Blockchain

How to exchange information tomorrow?

The 2008 financial crisis has left deep traces in our financial system and our society. Nowadays, people are becoming more aware of financial risks and weaknesses in our centralized system, which is mainly managed by governments and banks. In fact, the Subprime Crisis led to such huge economic consequences that even one of the biggest multinational investment banks at that time, namely Lehman Brothers, just collapsed and disappeared. However, one person chose that terrible moment in financial history to introduce his unique creation, which was going to change the way we do transactions.

http://static5.uk.businessinsider.com/image/56aa2179dd08959a058b45fe-480/lehman-brothers.jpg — “What we know about the global financial crisis is that we don’t know very much.” Paul Samuelson

His pseudonym is Satoshi Nakamoto and he created a revolutionary system of transactions, namely the Blockchain. Right after Lehman Brothers’ blackout, a paper called “Bitcoin: A Peer-to-Peer Electronic Cash System” was published. In fact, this paper of 9 pages briefly explains how the Bitcoin works, a digital currency experiment using an innovative technology called the Blockchain. The release of this first Bitcoin protocol in 2008 has attracted the interest of a lot of cryptologists, mathematicians, programmers and even politicians.

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcSefBTkung6Du4yx19Q2fW_wTisUc1ExYJbd5kWPy0ehLPoAXJt — “The important function of a currency is, it’s a means of payment, it has to be generally accepted, it has to be a store of value and it’s a transaction currency. Bitcoin is only a transaction currency.”UBS Chairman and former Bundesbank President Axel Weber

Nowadays, the Bitcoin is a source of speculation and financial press because of its huge increase in currency value. Recently, BTCUSD (the equivalent value of 1 Bitcoin in US dollar) has reached 5’000 $ on the 1^st of September 2017. In 2010, 1 Bitcoin was worth 0.003 $. If you would have bought 10 $ worth of Bitcoin at that time, then you would have become rich, very rich. Today, one Bitcoin is worth more than 4’000 $.

https://agtb.files.wordpress.com/2013/12/bitcoin-developer-amir-ta-005.jpg — « You can’t stop things like Bitcoin. It will be everywhere and the world will have to readjust. World governments will have to readjust » John McAfee, Founder of McAfee

Now you know a bit about the Bitcoin. However, the most interesting and promising part about cryptocurrencies is its underlying technology: the Blockchain. In the future, Blockchain technology will change our society and the way we exchange information.

So, what is Blockchain?

http://technologies.lesechos.fr/partners/capgemini/cacheDirectory/HTMLcontributions/img/2548_HIGHLIGHT_FT.jpeg — So, what is Blockchain?

We can resume Blockchain technology with 4 characteristics:

Distributed database
Peer-to-Peer transmission
Transparency with pseudonymity
Irreversibility of records

Distributed database

The main point about the Blockchain is the fact that its system is decentralized, which means that the information is owned by everyone connected to the system; it is a system of distributed ledgers.

http://205.186.148.34/wp-content/uploads/2016/02/blockchain_decoded.png — “Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value” Eric Schmidt, CEO of Google

For instance, if Alice and Charly belong to the same network, then Alice and Charly know the entire information, which has been and is circulating inside this network. Thus, Alice knows that Charly has received X amount of Bitcoin since the network was born and vice versa.

Actually, the data of transactions and its complete history is known by every actor of the system. The icing on the cake is that all the information is encrypted and the maths used are so complex that it enables anyone from the system to verify the inflows/outflows of Bitcoin in every node of the network. Therefore, the Blockchain network autonomously uses computational algorithms in order to regularly verify the integrity of the decentralized release of information.

In contrast, the system, in which we are living nowadays, has traditionally been centralized with a government and central bank at the center of information exchanges.

« if any JPMorgan traders were trading the cryptocurrency, I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous. » Jamie Dimon, chief executive of JPMorgan Chase & Co (JPM.N)

Peer-to-Peer transmission

The flow of the information is transmitted through individual nodes, which together form the entire decentralized network; the information and its history are stored in each node. Therefore, there is no need for a centralized third party in order to regulate the transaction and make a profit from it.

http://www.sapiens.com/blog/wp-content/uploads/2017/02/shutterstock_512201887.jpg — “The Blockchain will do to the financial system what the Internet did to the media.” Harvard Business Review

For instance, in our current society, a bank or lawyer would be necessary to make most of transactions. In fact, trust is not a crucial component as part of Blockchain trading because each node can verify where the transaction comes from, as well as its entire history.

Transparency with pseudonymity

The identity of each actor involved in a transaction is represented by a 30-plus-character alphanumerical address, which is known by everyone. Transactions are made between Blockchain addresses and are visible by everyone connected to the network.

http://bitscan.com/sites/bitscan/media/1183.jpg — “We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” Tyler Winklevoss, Co-creator of Facebook, top investor in Bitcoin.

Irreversibility of records

Once a transaction is completed, it is approved by the entire network and stored in the transactions history; each validated transaction enters in a “block of transactions”, which is then chosen by the network and joins the Blockchain (hence the term “chain”). Actually, the Blockchain is chronologically ordered, permanent and highly protected by computational algorithms.