The Technology behind Bitcoins!
Cryptocurrencies came to our lives to stay and change all the paradigms we know so far about the financial world. We read everywhere about “Blockchain” and how it has represented a very important advance for the future of all the transactions, but do we really understand why everyone trusts that much in this system?
Blockchain is the technology where Bitcoins and all the cryptocurrencies are based. However, many people is still confused about how does this works. In this this manner, we will present you all the main details you should know to understand what is behind the biggest financial revolution of the latest years, and how it has convinced many persons to join the Bitcoin fever.
The validity of Bitcoin is based on its technology.
Money has gone from being something we manipulate with our hands, to be an intangible asset, just a number in a digital page. We know is there because we trust in intermediaries to manage it. However, when it comes to Bitcoins, there are no entities to give them our trust and no bank to guarantee us that the money is “real”. In this manner, its entire validity is based in all the techniques that assure it works like a real currency.
How does Blockchain work?
We are moving the trust from intermediaries to the cryptography security system, the collaboration and a group of smart software codes. This technology is called Blockchain and it was designed under the following principle: how to create a smart system of contracts for a world where nobody trusts anyone?
Blockchain it’s not a software nor a special computer, but an algorithm where every register is stored as a “block” and forms part of a sequence where all the blocks are related, creating a “chain”.
In this type of distributed database, a list that grows continuously is registered. It works as a file where all operations made with bitcoins all over the world are grouped, distributed and organized among all its participants.
Every time someone makes a transaction, a new block is created and contains information about:
- Date and hour of creation.
- Amount of the transaction.
- Number of verification.
- ID of the previous block.
All new block created is related to the previous one, building the sequence. Its design avoids that the data stored in any block can be modified. To do it, it would be necessary to change all the subsequent blocks. Thanks to this feature, you can build a platform of smart contracts.
How can we trust in the process?
Every information is stored with a digital signature, in order to validate the existence of any person involved in the transaction. This simple process allows anyone to verify the originality of an object. In the same way as you put your signature in a document, the digital signature certifies that the right person has created, verified or accepted a determined product or service.
For this purpose, you can use two passwords a public and a private one:
- The private password is combined with the message to sign and you obtain the signature as a result.
- The public password of the signer takes place at the end of the process, where is combined with the signature to verify it. In this case, it should give the original message as a result.
Everyone can have access to the entire chain to check it, and the technology registers these searches. Miners generate all blocks after they verify the validity of all the transactions, detecting irregularities like the fact that a user is trying to spend money that had already transferred.
If a non-authorized change is produced in one of the computers, this is notified to each note in each computer with information about the place where it was made, its participants, and then this change is accepted or rejected. The system doesn’t need a central authority that establishes what belongs to who, because every nodes of the system count with a copy of this major book.
Any transaction that has being left out of this sequence is not valid, and in the opposite way, a transaction that is inside the blockchain is valid with no other operations needed to certify this.
Faster, more trustable, less burocracy!
If Blockchain technology is well used, it could revolution many other fields, because its way to operate allows that all the information be distributed with total transparency by every node in the system. It’s ideal to include in every kind of transactions among public and private interveners.
For example, if two people agree that one will take another from New York to Los Angeles at a determinate price, the Blockchain technology can, in the first place, register the agreement and then transfer the money if the conditions are met.
Nowadays we pay a notary to store and give faith that a determinate information is real; however, using Blockchain the story would be very different, saving time and effort in these tasks.
This technology shows a great potential in other different implementations like registering a supply chain. For example, if we could capture the temperature of a merchandise with a device that uses this technology, we could make that every carrier compromises to keep the optimum conditions of a product, and if some of them break, apply a penalty.
Every client could see a label that assures the traceability of the product and this could be applicable to all kind of supply chain, from uses like protecting the quality of products, to regulate the fraud in maritime transports. Generally, in every type of process where it would be necessary to validate that each participant fulfills with its part of the contract in a determinate stage.
These smart contracts created through Blockchain technology open new business opportunities, being a useful tool for different industries. An institution could reduce costs and optimize processes to make the business more efficient and offer a better service to clients. Blockchain is the true financial revolution; cryptocurrencies are just the beginning of its scope!