What is Blockchain? [going beyond Bitcoin]

Learn about the history, operation and advantages of Blockchain technology

We talk a lot about the blockchain and its possibilities — but what is this about, exactly? Maybe the first thing that comes to your mind is Bitcoin , but the blockchain goes far beyond cryptocurrencies. Understand what blockchain is , how it works and what its applications are.

What is blockchain and how did it come about?

Although today the blockchain application is disassociating itself from Bitcoin, this technology started together with cryptocurrency . The concept of the first public blockchain was born in 2008, in the scholarly article Bitcoin: a peer-to-peer electronic financial system , published by a person or group under the pseudonym Satoshi Nakamoto (supposed creator of Bitcoin) .

Created in a scenario of global economic crisis and real estate bubble, Bitcoin was born to, among other things, prevent the double spending of values ​​and increase the confidence of financial transactions, taking them to the internet.

In the digital environment, data can be copied, altered and exchanged. The blockchain was the solution to eliminate the first two characteristics: a person cannot spend 1 BTC twice or say they sent you 10 BTC but transfer only 0.01 BTC, for example.

What is Blockchain? [going beyond Bitcoin]

In simple terms: how does blockchain work?

I know the technical terms are not very inviting for the broad audience to understand what blockchain is ; just the name of the technology is strange. But I promise that I will try to explain it as simply as possible, without any distortions. Come on.

The blockchain is a network that works with very secure chained blocks that always carry content along with a fingerprint. In the case of Bitcoin, this content is a financial transaction. The catch here is that the posterior block will contain the fingerprint of the previous one plus its own content and, with these two pieces of information, generate its own fingerprint. And so on.

Hash Bitcoin blockchain

“The great inventions were sometimes very simple, right?” commented Damascus.
In the image, you can already see some technical terms, such as hash. You can’t go deep into the blockchain without falling into technicalities, so let’s understand how this thing really works.

Going deeper: what’s with the blockchain?

Before talking about the chain of blocks (blockchain, you know?), We must understand how the hash. Now that we can face technical terms, I can say that the hash is a mathematical function that takes a message or file and generates a code with letters and numbers that represents the data you’ve entered.

Essentially, the hash takes a large amount of data and turns it into a small amount of information. It is the “fingerprint” of some file, or, in the case of the blockchain, of a block. In this system of linked blocks, this fingerprint is fundamental.

The hash will sign the block’s contents; if any information changes, the hash changes. When you generate a new block that also contains the hash of the previous one, you create a kind of stamp: you can check and signal if any block has been changed, and then invalidate it.

This block information is written to the ledger , which can be translated to a ledger; this is where all transactions, in the case of Bitcoin, are recorded. Once written, they cannot be deleted.

Each blockchain network also has “nodes”, which group together participants who share the same interest; in Bitcoin, it’s transferring money. These nodes can be either transactional , which write or generate blocks, or miners , which check whether the written block is valid.

What is Blockchain? [going beyond Bitcoin]

who validates the block receives a reward

As you might have guessed, this is where the term mining Bitcoin comes from . From the start, the blockchain has been so secure by a Proof of Work (PoW) consensus engine that uses processing power to solve very complicated mathematical calculations to ensure that the block’s cryptographic hash is valid. When someone solves the operation and manages to validate the block, they receive a reward – other people in the network can also confirm that the result is correct.

Alex Braz, CTO of Star Labs, explained on Web.br that this consensus mechanism is comparable to the Sudoku puzzle game: it’s hard to solve the problem, but it’s easy to see if it’s solved.

Now that you know the main elements of the blockchain, I can give you the more technical definition that André Salem, researcher at IBM Blockchain, presented in his lecture:

The blockchain is a secure business network in which participants transfer items of value (assets) through a distributed common ledger, of which each participant has a copy, and whose content is in constant sync with others.

The advantages of the blockchain

Cool, but what are the advantages of the blockchain? Is it time to make the country’s institutions collapse? Set the Republic on fire? Not so early.

The blockchain is also called the trust protocol.

Both blockchain and Bitcoin eliminate middlemen, but there are some differences between them. In my view, Bitcoin has gained a more cyberpunk bias, to bring down the financial system and institutions through encryption. Meanwhile, the role of the blockchain is more practical: ensuring trust between companies — no wonder it’s also called the “trust protocol”.

Besides trust , other words I heard a lot in the blockchain talks I attended were accountability, transparency and security. Mainly because of these four main blockchain concepts, presented by Salem:

Distributed ledger: the ledger, transaction and block recording system, is shared across the entire network and everyone can see it;
Privacy : it is possible to guarantee adequate visibility to the network, as transactions can be verifiable. The term “adequate” is important; in Bitcoin, all transaction information is public. In the blockchain, sensitive parts of the ledger can be hidden (such as someone’s address), without jeopardizing block verification;
Smart contract : a document that cannot be changed once written. It is possible to enter into contracts and authorize (or not) transactions in accordance with the established terms;
Consensus : transactions are verified by network participants and cannot be spoofed;

What is Blockchain? [going beyond Bitcoin]

Thanks to all this technology, the advantages and applications of the blockchain are immense. For example, we ‘ve already reported on a system that streamlines international payments. As the blockchain eliminates intermediaries, transactions happen in real time, with less cost and without losing security, as they can be verifiable and auditable. The risk of fraud is reduced through smart contracts.

Without going so far, the financial sector already benefits from the main feature of the blocks that avoid double spending and writing fraud; money cannot be copied, unlike a file. But the blockchain has applications beyond finance; See all the logistics of a working sale:

“IBM’s new network could enable a farmer in Samoa [Oceania country] to make a transaction with a buyer in Indonesia. The blockchain would be used to record the terms of the contract, manage the trade documentation, allow the farmer to provide a guarantee, get letters of credit and finalize the transaction with immediate payment,” exemplified IBM when it introduced the international payment system.

In fact, the logistics sector was the one with the greatest examples on Web.br. André Salem, a researcher at IBM, spoke about the company’s partnership with logistics operator Maersk. The transport of goods and containers is still cataloged on paper, which delays several deliveries and creates inconsistencies in the process.

Salem’s case can be seen in the video above (in English). With the blockchain, it would be possible to do this operation in a secure, integrated and decentralized way. Export authorities talk digitally with ports and customs and their terms and documents are secured by smart contracts

It would be possible, for example, to sign a rental property by integrating a smart blockchain contract into a smart lock. “In the blockchain world, Airbnb was born dead because it needs an intermediary,” said Ronan Damascus, Microsoft’s national director of technology. The person only needs to unlock the lock and part of the value can be transferred to the owner’s account.

While Bitcoin is criticized as a bubble with no solid foundations, there is much talk of a blockchain revolution. The technology introduced with cryptocurrency has thousands of practical applications in diverse industries. The blockchain probably won’t take over the world, but one thing is certain: the technology doesn’t seem to have an expiration date, like Bitcoin.

What is Blockchain? [going beyond Bitcoin]

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