WHAT IS BLOCKCHAIN? PART 1

The Blockchain technology has become widespread with the advent of cryptocurrencies for more than a decade. What do we know about this technology? What is it and how does it function? What practical application does this technology have today? How can it change the world?

Across the series of our articles, we talked about various blockchain technologies, ranging from NFT tokens, atomic swaps, to decentralized finance (DeFi). All these technologies are united by the fact that they are based on the blockchain.

We explained in detail and showed how these technologies work, why they were created and how they can improve our lives. But we did not tell anything about the blockchain technology itself, its history, technical features of its work, types of blockchain and areas of use. After all, cryptocurrencies are only one of the few areas of blockchain application. Therefore, we decided to tell you more about this technology in a series of articles about blockchain.

The potential of blockchain technology

Potentially, this technology is able to cover all spheres of economic activity without any exception. At the same time, blockchain goes beyond monetary settlements, finance and markets, and has many alternative applications, including public administration, healthcare, science, education, culture and art. In fact, blockchain is a new paradigm for the coordination of any kind of human activity.

The beginning of the blockchain era provides unlimited opportunities for the development of technologies. So in the future, all financial transactions will become absolutely transparent, inflation and corruption will almost completely disappear, and smart contracts may turn out to be a new stage in the evolution of economic decentralization.

The impact of the blockchain is compared with the evolution of the Internet. In the early and mid-1990s, there was no understanding of the capabilities of the global network. As a result, the Internet has completely changed our lives, penetrated into all corners of life. It is almost impossible for a modern person to imagine his life without the Internet. Blockchain has the potential to change the relationships between people in a world where there will be no intermediaries.

The Internet is one of the structural foundations of modern society: almost 100% of all information flows pass through the World Wide Web. In fact, the Internet is currently the main engine of public access to information.

On the basis of the Internet, many communication protocols, data and information transmission, network security, defining the format of network messages, network prototypes and application programs were developed. Most of the economic and social spheres of human activity work on the basis of the developed Internet protocols: the world financial system, marketing and consumer networks, entertainment and political campaigns, social networks and many other spheres are increasingly using the Internet to overcome their challenges.

Like the blockchain, the Internet was conceived as a decentralized system where information on the network is distributed between devices connected to it. As a result of this method for data distribution, all information stored on the network had to remain confidential and inaccessible to third parties.

With the development of technologies, the Internet has turned from a decentralized structure completely into a centralized system. All the tools of information and communication technologies (ICT) are under the control of the largest technology companies: Google, Microsoft, Apple, Facebook, Amazon and others. All Internet solutions are centralized in the hands of several multinational technology corporations. This means that the data of all devices connected to the Internet: smartphones, computers, TVs, other digital devices and even cars are stored on centralized servers and are concentrated in the hands of the largest technology companies. Access to this data can be obtained not only by the companies themselves, but also by third parties represented by advertisers and law enforcement agencies, who will use your personal confidential data for their own interests.

The history of the blockchain

It is generally believed that the history of blockchain technology began in 2008, when an unknown person or group of persons under the nickname Satoshi Nakomoto published a manifesto: “Bitcoin: a digital peer-to-peer cash system”. In it, Satoshi described the first cryptocurrency Bitcoin as a fully decentralized electronic cash system that does not require trust to third parties.

However, this fact is a misconception. The prototype of the first distributed data storage technology based on a straight-line block chain was developed back in 1991.

The “founding fathers” of the blockchain are considered cryptographers Stuart Haber and Scott Stornett, who own the authorship of three (and according to some estimates — four) quotes present in the Bitcoin White Paper.

They have developed a prototype of the world’s first blockchain — the Surety system. The basis of this system for authentication in the network was the mechanism of a virtual digital signature — AbsoluteProof, an analog of a digital signature, which is now used in many cryptocurrency blockchains.

The formation of blockchain technology

The Internet as a data storage structure does not have sufficient openness and transparency, which allowed monopolizing the Internet in the hands of several corporations. Data storage systems using Internet protocols are not able to provide the necessary level of confidentiality, as well as anonymity of network users.

The combination of these factors led to the almost complete centralization of the Internet, which predetermined the emergence of blockchain technology. The emergence of the blockchain can surpass the influence of the Internet on the development of modern civilization in importance.

This technology offers a completely different way of storing, transmitting and even producing data than Internet protocols. Blockchain, in fact, is nothing more than a new way of structuring information registers. Experts around the world agree that this technology can become a real breakthrough in the field of finance and secure databases.

In simple words, the blockchain is a distributed database that contains information about all transactions conducted by the participants of the system. The data is stored in the form of a “chain of blocks”, each contains a certain number of transactions.

A certain number of records can be stored in each block. When the memory in the block runs out, it is closed, signed and a new block is formed in the chain.

Each block contains information about the previous block and a timestamp. If you try to replace or remove at least one block from the network, the entire chain will collapse.

The connection scheme of blocks in the blockchain

The key property of the blockchain is distribution. The data is not stored on a single server, as it happens in the case of storing data on servers of a centralized company. The same copy of the database is stored on the computers of all participants of the system. Every time a change is made to the blockchain, for example, a transaction is made, the database is automatically updated on all nodes of the network. To replace or add new data to the block chain, you must do this simultaneously on the computers of all network participants. By allowing digital information to be distributed (but not copied), blockchain technology has created the basis for a new kind of Internet.

Key properties of the blockchain:

  • transparency;
  • availability;
  • anonymity;
  • reliability

In the following articles, we will discuss the features of the blockchain functioning, the types of blockchain networks, the main consensus algorithms in the blockchain, and also tell you in detail about the possible applications of the blockchain in addition to monetary settlements and financial markets.