Blockchain is a disruptive technology. Conceived as a supra-structure built on the structure of the Internet, its mission goes beyond transporting the commands that make possible to execute all kinds of exchanges (the internet task): it provides the necessary elements to execute the transactions themselves, in an irrefutable and secure way, on a distributed scheme that bridges the traditional intermediaries and suppresses the centralized control. That is its first and essential contribution.
In August 2016, Gartner placed blockchain almost at the top of its Hype Cycle. As did before Big Data, cloud computing or data analytics, blockchain is increasingly perceived as “The Next Big Thing” to be taken into account in the tech’ agenda.
The financial sector leads R&D on projects based on blockchain; in general terms, in all industry sectors where security, trust and transparency are key conditions, blockchain projects are already being developed. In the coming years, blockchain will transform the way all kinds of value exchanges are carried out.
Before we analyze its eventual corporate applications, it is convenient to understand the technological basis behind the origins of blockchain: concepts such as peer-to-peer, crypto-currencies, smart contracts or Dapps provide support to the technology that will revolutionize the internet.
The origins of blockchain: Bitcoin
Bitcoin creates a global registry where all the accounts in the network are related to their available balances. This global registry is reproduced on thousands of computers distributed all over the globe, which are synchronized through peer-to-peer (BitTorrent’s technology) so that no one can order the power outage of the network. Every 10 minutes, thanks to a special algorithm (Proof-of-Work), the members of the network randomly decide who will choose which transactions, among all those issued, will be processed on that shift.
Transactions are spread throughout the network, and each computer (also called a complete node, or miner) adjusts the global registry (the version it has in memory) according to the common protocol. With each registry modification, a unique cryptographic fingerprint (test here) is created from the previous state of the registry, and is included in the new registry, hence the name “block chain”. This allows to certify that all the computers are using the same registry, and to resolve any conflicts by analyzing the cryptographic fingerprints of each iteration.
Bitcoin thus provided a new technology, the cryptocoin, that from its inception aspires to replace some day the traditional monetary system. It brings undeniable advantages:
- It is uncontrollable: any alteration in the protocol needs to be approved by more than half of the network, or will be rejected by the whole. This allows the network to be controlled by its own members, not by a state or a company.
- It is immutable: because it is a peer-to-peer network that synchronizes all its data set every few minutes, uploaded data can not be deleted and transactions can not be canceled. The only exception occurred after the hacking of The DAO, which in 2016 made this firm -responsible for the largest crowdfunding ever achieved– to lose $50 millions, and which effects were reversed with the consent of 85% of the network.
- It is always available: by operating as a peer-to-peer network with economic incentives (mining allows to obtain cryptocurrency), there are always be many computers maintaining it, so the Bitcoin network is intrinsically protected against Denial-of-Service attacks (DoS).
In spite of the criticism received at first, all the cryptocurrencies together totalize more than $28 billions ($19 billions only for Bitcoin). But the true and most valuable contribution of Bitcoin is the technology that supports it, blockchain, also called Distributed Ledger, a new type of distributed database with the ability, as we said at the beginning, to develop a new trusted environment to execute every kind of value exchanges.
And what is it all for?
Blockchain introduces the concept of smart contracts, algorithms that act like pre-programmed user accounts (wallets). Users can receive money and issue payments according to their programmation, which is visible to all. It can be envisaged, for example, applications and services such as lottery, co-ownership or health care contracts, to which people (or other smart contracts) send money in order to, and according to the terms of the contract, receive at some point a counterpart in the form of services or money.
The clear advantage of these contracts is that they can protect funds in such a way that no one can deprive the signatory parties from their rights. The terms of the contract being an algorithm hosted in blockchain, they are not interpretable or debatable, and will always execute automatically as programmed.
Blockchain also creates the concept of Dapps: distributed applications that use (or imitate) smart contracts. Dapps have the ability to handle data and money securely thanks to blockchain support and smart contracts, . That’s why Dapps and blockchains (privates or publics, depending on the application) can be used for such diverse and sensitive functions as:
- Online ID: uPort.
- Domain Name Services: BlockSlack.
- Private communications: Akasha, Status.
- Private sale: OpenBazaar.
- Collaborative economy: La’Zooz (transportation), WeiFund (crowdfunding).
- Documents certification, protection of art and content: Stamp (documents), Ujo Music (music), Synereo (content).
- University degrees certification: BlockCerts (conceived by the MIT), University of Nicosia.
- Supply-chain certification: EverLedger (diamonds).
- Custody of health data: Gem Health (partnered by Philips).
- Audit of incidents in nuclear power plants, defense and aerospace: GuardTime.
- Voting and governance systems: Bitnation, Democracy.earth, BoardRoom.
In the next article, we will explain the advantages of private blockchains, and introduce the most promising Dapps and blockchain frameworks for 2017.
For more about blockchain, read the study “Blockchain: building trust” from Rebel Thinking.