The existence of the Internet has meant the presence of data, thousands and millions of data that are generated at every moment. But all this information, when it comes to data relevant to certain transactions, has been stored by entities that centralize it.
We have seen large companies barter with this data, that is, this information means and its meaning can be translated into ways of creating value. As early as 1982, David Chaum was mentioned as one of the cryptographers who thought about the protection of privacy in value transfer operations, hence his research and proposals in this regard are a precedent of the creation of the blockchain, presented to the world in 2008 by an unknown figure: Satoshi Nakamoto.
This figure or group of them, improved the work that had been done by presenting the Bitcoin software, which would support the cryptocurrency.
Blockchain has since been projected as one of the safest technologies for managing the veracity of data. The production of information that must be managed in today’s world is enormous and that information must be verifiable. But how could this verification be achieved in a certain way, avoiding hacking? Because we know that information on the Internet can be falsified, obtained through illegal means, and can be manipulated.
Today, when we talk about the blockchain we are not only referring to cryptocurrencies, even though the system was created for them, we are also referring to storage, databases, and encryption, all focused on security and the truthful transmission of information. Let’s start by understanding for sure what a blockchain is in order to protect the applications it will have and has today.
What is the main concept?
The first thing to know is that there are centralized and decentralized systems. The first are those where there is an entity that mediates the information transaction, for example, on the web there are large organizations that contain enormous amounts of information that they themselves regulate, if this central unit fails, we will have a system crash; and the second, called Distributed Ledger Technology (DLT), are elements of a system that connect to each other, therefore, this information that is stored does not depend on a single entity.
But is distributed across all the devices that are part of the network, these are called nodes. Each of these elements of the network stores a copy of that information.
The disadvantage of these systems is that there is no regulation per se, there is no central unit that regulates the flow of information and it is possible that information can be stolen or illegal acts can be incited.
How does blockchain technology fit into this? In itself, this technology follows the model of a decentralized system but ensures the veracity of information through a chain of blocks. In this context, we can ask ourselves, what does a block contain and how is it formed?
First, the information transmitted in a block is encrypted, that is, it is translated into a language transcribed into “keys.” The encryption method used by the blockchain is SHA-256 hashing, therefore, a block is made up of encrypted information that produces a hash.
This hash is an element that is recorded in the block, along with a “transaction record,” that is, what was done, what was the agreement, what was exchanged, where, by whom, and finally, a proof of work, called Proof of Work (POW), which is a problem to be solved and its resolution is carried out through trial and error.
The people who solve these problems are called miners, and whoever solves the problem receives a proportional share of Bitcoin. Once it has been resolved and all the users of this decentralized network confirm that it has been resolved, the block is closed and placed at the end of the blockchain.
It contains the hash of the previous block, that is, all the movement that was carried out in the previous transaction, therefore, each transaction made is saved and is indelible. This is how the chain is formed, each block carries the hash of the previous block, the record of the current transaction, and the POW, in this way they are linked and it is impossible for them to be altered, due to the decentralized system that keeps a copy in each node.
There has been much talk about the blockchain being like a big “ledger”, where every movement is recorded, and this book is copied to all nodes; another characteristic is that in this book you cannot erase what has been done, you can only write what is new.
Once we know that a blockchain uses a decentralized system and encryption: the encryption of information, which allows data to be unreadable except for a final recipient, we can understand why it is secure. To understand encryption we must know that there is an Input: message that we want to encrypt, an encryption process: the protocol to follow, and an output: encrypted message.
This protocol to follow has been Peer-to-Peer, which makes it possible to exchange information directly between interconnected computers, and this exchange is in any format. It is a program that “connects” users through a network that does not need servers.
Now, these networks can have two types of access: public and private. The first allows access to anyone, while the second requires authorization. Currently, there are large companies whose information is stored in Amazon Web Service (AWSS) and Open Connect (Martínez-Pérez, 2022, p. 11), but there are also networks closer to the blockchain, such as BitTorrent.
These networks, public and private, each have their own rules and codes. In short, we have information that is stored in blocks, these blocks “usually store transaction information with a token” (Martínez-Pérez, 2022, p. 17).
This token has a value, depending on what it represents, and each block has information about the transactions made with that token.
We have also seen that this blockchain technology was proposed by Satoshi Nakamoto for electronic money, to avoid counterfeiting and the excessive issuance of coins through encryption in decentralized systems and storage on a blockchain (EDTeam, 2021). But in itself, what benefits does this technology have?
Let’s see: the so-called “immutability of the network”, that is, that the data cannot be altered or deleted; traceability, or, we can have a record of the exact movement of that information, its transactions, its location, etc.; it reduces intermediation and its transactions are fast.
It is precisely these characteristics that give this technology its capacity to be applied in different sectors.
Based on this proposal, Ethereum, led by Vitalik Buterin, developed an open-source platform where you can create apps with this technology because it provides you with the blockchain infrastructure, through which you can program your own blockchain. Bitcoin has its own blockchain, and Ethereum gives you the possibility of creating your own blockchain.
This is how NFTs and Smart Contracts emerged (already proposed in the nineties by cryptographer Nick Szabo): “programs that have a logic”, that logic is the “terms” stored in a distributed database, the contract is fulfilled only if certain clauses pre-established in the program are carried out. The limits of these contracts were their limitation to the network, or, they could not connect to data external to the network, for example, prices.
This problem was solved in 2019 with Chainlink, “a decentralized oracle network”, where an oracle is a “program fragment that translates data into readable language for Smart contracts”.
What about Blockchain Applications?
Given the development of blockchain technology, how it emerged to ensure the transparency of data, its veracity, and its inalterability, and how it is being transformed to be able to make autonomous transactions, we can deduce its applications in different areas.
This is how it allows the control of services and products, in addition to reducing costs, both in procedures and validations. It has already been used for supply chains, as it allows the tracing of the operations involved in the creation of a product or merchandise. It has been used in mining, to determine the origin of metals or raw materials and thus certify them.
This traceability puts transparency on the table, so that value can be generated thanks to it. It is possible to know where food comes from, even energy, and if it has been treated appropriately and with the required standards.
The applications of blockchain are yet to be seen, but its contributions are already being implemented in various sectors, as it is a form of digital identity that opens the field to various markets and services.
How can it generate value for our companies according to their line of business? This is a decisive question for any organization whose objective is to remain and establish itself in the future in a secure and transparent manner.
