What is blockchain? All you need to know

A system that can't be cracked and has the potential to transform industries. Blockchain revolutionizes the way transactions are made, settled and recorded.


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Blockchain revealed

What is blockchain?

Blockchain is a technology used to store and transfer information on Internet transactions arranged into successive data blocks. A single block contains data on a specific transaction. Once a block fills up with data, another one is created, followed by another and yet another, until an entire chain is formed. A new block appears in a blockchain every 10 minutes on average. A block may be used to send information on multiple transactions that concern commercial deals, ownership titles, company shares, the sale and purchase of electrical energy and the purchase or sale of currencies, including cryptocurrencies (i.e. electronic currencies).


How does blockchain work?

In essence, blockchain helps maintain a shared collective digital transaction ledger whose identical copies are distributed across the web. The technology relies on a peer-to-peer network operated without central computers or systems that manage and validate transactions. Every computer in the network may take part in transaction transfers and validation. In the case of blockchain, computers work with blocks kept in transaction ledgers. The ledger is accessible to anyone and fully secured against unauthorized access by means of sophisticated encryption tools. User access is limited to their own transactions. This recording method makes the transactions public and accessible to the extent allowed by a given user’s authorization rights. The entire transaction history from the very inception of the blockchain to the present, can be viewed and verified.


What is blockchain used for?

As of to date, blockchain makes possible a range of diverse transactions (commerce, currencies, shares, electricity). Work is under way to use blockchain as a banking ledger, a document authentication system, a digital signature in a state administration and for document notarization. All such transactions may be performed outside of the age-old system, without the involvement of fiduciaries, directly between transaction parties. The data blocks of blockchain networks can be used to store any types of transactions. One of the possible applications are cryptocurrencies such as bitcoin. While the future of bitcoin itself is fairly uncertain, many industries, including finance, energy and trade, have recognized the potential of both its technology and transaction platform.


Is the technology secure?

A blockchain serving as a transaction ledger cannot be counterfeited by means of today’s technology and processing power. To crack a blockchain network, one needs the computational power of an estimated half of the Internet. However, with the advent of quantum computers, new cryptographic protections will become necessary. The transactions encoded in a blockchain are irreversible. An attempt to modify one block changes the entire chain down the line. Should someone try to cheat, alter an existing transaction or enter an unauthorized deal, blockchain nodes will, in the validation and reconciliation process, discover the single copy of the ledger whose transaction is inconsistent with the transaction record of the network and refuse to add it to the blockchain. Data, transactions and their sequences are secured against any attempts at counterfeiting or tampering. The philosophy behind blockchain, advanced mathematical methods and cryptographic protections make the data contained in transaction ledgers trustworthy.


Who will be the first to use blockchain commercially?

The first sector to appreciate the potential of blockchain but also to recognize the risk that it poses to its status quo was finance. Since 2014, start-ups dedicated to developing blockchain-based cryptocurrency technologies have been cropping up in great numbers. New industries have emerged, referred to as FinTech (for finance and technology) and Insurance Tech (or InsurTech). The traditional financial sector has been seeing a lot of developments. In 2015, a consortium was set up comprised of banks and FinTech companies with a mission to advance blockchain. As of September 2016, its members included Citi, Bank of America, Morgan Stanley, Societe Generale, Deutche Bank, HSBC, Barclays, Credit Suisse, Goldman Sachs, JP Morgan and ING. In July 2016, Citi announced the creation of its own cryptocurrency called Citicoin. In October, the FinTech start-up Chain.com was given US$ 30 million in financing (from Nasdaq, Visa, CapitalOne, Orange and Citigroup) to develop a solution that would make it possible to send various valuable assets (loyalty points, shares, coupons and various financial instruments) on the web.

The next to take notice of the blockchain’s potential was the energy sector. Blockchain is perfectly suited for settling energy sales transactions concluded between such small energy producers as households and their customers, energy users, including dispersed buyers, among them electric cars. Notable players in the field are Elon Mask and SolarCity, which invest not only in electricity production and storage but also in the distribution and settlement of transactions with the use of blockchain. These are only some of the most obvious applications.


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  1. CabbH

    The banks and the state are in alliance. The terms are that both state and bank assets will be propped up by state power, one way or another, so both bankers and politicians can receive “free” power and wealth by issuing those assets (politicians by issuing public debt.) The state provides power, and the banks provide financial innovation. The central bank holds the alliance together by having power to make sure neither side endangers the alliance by issuing too many assets.

    The victims of this alliance are everyone else.

    • Norbert Biedrzycki  

      Very interesting report. I like this part mostly and this is still unknown space:
      … At the heart of our interest is this: will distributed ledger help or hinder financial institutions?
      The bullish case is that sharing and decluttering of infrastructure could radically reduce costs and provide much needed boost to RoEs. Let’s be clear, for many banks, especially investment banks in 2016, a radical reduction and simplification in processing costs would be a blessing. We showed in our recent Blue Paper with Oliver Wyman that banks will need not just to prune but also to change their model to sweeten their RoEs 2-3% to hit hurdle rates. According to Santander, more efficient digital ledgers could cut costs in the banking industry by up to $20 billion a year.
      The bearish case is that dramatic reduction in margins at the same time as higher IT spend is destabilising and disruptive. It also risks profit pools leaking to other players.

      • Mac McFisher

        ‘The DAO’, as it’s called, takes its name from the description for a new type of entity: a distributed autonomous organization. Intended to act as a vehicle for supporting Ethereum-related projects, The DAO has garnered over $50m worth of ethers (ETH) – the digital token of the Ethereum network – from investors.

      • Jacek B2

        Ageing IT platforms tend to hamper company transitions. They are the most common reason why business scaling fails or grinds to a halt after a sudden spike in sales.

    • Norbert Biedrzycki  

      Very interesting example in public sector. Highly recommended to read

      • Norbert Biedrzycki  

        Classifications of Notable Cryptos
        Classifications of Notable Cryptos

  2. johnbuzz3

    Corporations wasting lots of money on what they thought would be a hostile takeover of open source software on blockchain technology. They don’t understand that successful deployment of blockchain requires a partnership approach, cooperation, not monopoly. This technology will change the role of current fin system.

    • Norbert Biedrzycki  

      And this is very correct that blockchain collaboration requires partership, win-win approach. We need to learn a lot

      • John McLean

        In 2017, expect the emergence of blockchain technology applications, especially smart contracts which are contracts written in code in a ledger system. These are typically more secure and irreversible than traditional contracts, but creates efficiencies in referencing and executing these contracts. http://bit.ly/2qVbril

  3. TomCat

    One issue with using blockchains in place of databases is that there is an inherent lack of privacy. You gave the example of registering and selling a car. With a centralized database, only the government or whomever owns it knows that I sold it. But with a blockchain, anybody can find that out. I guess the data could be anonymized, but there has to be some identifying data, otherwise the verification process isn’t very useful. I know that this is encypted but sill algoythm could be broken opening my ballance sheet to everybody.

    • johnbuzz3

      Bitcoin’s network is inherently very secure. So the only thing that matters is how you are holding your Bitcoin. We know that it’s possible for banks to collapse, and while unlikely, Bitcoin is only held by you and only you are responsible for it, so while the third parties associated with banks and with fiat can never be 100% reliable, Bitcoin allows freedom on the Internet which is what makes it so secure. So basically, if you actually own your private keys and don’t rely on any third party (e.g. run a full node), you’ll be far more secure than any fiat holder could make you. But it gives you a lot of responsibility which you have to take seriously, and a lot of Bitcoin has been lost before.