockchain is a chain of blocks, an endless list in which information transfers from one person to another are recorded, and each of those owns a copy of the general list.

To imagine how the blockchain works, let's look to one example. Imagine that you have a diary. There you wrote down a list of tasks that you did in a day:

  1. Walked with my dog
  2. Went to school
  3. Lent $20 to Hamlet
  4. ...
  5. ...
  6. Ate noodles

Once you left your diary on the table. And Hamlet erased the record that you lent money to him. Instead, he wrote “drank pineapple juice”. In ordinary life this is possible. And now you can’t prove to Hamlet that he should return that 20 dollars to you. But imagine, if this checklist was in the diaries of tens, hundreds, or thousands of strangers? To take and erase from all of them this entry for Hamlet would be an almost impossible task.

If you made a transfer of money to Hamlet via blockchain technology, this information would be stored on a huge number of devices. But that is not all. Blockchain not only creates a “database” of information on remote and unrelated “servers”, but also encrypts this data. Moreover, the information of each transaction is encrypted when it is added to the previous one. This means that in order to delete or change information about any operation, you will have to change all other previous entries.

Some terms and descriptions connected with the blockchain

Cryptocurrencies. So far, the blockchain is presented as a new engine of the economy and basically, its use is associated with cryptocurrencies. Through cryptocurrency, you can already buy tickets and use different types of services. But in fact, the blockchain is an idea, which can be used in law, management, copyright and in many others spheres.

But where new cryptocurrencies are coming from? Nice question. There is a term ICO (Initial Coin Offering) - a process, during which new cryptocurrency’s coins are sold. It’s the modern format of startups’ investment, which eases the problem of monetization when idea or project is on their development stage. So people buy the coins, and in the future, with any luck, they can sell them at a more expensive price. For example some ICOs, as Storj projects ($30 million in less than a week), Aragon (~ $25 million in 15 minutes), very fast reached their financial goals from the beginning of selling their coins, replenishing the list of the most successful cryptocurrency crowdsales.

Smart contracts. Now most often, in a talk about this technology, you can hear about smart contracts. A smart contract is a blockchain-based, self-fulfilling automated contract, the code of which is fully mathematically written and has a clear logic. The advantage of the smart contract is that after its signing no one needs to monitor its fulfillment. This is done by the code itself, using external sources for gathering information. So the code will always know: whether the contract is violated or respected.

Blockchain can also be used for example for holding fair elections, since it will be impossible to crack it, and the technology itself provides an opportunity for anonymity and full transparency.

Interesting fact

Back in 2010, on May 17, Laszlo Hanyecz from Florida (USA) posted a message on the Bitcoin forum that he wants to order 2 pizzas and is ready to pay 10,000 bitcoins for them. On May 22 two pizzas finally reached him. At that time their cost was about $41. And now the same 10,000 bitcoins would have cost almost $40 million. This was the first transaction in the world made with cryptocurrency. Therefore, May 22 is considered the Day of pizza.

Pros and cons of functionality and use of the blockchain

The big plus of the technology is that there are no intermediaries. For example, blockchain can be used for sending money to someone. There is no bank, no program that will take a commission for the transfer. And also there is a confidence that no one will hack the banking program. Another plus is that participants in cash transactions will not be able to fool each other, because all transactions are fixed, and changing them, as we said, is almost impossible.

One of the drawbacks is that if the blockchain spreads and starts to officially function all over the world, this will lead to the disappearance of a huge number of professions, respectively, to the reducing of jobs, for example in the administrative field, related to the verification and validation of data, such as notaries, clerks, archivists, accountants and even lawyers. Blockchain may even completely liquidate banks.

Another disadvantage is the inability to control the source of the transaction. This technology provides an opportunity to see when and how much was transferred from one participant to another. But Bitcoin provides anonymity of payments. So, it is impossible to find out who exactly hides behind the sender or the recipient of the money. Therefore, the blockchain may become a popular tool for the illicit trade: weapons, drugs, etc.

Which countries have adopted the idea of the blockchain and already use it?

Although the idea of ​​this technology is quite new, some countries are already working with it. For example, the Parliament of Malta approved the regulatory framework for the use of blockchain technology. One of the first countries that positively accepted the idea of using blockchain was Japan (which is probably not surprising, if we pay attention to the name/pseudonym of its “creator”). According to the Nikkei report, approximately 40% of bitcoin trade in the fourth quarter of 2017 was paired with the yen. The Chinese authorities have not only decided to “transport” the work of the central bank to this technology, emitting the national currency, but also actively support smart contract platforms. And this is not all: thousands of blockchain-based start-ups operate on the territory of the country. But the most interesting thing is that Belarus became the first country to legislate smart contracts.