Blockchain: the definitive guide to know this technology

Take your first steps into Blockchain with online investment
Take your first steps into Blockchain with online investment

The proportion is even higher when shopping online; According to a recent study carried out by the cyber-security company G DATA, 87% of Internet users are aware of this aspect when they carry out a transaction on the Internet. This scenario explains the importance and development potential of the blockchain.

In fact, there is consensus when stating that the blockchain is called to transform the various economic sectors in a period of 5 to 10 years. This is stated by, among others, Sergio Ermotti, CEO of the financial services hoding UBS Group. There are even those who believe that this technology may be even more revolutionary than artificial intelligence.

Now, what exactly does this concept consist of? It is more than likely that you have already heard of it, since its emergence represents a paradigm shift in digital exchanges. Given its growing prominence, and so that you can familiarize yourself with the blockchain, we have created a short guide to understand what it is, how it works and what are its main areas of application.

What is blockchain?

The blockchain or chain of blocks is a distributed database. This consists of a kind of transaction record where the information is not stored in a single computer, but in multiple terminals connected to each other through the Internet.

In other words, it is a kind of ledger that can be accessed by all the people who use it, who are the ones who record and validate the data. This validation process is based on consensus: since all the members of the network have the same information, they all consider it to be true.

The system used makes it possible for the data to be recorded in information blocks and interlaced, in order to facilitate their retrieval and verification. For this, each of the blocks belonging to the blockchain contains exact information about all the transactions carried out, cryptographic addresses of the previous block and a unique random number.

Another feature is that the information cannot be erased, and it can only be updated based on the consensus of the majority of the people who participate in the system, or it can be expanded with the incorporation of new records. Therefore, the blockchain enables transfers without the need for an intermediary to verify and validate the information.

The origins of the blockchain must be found in one or more programmers grouped under the pseudonym Satoshi Nakamoto, who created it in 2008. Initially, this system was designed for the cryptocurrency or cryptocurrency Bitcoin, a virtual currency used to exchange goods and services through an electronic transaction system that does not require an intermediary. Bitcoin was launched in January 2009, based on the peer-to-peer (P2P) or peer-exchange protocol. However, the tech community is finding other uses for the blockchain, as we’ll see later.

If you want to know more about the blockchain, take a look at this video on “What is and how does the Blockchain work?”

How does the blockchain work?

As with a car, an appliance, or the Internet itself, you don’t need to know how the blockchain works to use it. However, it can be helpful to have a basic understanding of this revolutionary new technology.

In the first place, we must pay attention to two fundamental concepts: the node, which is each of the networked computers that has downloaded the blockchain into its memory and which uses software to distribute updated information in real time, and the miner, which are the machines that are in charge of controlling the transaction, thanks to high-powered computers and through a complex validation protocol.

Explained in a summarized way, the members of the system are in charge of generating the transactions included in the blocks, which will be registered and transmitted to all the nodes of the network. This allows each node to always have up-to-date information (such as when several people work simultaneously with a shared Google Docs document, for example).

Transactions through the blockchain are carried out from electronic purses or wallets, which are encrypted files that work much like a bank account. These electronic wallets have a public and a private key. The first is an alphanumeric string between 26 and 35 characters, equivalent to an account number. Therefore, the recipient of the transaction must provide their public key to the issuer. In turn, the private key is used to authorize operations from each user’s wallet, which is known as asymmetric cryptography.

All kinds of transactions from all kinds of wallets and related applications occur continuously on the network. When detected Through the nodes, these operations become part of what is known as the connection pool (or grouping of connections) of transactions pending verification. When this happens, the miners will choose these unconfirmed operations, to create a new block of transactions with them.

A block is the parts of a chain that group sets of confirmed transactions, and is made up of the following elements:

An alphanumeric code that links to the previous block.

A package of transactions.

A second alphanumeric code that will link to the next block.

Each block is added to the chain through a hash or cryptographic hash, that is, a piece of code generated from various mathematical operations, which acts as a fingerprint on any collection of data. In the case of Bitcoin, for example, the function known as Hash SHA256 is used, which creates a 64-digit hexadecimal number. However, other types of cryptocurrencies, such as Ethereum or Litecoin, use different procedures.

At the beginning of 2018, there were around a thousand cryptocurrencies. Discover in this link which are the most important cryptocurrencies.

There are three types of blockchain:

Public blockchains. They are accessible to any user in the world who has a computer and an Internet connection. Undoubtedly, two of the examples of public blockchains are the aforementioned Bitcoin and Ethereum.

Private blockchains. They are those blockchains that are not open to the public, and which can only be accessed by invitation. Newer than public blockchains, they tend to differ greatly between them. Among the most famous are Hyperledger, created by the Linux Foundation; Ripple, a protocol to facilitate international money transfers, and R3, a consortium of banks that develops solutions applied to the financial sector.

Hybrid blockchains. As the name suggests, it consists of a combination of the public and private blockchains. In hybrid blockchains, participating nodes are invited, but all transactions are public. This implies that the nodes contribute to the maintenance and security of the blockchain, although all transactions are visible to users around the world who do not have to know the content of the blockchain, unlike what happens with blockchains. private. One of the most popular hybrid blockchains is BigChainDB, a kind of database with the characteristics of a blockchain.

Once these terms have been introduced, it is time to return to another key aspect already mentioned, that of data mining and miners, to briefly know how it works.

 

We all know coal miners are so 20th century
We all know coal miners are so 20th century

What is data mining?

Data mining or Data Mining is a process of identifying valid, new, potentially useful and understandable information, of understandable patterns that are hidden in the data. Mining encompasses a set of techniques whose objective is the extraction of actionable and implicit knowledge in databases.

Data Mining is closely linked to the supervision of industrial processes, since it is very useful to take advantage of the information contained in a certain database. The foundations of data mining are in artificial intelligence and statistical analysis.

The typical data mining process consists of these six steps:

1) Selection of the data set. This phase includes the objective variables, which are those that you want to predict or calculate; the independent variables, which are the ones that will be used to make the calculation or process, and the sampling of the available records.

2) Analysis of the properties of the data, paying special attention to the presence of atypical values ​​and the lack of data, which is known as null values.

3) Transformation or processing of input data. This step is carried out depending on the previous analysis, with the aim of preparing the data to apply the data mining technique that best suits the data and the problem.

4) Selection and application of the data mining technique. A predictive classification or segmentation model is generated.

5) Extraction of knowledge, from the behavior patterns observed in the values ​​of the variables of the problem.

6) Interpretation and evaluation of data. Once the model is obtained, it is validated, verifying that the conclusions it produces are valid and sufficiently satisfactory. If none of the models achieves the expected results, it is necessary to alter any of the previous steps to generate new models.

Data mining is in the hands of so-called mining pools, which are sets of miners who work as a group to solve a block.

Along with the nodes, the miners are one of the pillars of the of the blockchain, since they are responsible for verifying the transactions that are being carried out and ensuring that they are real and legitimate. Thus, miners check if the time series is correct and if all transactions within each block are valid.

There are three types of blocks involved in this process. They are as follows:

Genesis block, which is the first block created on the blockchain.

Main block, which integrates the central axis of the chain, and to which the successive validated blocks will be incorporated.

Orphan or loose blocks, valid blocks that are not part of the main chain.

In turn, each of these blocks is made up of these four elements:

Hash or cryptographic hash, which is a preceding block identifier.

Timestamp, an explanation of when the block was created and confirmed.

Tx_Root, a tree data structure that collects all the transactions made in the block.

Cryptographic nonce, an arbitrary number that can be used only once. This is often a random or pseudo-random number issued in an authentication protocol to ensure that previous communications cannot be reused.

When two miners enter the pool of transactions pending validation and solve the same block of transactions practically at the same time, they both issue their valid blocks to the network. In some areas, such as Bitcoin, miners receive a reward for this action, usually in the form of cryptocurrencies.

What are the advantages of the blockchain?

Among the main benefits of the blockchain, the following should be highlighted:

1) Control rests with the user. Only users and developers intervene in the blockchain transaction. This avoids the presence of third parties that can access the data, sell it or transfer it to other entities for profit, as in most applications and social networks, for example.

2) Decentralize the storage of information. Thanks to blockchains, information is distributed on individual servers around the world. Therefore, if the system were to suffer some kind of attack or hack, only a small part of the data would be compromised, and not the entire network.

3) It has high reliability. This advantage, related to the previous point, is reflected in the operation of Bitcoin. Since 2009, its blockchain has operated without significant interruptions, and most of the problems that cryptocurrency has suffered have been the result of piracy or malpractice.

4) It is transparent. Blockchain technology is almost always open source. This means that other users or developers have the opportunity to modify and improve it freely. In addition, this makes altering the data recorded within a blockchain very difficult, since any of the many members of the network could be aware of it. Hence, the blockchain is a very secure technology.

5) Reduce transaction costs. These operations are completed without the need for the mediation of a third party, a role that banks have traditionally played. Therefore, the absence of intermediaries can reduce the payment of commissions between individuals and companies.

6) Streamlines operations. Unlike banks, where transactions can take days to complete – and where entities are subject to working hours and different time bands depending on their geographic location – the blockchain operates 24 hours a day, 365 days a year, for what settlements tend to be faster.

don't be surprised if one day, our brains will be wired to blockchain too
don’t be surprised if one day, our brains will be wired to blockchain too

What applications does the blockchain have?

The benefits listed and the enormous potential of blockchains explain the wide range of possibilities they offer in various fields, beyond e-commerce. Here are some of the most relevant.

First, we leave you here a short video about the Uses of blockchain today.

1) Food industry. Blockchains can improve the traceability of products, especially those of the meat type.

2) Logistics. The logistics and freight transport sector has already started to adopt blockchain solutions. One of the most remarkable examples is that of the Belgian company T-Mining, which is working on the creation of a platform based on this technology. It is expected that this will contribute to increase security in the transfer of containers in ports, increase the efficiency of the exchange of information between the parties and reduce administrative and operational costs. For more information, it is recommended to consult the report How blockchain impacts logistics 4.0, prepared by Indra.

3) Tourism. For Amadeus, a leading software company in tourist reservations, the blockchain is one of the six pillars in the transfomation of the sector. According to their study Blockchain: How to harness its potential in the travel industry, this technology can contribute to improving baggage control, achieving a safer and easier passenger identification, sharing passport information using only fingerprints obtained in the airport security controls and get more intuitive loyalty programs.

4) Insurance. In a recent conference on blockchain, Antonio Huertas, President of Mapfre, pointed out two main benefits: the syndication of risks among professionals in the sector and the boost that it could give to the field of microinsurance, especially in the case of lower incomes . He also announced the start-up of the Blockchain Center of Excellence by the company, to monitor this technology in the insurance field.

5) Music industry. Above all, experts point to greater transparency in the copyright market, as musicians will be able to better control how this aspect is monetized. In addition, it allows monitoring the distribution of profits and royalties, as well as the purchase and sale of concert tickets, an increasingly important activity for companies in the sector.

6) Health field. The data strings will give patients more control over their medical history. In the same way, they will also allow a secure exchange of medical records between patients and professionals, and between physicians themselves. One of the projects that are being implemented in this regard is MediChain.

7) Electoral processes. The massive participation of multitudes of people on the blockchain can help prevent voter fraud. One of the most relevant projects that have been implemented in this area is Follow My Vote.

8) Extraction of precious stones. The use of an immutable blockchain would allow creating a record for each stone, collecting its characteristics, such as its origin, cut or quality. In addition, in the case of diamonds, it will serve to identify which ones come from countries at war.

9) Third sector and NGO. The use of cryptocurrencies can be an effective way to send economic resources to areas in conflict or affected by natural disasters or humanitarian crises. For example, in 2017, the United Nations Environment Program (UNWFP) sent more than 10,000 cryptocurrency vouchers to thousands of Syrian refugees, redeemable in the markets participating in the project.

10) Social networks and online sales platforms. The giants in this field, such as Facebook, Twitter, eBay, Amazon or AliExpress could see their traditional business model threatened, due to the rise of decentralized transaction protocols. For its part, OpenBazaar is developing a protocol for peer-to-peer transactions, as is already the case on Amazon, eBay or WallaPop.

Despite everything, it should be noted that, according to an analysis by the International Data Corporation (IDC), in 2018 more than 2,100 million dollars will be allocated to projects based on this technology, more than double that in 2017. It is also estimated that the figure will rise to $ 9.2 billion in 2021.

The United States, Western Europe, China and the Asia-Pacific region will be the geographic areas that will invest the most in the embargoes. As for those that will increase investment the most, the ranking is led by Latin America and Japan.

Despite everything, the report also highlights that only 8% of the blockchain projects launched in 2017 are still in force.