THE BIRTH OF THE BLOCKCHAIN
HOW DOES BLOCKCHAIN WORK?
Is the blockchain safe?
One of the most important features of the blockchain is security. The main feature of the model is given by the fact that the operation is not guaranteed by a central body, but every single transaction is validated by the interaction of all the nodes. This allows you to associate a legally valid date and time with an IT document. Thanks to the time stamp, a validation is defined that can be opposed to third parties.
The timestamp consists of a specific sequence of characters that uniquely and unchangeably identify a date, to fix and ascertain the actual occurrence of an event and define its temporal order. The application of the time stamp is a process that is defined as timestamping and is one of the operating bases of the blockchain.
- Immutability of the register;
- Traceability of transactions;
- High level of security thanks to cryptographic techniques.
OTHER USES OF BLOCKCHAIN
The blockchain validation process includes a verification and approval phase by the network participants. These steps are aimed at solving complex problems related to distributed consent, which is very different from consent based on third parties or on a centralized institution. Those who participate in solving the problem are called miners and their intervention is remunerated through the issue of a virtual currency.
The logic behind this process says that, to avoid the risk of fraud, it is necessary to create obstacles throughout the validation process: each node that participates in it must also solve a complex problem designed to put all the nodes in competition. The node that manages to solve the cryptographic puzzle will have the right to validate the block. In blockchains, nodes are not public, i.e. they do not know each other. This is a way to build trust and ensure full cooperation for validation.
Il double spending
Double Spending is the guarantee that the same digital “monetary” asset is not reused several times, as happens with coins. In the case of traditional money, this task is entrusted to the banks, which carry out the transfer of value from our account to that of the person who has sold us an asset. In the case of electronic money, the problem has been tackled with valid solutions, but which expose to concrete risks.
The resolution of Double Spending, or the ability to prevent a coin from being used twice by the same person, is essentially in the identity of the coin itself. The cryptography of bitcoin, and therefore of the blockchain in general, allows you to manage the identity of the cryptocurrency. In fact, it has its own specific ID code, a name and surname and its history. In bitcoin, the currency identifies the individual people who use the currency itself. Once used, no one will be able to dispose of that coin or a copy of it. In a sense, it is as if the banknotes could speak and tell the whole story of the transactions they made.
Once the issue of the identity of the participants has been resolved, therefore, bitcoin can be the most traceable and secure currency in the world.
HOW BLOCKCHAIN WORKS
As we well know, any transaction requires a guarantee, therefore by eliminating the intermediary, that is the bank, completely anonymous encrypted transactions are carried out and all transactions are filed in a public register distributed on the network. With the data of a transaction not stored on a single PC, but on multiple machines connected to each other, all the physical computers participating in the blockchain act as “nodes”. It is therefore not difficult to understand how much cryptocurrencies are liked so much by criminals.
This chain of data blocks (transactions) must then be verified, to prevent a user from selling or spending money that he does not have. To do this, there is a communication protocol that certifies and approves the transactions, and then stores them in the ledger, a sort of public register. Through a process called mining, a physical computer performs very complex mathematical calculations and gives the ok to the operations.
The main features of this still little known technology are:
- immutability of the register
- traceability of transactions
- high level of security thanks to cryptographic techniques
The basic components of the blockchain are:
- nodes: the participants in the blockchain, i.e. the servers of each participant
- transaction: data that needs to be verified, approved and archived
- block: the set of transactions merged to be approved and archived by the participants in the blockchain
- ledger: the public register in which all transactions are "noted" and consists of the set of blocks chained together by cryptography
- hash: uniquely and securely identifies each block
Each block contains several transactions and a hash that records all information related to the block. The transaction contains information relating to the recipient’s public address, the characteristics of the transaction and the cryptographic signature that guarantees the security and authenticity of the transaction.
The blockchain is organized to automatically update itself on each of the clients participating in the network. Each operation performed must be automatically confirmed by all the individual nodes through cryptographic software, which verifies a packet of data defined as a private key and used to sign the transactions.
Thus explained, it is clear that the blockchain is safe, but also irreversible, because everything that is done with bitcoins cannot be undone, and this could represent a problem for users.
The blockchain has the ability to create unique digital assets, which allow us to understand the meaning and importance of the blockchain. While in the digital world the documents we usually send to someone remain in possession of both, with the blockchain this does not happen and a document sent will no longer be in our possession. That document will become unique and it will not be possible to duplicate it. The guarantee of the uniqueness of the asset is configured as a value of absolute importance, since when an asset is duplicated (which represents a digital currency) that same value is canceled.
This is the reason why the world of finance was the first to understand the real value of the blockchain as a tool to ensure the uniqueness of a digital asset. There are also other sectors that have understood this value and that represent products and services with exchanges and transactions managed more efficiently to avoid duplication.
Le Distributed ledger
The blockchain belongs to the category of Distributed Ledger, or distributed archives, a set of systems that refer to a register built in such a way as to allow access and modifications by multiple nodes of a network.
All data representing a transition is subjected to an asymmetric double key signature mechanism, which works with a mechanism similar to that of a digital signature. It therefore provides for the use of cryptographic algorithms that enable the user to use the system, providing him with a private key used to sign transactions or to activate other services connected to the blockchain.
The distributed ledger, without a central validation system, is based on the mechanism of consent and participation of the nodes. This consensus, together with the logics of setting up the register, represents the greatest qualities of Distributed Ledger technologies and therefore of the blockchain.
This technology allows the creation and management of a large distributed database that manages transactions that can be shared between multiple nodes of a network and is therefore structured in blocks, so that each transaction initiated on the network can be validated by the network itself. The blockchain is therefore made up of a chain of blocks made up of transactions, in turn entrusted to the nodes of the network, which control and approve them. Each block stores the transaction history, which can only be changed with the approval of the network nodes, and which are therefore generally considered unchangeable. For this reason, the blockchain is considered an immutable technology.
Here are the previous alternatives to Distributed Ledger:
- centralized ledger. They use a centralized logic, where everything must be managed by referring to a single structure or centralized system (One-A-Many) on which trust is placed for the authority it represents
- decentralized ledger. They exploit the logic of centralization at a "local" level, using "satellites" that relate in a form that repeats the One-A-Many model. Not a great subject, therefore, but many central subjects who hold the trust
- distributed ledger. Sfruttano la logica distribuita dove non esiste più nessun centro, ma la fiducia tra tutti i soggetti. Nessuno può prevalere e il processo decisionale passa rigorosamente attraverso un processo di costruzione del consenso
Tokens in the blockchain
The token is that digital asset based on the blockchain that can be exchanged between two parties without the presence of intermediaries. It contains a series of digital information, for which it confers a property right to a subject on the basis of information recorded on a blockchain and transferred via a protocol. One of the first examples of tokens is represented by bitcoin.
Whoever issues the token promises to provide a service that can be purchased thanks to it. Buyers make an investment to use that service or because they believe in its value and want to sell it to others. The main advantages of the token are the following:
- it is uniquely labeled and has associated metadata
- it is not divisible
- exists in digital form on the blockchain
- it can also be followed individually in its 'chain of ownership' path
- it can be managed in different ways for each label
The so-called tokenization can be used as a financing tool in the various stages of business development, as well as alternatively or together with other tools such as the stock market, funds and banks. The following are the areas in which tokenization can be applied:
- innovative or non-innovative business projects based on blockchain
- tangible or intangible assets and services of any kind
Forks in the blockchain
Forks are tools used to improve the performance of the blockchain and to manage the protocol. They are divided into Soft Fork and Hard Fork:
- the Soft Fork gives life to an updated version of the blockchain protocol, compatible with previous versions. It implements a reversible change that allows participation in the blockchain network even for all nodes that are not updated
- the Hard Fork requires blockchain participants to upgrade. New cryptocurrencies are created, such as bitcoin cash, zcash and litecoin
OTHER USES OF BLOCKCHAIN
The new blockchain technology platform revolutionizes the way we obtain and exchange value by combining distributed systems, advanced cryptography and game theory.
The blockchain is a decentralized database that stores assets and transactions on a peer-to-peer network and manages data related to transactions present in the blocks, verified and approved by all nodes. Each node contains the same information, which therefore becomes unchangeable. The new paradigm for information management makes it possible to guarantee and certify the complete history of all the data of each transaction. Furthermore, technology allows the exchange of information and different types of values. Payment and smart contracts are examples of this.
In most cases, the first miner who creates a valid block and adds it to the chain is rewarded with the sum of his transaction fees. Miners can also receive new currencies put into circulation as an inflation mechanism, such as bitcoins.
In addition to the exchange of bitcoins, the blockchain has many other possible uses, such as certifying the exchange of securities and shares, “endorsing” a contract or securing the votes cast by online voting.
Security, urban transport, energy, copyright, the charity and fundraising sectors could also be interested in blockchain technology. These are just some of the areas where it can be applied. In fact, many companies have already started using it in their business. But why should blockchain be introduced in your business? Here are some reasons:
- it is digital and therefore adapts to any sector
- it works through encryption, its technical characteristics prevent damage and possible loss of data, making it more than secure
- being organized chronologically it is very reliable
- it is fast because it does not need to be validated by a third party
The news related to the blockchain are not over yet and extend to involve the entire world population thanks to Lybra, the new Facebook digital currency with which, from 2020, it will be possible to shop on the web and exchange sums of money. Perhaps the use of Lybra will also be possible in the physical world, to make transitions like a transnational payment.
What will happen? Analysts speculate that most industries could benefit more or less sensationally from the use of the blockchain, so all that remains is to wait to see the next evolution.
