Explained: why is the blockchain considered revolutionary?

"Blockchain" and "cryptocurrency" have been around for almost a decade. What do we know about these technological developments? Would you be able to explain clearly what they are and how they work? What practical application does blockchain technology offer and how can the world change?

Euronews asked an expert in this field, the Zurich lawyer Fabio Moura, to put these complex concepts in simple terms. Some of the answers are also commented by Anže Voje, who has the hands on technology as co-founder of OriginTrail, based in Ljubljana, one of the many technology startups that exploit the blockchain know-how.

Euronews: What is blockchain technology? If I had to explain it with visual help, what do the blocks represent? Could you list the most serious benefits of blockchain? How is it different from previous high security technologies?

Fabio Moura: Blockchain technology could be explained in a way that even my 4 year old daughter would have understood. This explanation, however, would neither be realistic nor useful, as it would reduce the technology to a set of generalizations. So, if we really want to understand the blockchain, we should not oversimplify the answer. Still, it's quite simple.

First of all, let's take two steps back to see the big picture. The first step back is necessary to review the nature of the Internet. Today the Internet is one of the main elements of our society. Almost 100% of all telecommunications runs through the Internet, where information and knowledge are recorded, shared and developed online.

The entire global financial system works online via the Internet. Marketing and consumption, entertainment and political campaigns, social networks – all these human activities take place increasingly online, on a network known as the Internet, designed in the 70s, which still retains the same structural design at the center, the same architecture and data sharing protocols that began almost 50 years ago.

The Internet is designed as a decentralized network. This means that computers, smartphones and other devices are connected to a particular node: a focal point, a server, an Internet service provider or a supercomputer. This node, in turn, connects to other nodes in a way that allows all connected devices to communicate via an intermediary: the established connection or multiple intermediate nodes.

Here's where the blockchain comes in: it changes the way data is stored, distributed and even generated. The blockchain is, inside, nothing but a new way of structuring the data registers. This is done in a way that was initially developed in 2009, generally referred to as a "distributed network" compared to the "decentralized network".

In a traditional Internet model, all computers connect to nodes that centralize and redistribute information, forming a flow. In the blockchain, the structure of data storage and distribution is completely different. Thanks to numerous technological developments, such as encryption and advanced data compression, all computers in a blockchain network store ALL the information shared in that network. At the same time, all computers connect to ALL the others. The system works without centralizing the nodes, since all the connected devices are nodes themselves.

In a very simplified way, this is what they look like different systems: a centralized, decentralized and distributed (blockchain) network. In the third figure under all the points would be connected to all the other points, not just some of them!

That's why blockchain is also described as a technology of Ledger Distributed (DLT). It is the ledger, or register, which is completely distributed on the network. [There are also other DLT models that are not blockchains and, theoretically, you might have a blockchain that is not a DLT].

So why "block" and why "chain"?

The name is easy to understand once you understand how the distributed network works.

How do we reach a certain order in a network without central authority controlling nodes? There may be (and, in fact, there are) different networks structured under a blockchain model. Every computer or device that joins a blockchain network receives a file with all the information ever created in that blockchain and adheres to a simple set of rules known as the protocol. The main rule says that after X minutes (or X seconds) all information on the network is compressed, compressed and encrypted. This packaged information forms what is called a block, which is followed (after X minutes or seconds) by another linked block and so on. These blocks form a chain of blocks, or a blockchain.

"Sealed" blocks are still accessible, so you can consult the information stored in them. However, all this information is "written in stone" and can never be deleted or modified. Modifying data in a concatenated block is technically impossible. And there's only one way to eliminate it: you should eliminate the entire blockchain. Every single computer that has ever been connected to the blockchain would be able to reestablish the blockchain structure and content. This process can be automated by blockchain rules.

So, why is this revolutionary?

The time has come for the second step back that we talked about earlier. Consider the structure of society and the world today. Think about the Internet and its decentralized structure based on different nodes. Who controls the nodes, check the Internet. To a certain degree in constant growth, who controls the Internet controls the world.

You can check some nodes to bring censorship to an entire country or region, as happened with Facebook, WhatsApp or Telegram. The nodes can be checked to introduce a financial / economic embargo in a country. This is the case of Iran, which was "disconnected" until last year by the global financial system: it was not possible to withdraw cash from an ATM in Iran, nor pay with a credit card, nor send / receive funds to and from towards abroad. The only solution was the physical delivery of a sum, in pocket, by plane or by train.

Control of the right nodes allows data recovery, manipulation and even the creation and massive distribution of information, including fakes. [19659005] Today there is much more digital money than real money: about 92% of world money is in fact digital. This means that it was not created by governments, but rather created by private and commercial banks and exists only on the Internet. At the same time, online portals and social networks have become the main space for promoting the political agenda and influence, no matter if you live in a democracy or a dictatorship.

Regardless of the conspiracy theories, the fact is that ruling the world has always remained within the reach of very few privileged and powerful. The architecture of the Internet simply reproduces this fact. The blockchain technology has finally come to change everything.

How powerful is the blockchain?

Considering its architecture without centralizing the nodes, it is potentially impossible for a blockchain network to be controlled or suspended by any authority. This is true once the network reaches a certain level of maturity, ie a high degree of acceptance in society. This means that a blockchain, once put in place and sufficiently adopted with a reasonable number of workstations connected to it, is practically unstoppable.

To get a perspective on the computational power of a blockchain network, an article by Forbes states that the global computing power of bitcoin blockchain is 256 times greater than that of the 500 most powerful supercomputers in the world combined. This article appeared in 2013: today it is estimated that it is more than 800 times bigger than the whole Google system.

What change comes with the blockchain?

To understand its potential impact on society and why many influential people criticize bitcoin and other cryptocurrencies so fiercely, let's look at a simple scenario regarding the adoption of a cryptocurrency. Let's say I own an electronics store and start accepting bitcoin payments. So the authorities adopt a law which states that bitcoins are banned in my country. I can still accept bitcoin payments because on the blockchain network the authorities have absolutely no power to control or block it.

If I do not sell my bitcoins for fiat currency (ie traditional currencies issued by the state like the euro, US dollar, etc.), there is no way for a government to know that I have them. So, if the baker is behind the corner, the supermarket, the pharmacy and the family doctor start accepting bitcoin payments, I could very well cover most of my expenses with them. As more and more companies and people start accepting bitcoins, we have a declining need for legal money.

However, if we stop using legal money for most of our transactions, the risk is that I may one day perceive the government as corrupt or inefficient, and then declare all bitcoin transactions for the tax authorities? I have a choice not to do it. What happens with a government if people start to have the option of not paying taxes? We should bear in mind that at this point we also do not pay bank fees. So, by that point, the banks have changed radically to try to keep you as a client, or they are now obsolete.

This might sound like science fiction, but let's remember some simple facts:

  1. Blockchain networks are immutable and unstoppable.

  2. Once established, they can not be controlled.

  3. Most people around the world do not like their government and often are not satisfied with the traditional financial system, which in some countries pays up to 15% per month interest rates for late credit payments.

  4. Most people in the world live in countries with weak political systems and low-quality financial systems with unstable national currencies.

  5. Today, less than 1% of global money is represented by cryptocurrencies. This percentage, however, has grown annually since the introduction of bitcoin in 2009. It was worth less than one cent. Today it is worth about 6,200 USD and no other resource or currency in human history has ever recorded such a growth in value.

Euronews: What applications for blockchain technology would you like to list? Which areas? Please provide some very specific examples, perhaps even those areas, where it has not yet been used, but could be used in the near future.

Fabio Moura: C & # 39 is a multitude of applications. Here is just a short list:

  • Cryptocurrencies;

  • Certification of documents;

  • Traceability of products and goods;

  • Voting systems;

  • Project management;

  • Financial services;

  • Supply Chain Management

  • CRM (Client Relationship Management);

  • Resolution of disputes;

  • Tokenization of goods, rights, etc.: creation of tokens in a blockchain platform to represent anything from a fraction of a house to a share of a company, from rights on a contract to the possibility of using some features in a platform. These tokens can be sold anywhere, easily transferred or archived, traced or untraceable, all depending on the protocol of the blockchain;

Being more specific, I would like to mention these three existing projects:

Arcade City: an A Uber-type app without the Uber company behind it. The blockchain, in a distributed way, receives requests to lift the car and sends it to the nearest registered drivers, and does the same with payments. Since there is no company behind the scheme, it does not charge drivers for any journey (which in some countries reaches 25% of the value set by the passenger), resulting in higher remuneration for drivers and lower fares.

Ehab: a blockchain platform where anyone can finance the construction of their own home by selling tokens to people all over the world. They take the money from these investors, token buyers and build the house, returning token holders at better rates than those otherwise received by a bank loan. At the same time, token holders get more value for their money than they would get by investing in a traditional banking investment option.

Inflr: a platform where your influence on different target audiences in social networks is measured by artificial intelligence coupled with big data and you can offer to post, comment or share content and get paid for it – without no intermediary charging a commission.

Euronews: If cyber-currency is one of the many possible extensions of blockchain technology, it should logically bring all its positive characteristics. Why did we have more cases of fraud in exchanges all over the world?

Fabio Moura: Cryptographic exchanges are usually not built on a blockchain, they are simply places of exchange where people trade legal money for cryptocurrencies, or between different cryptocurrencies, so that they can be vulnerable to attacks by hackers like any other website. This is why it is always advisable to have a physical cyber-wallet, a USB pen-drive with a strong security protocol, which is kept safe and disconnected from the internet, linking it only when you need to sell or buy cryptocurrencies , thus limiting exposure to unnecessary risks.

It is interesting to note that these portfolios never contain bitcoins or cybernetic currency as such. They only store private encryption keys that can be accessed by every user of a blockchain network, while cryptocurrencies are always stored in the same blockchain platform. Regardless of exchanges, cryptocurrency owners can always sell and buy encrypted in a peer-to-peer fashion, that is, directly from other people, thus making the whole operation within the risk-free blockchain network.

Euronews: We know that cyber-currency farms consume a lot of electricity and produce a lot of heat. What is calculated on these farms? Why is processing power so powerful to solve the algorithms that produce a single bitcoin? Were not these same calculations made before the chain of blocks existed?

Fabio Moura: It might be hard to believe if you do not have a software developer mentality. Perhaps, this is why people give so many different answers to this question, even if the answer is simple.

Every time a blockchain system seals a new block (ie every 10 minutes in the case of bitcoin blockchain, or every 45 seconds for ethereum), this block is "packed" with four elements: its content (operations and recorded data), a timestamp, the hash of the block and the hash of the previous block.

What's a hash? In simple terms, it is a function (expressed in a combination of numbers and letters) that encrypts a data packet. Thus, every data packet in a blockchain or in each block has its own hash, and even the blocks have the hash of the previous block, so that they are organized in chronological order. The final format of the hash, however, is a random number, generated by computers connected to a blockchain network. This random number, although it encodes all the information on the block, must be different from any other number of hashes ever generated for a previous block in that blockchain. These are the calculations made in the cryptocurrency mines. To reward the computer that first calculates this number of hashes when each new block is closed, a certain number of bitcoins (or their respective cryptographies in other blockchains) are issued as a sort of payment for the produced work.

is a mechanism known as "labor proof", invented together with bitcoin as a way to generate, seal and link blocks of its blockchain. However, new ways of doing this are emerging, such as the "proof-of-stake".

Most of the energy used to extract bitcoins is consumed by mini-ventilators used to cool down microprocessors that run 24/7. To mitigate this effect, mining camps are brought into colder countries or regions, such as Iceland, Finland or Russian Siberia, and in some cases even on undersea farms, among other creative initiatives.

Blockchain was accused of helping criminals and terrorists. Does it have a negative impact on society?

When the Internet was created, some people – for the first time in human history – invented an incredible array of criminal activities. Some started selling drugs, some sold human organs or arms illegally, others took part in trafficking in human beings. In addition, the Internet has been used to provide digital support for money laundering, something impossible without the existence of the Internet. With the appearance of the blockchain, a new circle of criminal initiatives has returned to the spotlight, and a cautious view would make us believe that, had it not been for the bitcoin, the drug dealers would never have existed.

I prefer to address humor in my answer, since I often have to answer this question. On a more serious note, there is no statistical evidence of increased criminal activity due to the creation of blockchain technology and its most famous application, the cryptocurrencies. When a new technology is created, the "bad guys", who are under pressure in other fields, usually manage to grasp these new technologies quickly enough to carry out their regular "business". However, in the end, new ways of chasing criminal minds make the system more and more secure. This is also the case with the blockchain with its privacy protection, which may present a greater challenge for crime monitoring.

How can consumers avoid being scammed?

The behavior should be the same as we would normally: if you were to open an account in an online bank, you should check the bank's website carefully and perhaps try to find out who the owners are and so on. The same as when you think about buying an exotic fruit in a supermarket: if you do not know how to select a good one, I would ask someone to help you or do it with Google on your smartphone. If the fruit can be both delicious and poisonous, you will perform a double and even a triple check. It is exactly the same with cryptocurrency and blockchain.

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