Blockchain, the technology of the future is already among us

Have you heard words like Bitcoin, Blockchain, cryptocurrency, Ethereum and wondered what they are all about? Many people keep referring to Blockchain as a revolution for our whole society and the good news is that you do not need to be a “techie” to become involved in the so-called “crypto space”.

Blockchain is a distributed ledger that is constantly growing, its transactions are immutable, chronographically ordered, cryptographically protected and organized in blocks. However, the best way to understand Blockchain is by looking at Bitcoin, the very first Blockchain and through the practical example of Bitcoin, understanding the scope of Blockchain.

First of all, Bitcoin was born in the midst of a social and economic despair, the 2009 Economic Crisis. During this time, a lot of people lost their jobs, houses and the banks played a major role in this difficult period due to their irresponsible handling of housing loans. Most banks did not go bankrupt but were bailed out. Bitcoin first appeared in the middle of this tumultuous financial situation and was created by a mysterious person. In his Bitcoin paper, Satoshi Nakamoto proposes a new form of money which is digital and not controlled by anyone; that means that banks are not required to supervise the transactions. This is the rise of the era of decentralization. But with banks out of the picture, everyone and no one takes care of the validity of the transactions. A big network of nodes is going to maintain the records of transactions and each full node is going to maintain a copy of all the transactions. Each transaction is immutable, no node can tamper with what was written to the ledger. Cryptography (a mathematical tool used in cybersecurity) protects the Bitcoin network by means of hash functions. The use of hash functions cause the network to be unhackable. The “miners” are in charge of adding blocks (a set of transactions) to the Bitcoin ledger. The miners race against each other to solve a mathematical puzzle that would allow them to add a block to the chain and if they win the race, they earn bitcoins and this is how new bitcoins are created. Do we trust the miners? They have the power to create blocks. In theory, the answer is maybe. In practice, they have an incentive to keep the network safe rather than harming it: if an invalid transaction is found by other nodes in the block a miner created, the block will be rejected and no bitcoins will be earned by the miner. If a user in the Bitcoin network wants to make a transaction, the user connects to a node of the ‘peer to peer’ network. Users have a public and a private key. The public key is a pseudonym in the network and the private key is used to sign the transactions. Only the owner of the keys can access the bitcoins associated with them.

We just saw a very smart, secure and complex way of transacting with digital money with no intermediaries and this is revolutionary. The same principles of Bitcoin apply to other cryptocurrencies. These same ideas are used in other applications that are not necessarily related to finance. Ethereum is a platform in which Blockchain applications can be created. These applications are referred to as smart contracts. The values transacted in smart contracts can be goods. This is one of the innovations in Blockchain technology and makes us rethink the way we pay in exchange for services.

Blockchain can be used in the finance industry (as seen with Bitcoin), in the energy and health care sector by keeping our health information on a distributed ledger, in the music industry in which artists would transact peer to peer with their fans, and even for voting in private and cryptographically secured. It is a very exciting time to be alive since this technology has the power of disrupting differents fields of our society by decentralizing the way we interact or better said, transact!