The parable of the flying meerkat
In order for you to quickly understand what blockchain is all about, imagine you’re walking down the street and suddenly, a flying meerkat of gigantic proportions lands in a crowded plaza, eats the ice cream of all the children present, lets out squeaks and, just as it came, leaves.
Without a second to spare, a lie detector is placed on the 1,000 people who witnessed it and exactly what they saw is recorded.
They all tell the same story with the same details.
Would there have been any doubt about the flying meerkat landing?
Blockchain: a technology that can turn everything upside down
This is the fundamental principle behind the blockchain or Blockchain, a technology that has the power to change our relationship with the digital world forever.
Imagine a text file with two columns, where in one column an identifier is put (example “abc”) and in the other a number (example “34”). In other words, “abc” corresponds to “34”. Now imagine that this file can be duplicated on thousands of computers, with the security that no one can treacherously alter it and that, when something needs to be legitimately modified, in a few seconds, they are all synchronized. Even if one of the thousands of computers disappeared from the network, nothing would happen. This is what Blockchain is capable of doing and although its magic is much more complex and composed of multiple pieces like cryptography, in essence what it wants is: a distributed ledger that is resistant to synchronization and without the need to establish trust relationships between its members. Something that has been trying to be solved for decades has been realized in Bitcoin by its creator, the unknown Satoshi Nakamoto.
In the words of Marc Andreessen , creator of Netscape and partner in one of Silicon Valley’s largest venture capital funds:
A blockchain is essentially just a ledger, a ledger of digital events that is “distributed” or shared between different parties. It can only be updated with the consent of a majority of participants in the system, and once entered, the information can never be deleted. Bitcoin’s blockchain contains an accurate and verifiable record of all transactions that have taken place throughout its history.
Marc Andreessen, creator of Netscape
Explanation of the parable of the flying meerkat
In the above analogy (I apologize for your ice cream, children) the incredulous people, who agree with what they saw, represent nodes (you’ll see later in detail the role they play) geographically and computationally isolated from each other.
The “lie detector” is shown a “proof of work”, which is a cryptographic process that proves that one computer/chip, and not another, has correctly solved a problem.
Falsifying an entry on the blockchain would be equivalent to getting more than half of the people to agree to lie about the details of landing the meerkat the same way, all at the same time, and without being able to preemptively coordinate the lie.
In other words, a difficult “attack” to execute.
What is embedded in the blockchain can never disappear. Blockchain is an immutable and permanent ledger. It is a database that allows only writing. Nothing can be modified or deleted and, in any case, always with prior consent.
Do you realize its importance?
Think for a moment that every type of interaction that happens online today is backed by a central authority that we trust.
It doesn’t matter what you do because you always trust that someone is telling you the truth, whether it’s the bank showing you your account balance, WhatsApp telling you that your message was sent or the antivirus saying that everything is fine on your computer.
In fact, there is always the risk that some information provider is lying to you or simply making a mistake.
That’s why, nowadays, Internet security is a chaos since practically any service can be hacked, manipulated or altered.
And each time we give them more and more personal information.
Bitcoin is digital money. But when we think of digital things we think of files that can be copied and pasted, like vacation photos, a song or any other archive you have on your computer. But with Bitcoin it’s different: imagine if you could copy and paste money, it wouldn’t make sense. That’s why blockchain, the ledger, exists. There are no bitcoins, there are no files that represent bitcoin; there is only a ledger that incredibly manages to record the entire financial system.
For the first time in history, a book is being written collaboratively by thousands of parties. Imagine any great book, say the Bible for Christians or whatever, written collaboratively, consensually, without informational dictators telling you what to put in and what not to. Imagine how beautiful such a transparent planet would be.
What does the blockchain or blockchain have to say about that?
It sounds incredible, but thanks to the concept of distributed consensus, it is possible to create an incorruptible memory of past and present events in the digital world.
This would also not compromise any privacy.
You can record and save what happened, knowing that it was done correctly without specifying details about the type of event or the parties involved.
This explains why Bitcoin has sometimes been used to perform illegal transactions due to the fact that, although access to the “ledger” is public and free, the privacy of its users is still guaranteed.
Typical misconceptions about blockchain
Bitcoin is a decentralized network
The blockchain is a P2P network in which all nodes are equal to each other resulting in a distributed system that is resistant to cyber attacks, errors or forgery.
In this way, even if a node were to fail, it could be traced back through alternative paths to those it was connected to.
This would not be possible in a decentralized system.
Blockchain and Blockchain.com are the same thing
Bitcoin beginners often get this misconception.
As we have seen, the Blockchain or Chain of Blocks is the powerful technology that gives birth to Bitcoin.
Blockchain.com is a service that allows you to observe everything that is happening in the Bitcoin network, such as real-time updated charts that inform about the status of the cryptocurrency, ongoing transactions or detailed information about every transaction and mined block.
If you’ve made it this far, you’ve probably already realized the huge potential that this technology holds.
So much so that numerous personalities in the technology and financial industry have equated Bitcoin and the blockchain to the personal computer industry in 1975 and the Internet in 1993.
One of its most relevant emerging applications has to do with so-called “smart contracts” or smart contracts.
These consist of the ability to entrust a distributed network with the confirmation that a contract, of any kind, has been fulfilled, without revealing any kind of confidential information about the parties and/or the nature of the transaction.
This would be used, for example, to pay a freelancer to whom you have referred when he completes his work, or for the washing machine to take care of buying detergent itself when it detects that it has run out.
The implications of this, in relation to trust and transparency in the execution of transactions of any kind, are simply enormous.
4 industries that blockchain revolutionizes
This all sounds great in theory, but are there any companies that have already “gone to work” to unleash the power of Blockchain?
Obviously the financial sector, which is what it was designed for, but it’s not the only one. Here are three examples:
1. Distributed cloud storage
Cloud storage services like Dropbox or Google Drive are centralized, and by using them, you are assured that a single provider “answers” for the data stored there.
Storj is a startup that is testing, in beta version, a service that allows to store in a distributed way using a network based on Blockchain in order to increase security and make the service less dependent.
Its users will also be able to rent the space they don’t use to others, just like Airbnb does with accommodations.
2. Patents/Property Deeds
One of the first non-financial services that has been attributed to blockchain is the inclusion of encrypted information within transactions.
In this way, a hash can be created that is impossible to replicate and is associated with a unique document stored outside of the blockchain.
Imagine what this implies when it comes to patent or intellectual property registration.
A company like Google, for example, could prove that it created a technology on a specific date without having to file a formal application to register the patent.
It could link those internal documents to the hash of a transaction executed at that time and thus prove that they were the first to develop it.
Services like Proof of Existence allow you to do this.
3. Electronic voting
As you can imagine, it costs a lot of money to create the ballots, organize all the necessary infrastructure for voting and the subsequent counting.
Electronic voting systems have already been tested but they have not been able to resist hacker attacks and fail to count with perfect accuracy.
Blockchain can solve this problem as it would allow for a voting system where voter identities are protected. It would be unforgeable (a hacker would need more computing power than the 500 most powerful supercomputers combined, 256 times) at virtually no cost and with public access.
This system could end the problem of fraud that occurs in all election campaigns. Especially in countries where corruption is the order of the day.
4. Transparent government
With blockchain technology, any city council or government could make the status of their accounts and budgets available to everyone in real time.
With a network like Bitcoin or Ethereum, a city council or government would only have to indicate which area they manage.
From that moment on, everyone will be able to see the status of their accounts, what goes in and what comes out: down to the last penny, in real time and at a very low cost.
If at any given moment money was transferred to a particular account without being able to justify the transaction with an invoice, inspectors and the entire population would see it immediately.
Also remember that the blockchain is a chain, so you can’t insert something after the fact to try and falsify past accounts.
Imagine this happening in a city council, in an institution, or in the Spanish government itself (which is corrupt at all levels as a result of power-sharing after the Franco dictatorship).
Certainly, this will never come out of the hand of those who run democracies as if they were dictatorships. So although it is possible to achieve it tomorrow thanks to technological capability, we still have a long way to go.
What are banks doing about it with blockchain?
The financial industry has finally noticed the disruptive potential that this technology will have in its industry. In fact, almost on a daily basis, there is an increase in investment in this area. In just one month, this section could be obsolete in terms of references.
In fact, BBVA with Coinbase, Bankinter with Coinffeine and Santander are some examples of giants of the Spanish banking sector that have bet through investments to better understand Bitcoin and the role it is playing in the present and, especially, the one it will play in the future.
We can also see how one of the main banks in Estonia is developing a wallet that uses Bitcoin to allow free and instant money transfers.
We can also think about managing medical records, votes, property deeds, marriage certificates or litigation through the blockchain.
Eventually, any set of data and transactions could leave their “fingerprint,” creating an easily auditable trail of every digital event that occurs, without compromising anyone’s privacy.
Here’s a video illustrating its inner workings on a theoretical level:
It seems clear that if the concept of blockchain survives the huge hype it is causing, it could introduce a level of democracy and objectivity into the digital world that has been hitherto unheard of and unattainable in the “physical world.”
The promise we are being made implies a future in which no one has absolute power on the web and in which no one can lie about past or present events.
Also, recalling the initial example of a text document with two columns, where “abc” corresponds to “34”, note that it is never stated what the number “34” is referring to. This is because Blockchain technology is actually agnostic: it is used to keep an accounting of things. Then, as appropriate, it will be associated with a “last name” or connotation as desired or as each ecosystem sees fit. Along these lines, in the Bitcoin ecosystem, the blockchain carries bitcoins, which are priced based on a quote set by people. But this accounting could be used for countless cases: shares of a company, local currencies, home ownership, diamond testers, identities. The potential is limited only by imagination. After all, Blockchain is a distributed ledger that allows you to transfer shares of value.
There are currently hundreds of projects that, interested in the idea of decentralization, are investigating how to extrapolate that principle to other things. In most cases also using Bitcoin’s free open source, the first ecosystem to put the pieces together in a functional way based on that ideal.
Don’t forget that Bitcoin is constantly evolving and at the same time Blockchain technology is such a dynamic field that new solutions, integrations and developments appear every week that never stop taking it to new levels.
Do you think it will be able to fulfill the mission of offering us a more transparent and fair world?