What is blockchain?

2017-05-15 00:00:00:

The modern world is too complex to be aware of each of its manifestations, but at the same time it is too convenient to deny the usefulness of technological advances. This postulate serves as an example for those who are looking for new ways of evolution, applying the entire body of knowledge accumulated over the long history of mankind.

Blockchain technology, in this sense, is a prime example of the development of evolutionary processes in the financial sector. Many are familiar with the financial turnover system, dependence on financial structures and the need to attract third parties to carry out elementary monetary transactions. Blockchain technology is able to solve these problems by offering people a decentralized and independent electronic currency circulation system.

Why is it important? 10 years ago, we lived in a society dominated by paper money, therefore, no one had problems with payments for purchases. Todays situation is fundamentally different from those times, since ordinary money is becoming electronic, and in the case of cryptocurrency, digital. What is blockchain? We will try to answer this question in the article.

The essence of blockchain technology

Indeed, what exactly is blockchain technology, and why are the largest financial institutions in the world interested in its development? Lets consider the advantages and features of blockchain technology, comparing it with conventional, in some ways even outdated, financial systems:

Decentralization. This feature of the system is extremely important for understanding the essence of the processes taking place today, since its basis is fundamentally different from the usual ideas about financial institutions. Blockchain technology is not controlled by any regulator; all participants in the process of mining, exchange and distribution of cryptocurrency are responsible for the proper functioning of the system. It is difficult to imagine, because we are used to the fact that the financial turnover is controlled by the Central Bank of the country, which is subject to other financial structures, including private organizations. Blockchain is not regulated, but it is based on a set of rules and algorithms of actions followed by system participants.
Independence. Another significant factor that influenced the popularity of the digital currency is its independence. Blockchain technology obeys completely different laws, therefore, any external processes practically do not affect its performance in any way, moreover, they even strengthen the position of the digital currency. Politics, the level of the economy, the value of fiduciary currencies, the price of oil or precious metals, military conflicts and crisis phenomena cannot significantly affect digital currencies based on blockchain technology. In addition, all financial transactions take place without the participation of banking structures, which reduces their cost to almost zero.
Confidentiality. What is blockchain in terms of privacy? Despite the fact that the media have created a legend that the blockchain is completely confidential, in fact, the platform is open to reading information. But, if the owner of the Bitcoin wallet, when creating it, did not indicate reliable personal data, then no one will be able to find out who and to whom the money is sent.
These are the three main advantages of the blockchain system, but if we consider the technology in an expanded form, focusing on the additional benefits of the platform, it becomes clear why official financial structures are trying to create copies of it, spending millions of dollars on research. It is noteworthy that blockchain technology is interesting not only for banks, but also for government structures.

Blockchain technical structure

The block chain of transactions in the blockchain system is built according to a certain principle, where information about the previous one is recorded in each new block, which makes the structure open, allowing you to track the history of generation of information blocks and all transactions that have ever been carried out. A financial transaction made by a network participant is considered confirmed only if information about it is recorded in the next six blocks.

The blockchain is considered to be single-row, that is, sequential and linear. However, in some cases, additional branches of generation of blocks unexpected by the system are possible, information about which is also recorded in subsequent blocks.

It is noteworthy that each block contains information about all transactions made during the existence of the system, which leads to a scalability problem, which the best programmers of the planet are trying to solve, including todays network provider, Bitcoin Core.

The block itself is an information cell consisting of a header, a hash of the previous block, and a list of all transactions that have been committed. New transactions in the blockchain that need confirmation are listed according to the proposed miner reward for block generation. It is known that transactions in the Bitcoin system are conditionally free, but a network participant who wants to make a money transfer, during the creation of an application, can set a commission himself, which will serve as a reward to miners for quickly confirming a specific money transfer.

In the list of transactions, the first are those for which an increased commission is set for the transfer. Further large transactions, and then all the rest. From this, we can conclude that the speed of the transaction directly depends on the size of the commission set by the sender.

Blockchain technology has an increased level of protection against unauthorized actions. Due to the linear construction of the system, where each new block carries information about all transactions made during the entire existence of the platform, there is practically no possibility of outside interference.

Significance of blockchain technology

It is no secret that government agencies are interested in distributed ledger technology no less than financial institutions, since it is reliable, open and convenient for compiling distributed ledgers. Each developed country has created groups to research blockchain technology. Moreover, many programmers close to the financial environment are confident that this technology can fundamentally change the vicious system that exists today.

It is noteworthy that distributed ledger technology is of interest not only to financial institutions, but also to other organizations that need a reliable structural foundation. So, in 2016, the Swedish state organization in charge of the land registry announced a study of blockchain technology to create a database of the countrys land plots. The blockchain in the blockchain system is ideal for solving such problems.

But there are still few facts of full-fledged implementation of the system, it is used partially, or only tested. One example of how to work with distributed ledger technology in modern conditions is the Ukrainian electronic system ProZorro, which uses an open platform for holding tenders for the procurement of goods through government programs. Previously, such tenders and auctions were held in a semi-closed mode, which created the basis for the flourishing of corruption and the implementation of "contractual" purchases. The ProZorro system is available to everyone, which implies the opportunity for the middle class of entrepreneurs to participate in the tender, and is completely open, since it is built on blockchain technology. All information about transactions is open and available to everyone, which completely excludes the possibility of corruption schemes.

So what is blockchain? Many believe that this is one of the manifestations of democracy, since the system is more designed for ordinary people, and not for the interests of banks or government structures.