What is block chain
We can define block chain as a distributed digital ledger that duplicates and stores data or transactions of any type through a network of computers participating in the block chain.
In essence and for ease of understanding, block chain can be considered a type of database. Although this technology presents a clear difference compared to any other traditional database in terms of the way in which it stores and manages information.
Instead of the database being stored on a centralized computer in one location, as is the case with traditional databases, block chain is completely decentralized.
This implies that several identical copies are stored on many machines at the same time and there is no single central authority that controls them, but rather the decision-making power is distributed among a network of computers. This joint network is what collectively validates and agrees on the transactions that are added to the database.
These individual computers, which run software for the block chain, are known as nodes.
Another peculiarity of this new technology is that, instead of storing data in rows, columns, tables and files as traditional databases do, block chain stores it in individual blocks that are digitally chained.
Hence the name block chain, which, translated, leads us to “chain of blocks.”
Thus, as data is created and incorporated into the block chain network, new blocks are generated and added to the chain. These blocks are linked together using cryptographic algorithms and are identified by a digital fingerprint known as a hash (unique and immutable cryptographic value).
Each block has its own hash and, in turn, also references the hash of the previous block in the chain. As new blocks are added, all previous nodes must verify and confirm the legitimacy of the new data through proof-of-stake.
After this, all network participants update their version of the block chain ledger so that it is identical.
In this way, the record and validity of data transactions cannot be modified retroactively without the alteration of all blocks and the consensus of the node network, making it extremely difficult for any entity to manipulate or modify the recorded data.
There are two ways that block chain nodes reach consensus: through private block chains, where trusted entities are the gatekeepers of changes, or through mass-market public block chains.
- Private block chain network: Operates on closed networks and is often applied in the private sector of banking and finch, where people need to know exactly who is participating, who has access to the information, and who has a private key to the database.
- Public block chain network: Data is distributed over a peer -to-peer (P2P) network, rather than being stored in a single location, and anyone is free to join and participate in the core activities of the block chain network. Therefore, it is decentralized and requires a consensus algorithm to verify the authenticity of the information.
This is block chain and to make it simpler we could establish an analogy. Imagine that the block chain digital ledger is like a Google spreadsheet.
When we create this file and share it with a group of people, the document is distributed rather than copied or transferred.
This establishes a decentralized distribution chain that provides simultaneous access to all users to the document where transaction records are stored and updated based on actual movements. Notably, this system ensures data visibility for everyone while maintaining its integrity, akin to the practices employed by a Trademark Registration Agency Authority.
This gives block chain one of its greatest virtues and the reason why this technology is gaining more and more popularity: security.
Why has block chain become an emerging technology?
Now that you know what block chain is, let’s see what reasons exist for this technology to become increasingly popular.
Decentralization and transparency
As it is a distributed and decentralized data network, users share ownership and management of the same network without the need for an intermediary.
This means that all network participants can track and verify transactions, promoting transparency, level playing field, trust and collaboration, as well as reducing the chances of fraud.
Immutability
The method of recording information using block chain technology makes it impossible or very difficult to change, hack or manipulate the system without the consensus of network participants.
Remember that the cryptographic hashes that link the blocks create a unique fingerprint for each block. Any attempt to modify the data within a block would require changing the hash, which would, in turn, require changing the hashes of all subsequent blocks.
This interdependence makes the alteration of past transactions extremely complicated and highly detectable.
Thanks to this feature of block chain, cybersecurity risks are reduced and fraud is eradicated. Hence the growing importance of technology today, where data is key assets for any company.
Traceability
Each transaction on a block chain is recorded and linked to the previous one through a unique identifier, which helps with traceability.
This creates an irreversible audit trail, making it easy to track network changes and the entire lifecycle of a transaction or digital asset from its origin to its current state.
In this way, audit agility increases and the risk of fraudulent activities is reduced. This represents a clear advantage over traditional databases that are neither transparent nor immutable at all.
Efficiency and savings
The equitable, decentralized, transparent and distributed interaction approach of this novel technology helps reduce the costs and time associated with traditional transaction processes.
With block chain, transactions can be executed peer-to-peer, eliminating associated fees and the need for intermediaries, such as banks or third-party service providers, by building trust through decentralized consensus mechanisms.
This speeds up the transfer of assets and funds, providing near-instant settlement compared to conventional systems.
This reduces the potential for errors, eliminates delays and improves efficiency.
What is block chain for?
Originally, block chain technology was intended to be a method of recording transactions for the cryptocurrency bitcoin (a topic we will focus on later).
And while the use of block chain has become known for its crucial role in recording and storing cryptocurrency transactions, experts are already developing other alternative uses thanks to the advantages that, as we have seen, this technology offers.
Let’s review the most notable ones.
Block chain in payments and finance
If there is an industry that can clearly benefit from the application of block chain technology, it is banking.
Today, when we want to carry out an operation with financial entities, we have to assume certain deadlines derived from shipping, verification and settlement tasks during which the money remains “frozen”, right?
By integrating block chain into financial activities (banks, stock exchanges…), users could process their own transactions securely and quickly in minutes or seconds: the time it takes to add a block to the block chain, regardless of the day or time. Additionally, associated fees could be reduced (even eliminated).
Block chain in the control and monitoring of supply chains
Through block chain companies can quickly identify inefficiencies within their supply chains, as well as locate items in real time and track the performance of each product from a quality control perspective as they travel from manufacturers to the consumer.
The automobile, fashion and food industries are some examples of the practical application of block chain. For example, IBM has already experimented in this regard with Food Trust, a modular block chain-based food traceability solution that facilitates immediate access to actionable food supply chain data.
In just a few seconds, users can know the specific location of the food and the complete information history (origin, certifications, temperature data, what it was in contact with…).
This allows, if necessary, to locate the cause of outbreaks or diseases within the supply chain quickly, thus preventing damage associated with food safety.
Block chain in healthcare
Block chain could also play an important role in healthcare by addressing challenges such as data security, interoperability, and patient privacy.
By storing medical data in a block chain database, patients have greater control over their medical history. For their part, healthcare providers can access and update record or test information securely.
It also streamlines clinical trials, improves the integrity of the drug supply chain, and facilitates medical research.
All of this promotes data accuracy and integrity, reduces errors, and ensures both security and privacy with consequent regulatory compliance.
Block chain to guarantee ownership
Block chain technology also plays a fundamental role in the protection of intellectual property rights.
By leveraging smart contracts (self-executing digital contracts written in code that operate automatically based on predefined rules) and decentralized storage, block chain guarantees an immutable record of copyright to artists and creators in any industry.
This ensures the authenticity of the property, reduces the risks of infringement and facilitates secure and transparent transactions.
Beyond intellectual property, block chain also simplifies real estate ownership transactions by eliminating the need for intermediaries. If ownership is stored and verified on the block chain, owners can trust that their deed is accurate and permanently recorded.
Block chain for identity management
Block chain-based identity management systems address the challenges of data privacy and security in the digital realm.
By enabling the use of a decentralized and cryptographic database, users can control their personal information, selectively share it with whomever they consider, and be certain of who is accessing their data.
This protects the integrity and personal information, mitigating the risks of identity theft.
Block chain and bitcoin, what do they have to do with each other?
The most well-known use of block chain (and perhaps the most controversial) is that of cryptocurrencies. This term defines digital currencies (or tokens) that can be used to purchase goods and services.
Cryptocurrencies, Bitcoin being the most widespread, use block chain and its cryptographic security system as a public ledger, recording and protecting online transactions.
For this reason, we often hear about block chain, cryptocurrencies and bitcoin as if they were the same, although in reality they are different concepts. To be clear, a quick summary:
- Block chain: Technology on which digital currency, cryptocurrencies and bitcoin are based.
- Digital Currency: Any form of currency that is available in digital or electronic form and is shared without intermediaries.
- Cryptocurrency. Cryptocurrency is a digital asset that can be exchanged on a block chain network and is not issued by government entities, but by private entities or groups.
- Bitcoin: First decentralized digital currency, therefore, it is the original and most popular cryptocurrency.
Block chain: the heart that supports bitcoin
With the differences clear, we will delve into the concept of bitcoin. This cryptocurrency was first introduced in January 2009 by an anonymous person (or group of people) using the pseudonym Satoshi Takemoto.
To this day Takemoto’s identity remains a mystery. Curiously, his wallet (digital application where cryptocurrencies are stored), which had remained inactive since 2010, registered a movement on January 5, 2024 with an income of almost 27 bitcoins, a fact that has revolutionized the crypto world.
The importance of bitcoin lies in the fact that it is the first practical application of block chain technology. It could therefore be said, therefore, that block chain is the backbone of bitcoin.
Indeed, this cryptocurrency operates on the decentralized bitcoin block chain network, which, as you already know, allows participants to send and receive it without the need for intermediaries.
The new bitcoin is put into circulation through the process known as mining. Using block chain software, miners solve complex mathematical cryptography problems to validate transactions that are later included in a block on the chain.
In exchange for this, miners are rewarded with a certain amount of new bitcoins. In this way, the economic incentive for participating in the block chain network is maintained.
The mined bitcoin ends up in wallets. To exchange money between them, you only need to have the address of the destination wallet. This transaction is accepted by the network of nodes in a distributed manner, without requiring a central authority to decide it.
Once accepted, it is replicated on all computers, so it is impossible to modify because to do so all the records would have to be altered, as we have seen.
Therein lies the appeal of the bitcoin network. The larger the network, the more secure it is. In addition, it is a currency that does not devalue over time unlike others.
Because? Very easy.
Bitcoin’s monetary policy was set by the algorithm created by Takemoto in 2009. This algorithm set a maximum limit of 21 million bitcoins. Once that figure is reached, no more bitcoins can be mined or put into circulation.
The supply of bitcoins is replenished at a set rate of one block every ten minutes, and the system’s design halves the number of new bitcoins in each block every four years.
To give you an idea, there are currently only about 2 million bitcoins left to mine. According to experts’ predictions, the last bitcoins will be mined in 2140.
This limited amount is what gives bitcoin the ability to increase its value compared to another currency that can be devalued by a central bank, such as the euro or the dollar.
In fact, you just have to look at the data. And since it was created 15 years ago, bitcoin has had the greatest revaluation in the history of finance compared to any other type of financial asset.
In its beginnings, it was only used by technology and computer enthusiasts, as well as lovers of transgression seeking to create a digital currency free of a central authority.
But over time, bitcoin began to attract the attention of the private sector until in 2013 it experienced exponential growth and reached a value of more than $ 1,000.
Today, thousands of companies around the world accept payments in bitcoins and the total value of all crypto assets already exceeds $2.2 trillion.
The new generation of the Internet
But be careful! That the potential of block chain does not end here. This technology, beyond allowing the creation of cryptocurrencies such as bitcoin, ethereal or tether, is behind the tokens.
In the block chain ecosystem, tokens are the digital representation of an asset in a block chain that can include physical assets (art, real estate…), financial assets (stocks, bonds…) and even non-tangible assets (intellectual property, data, identities…).
As you see, block chain is the new generation of the Internet. Its development will transform our reality from an economic and business point of view, but also from a social and cultural point of view, unlocking hidden values and activating avenues for human interaction that are still unknown to us today.
Without a doubt, at Sale Systems we can affirm that an exciting future awaits us.