Her majesty – Cryptocurrency
When the bitcoin appeared for the first time in 2009, not too many people could guess that the cryptocurrency market will explode through the next few years, and that for more than 8 years it will cost over 20000 dollars. Beside the bitcoin, today there are so many others cryptocurrencies, which are also called alternative and are used for various purposes and which values vary all the time based on their offer and demand on the global crypto stock market.
However, it seems that the so-called “insidious” presence of the payment systems in all states is not the only revolutionary thing that is happening to us. Not even the payment method that drives crazy all the banks across the world are as revolutionary as they seem, but it is about the cryptocurrency technology, which has changed the global economy and something even more important is the “threat” to modify the modern communications and financial flows.
During all these years many experts in the field of advanced information technologies tried to explain how the cryptocurrency worked, but with no big success. People are generally close-minded when it comes to the use of the cryptocurrency. They are basically attached to the traditional ways of financial transactions, such as paying in cash or with a credit card.
It looks like people, even the financial institutions, have not recovered yet from the “shock” they had from the use of the internet technology in the banking and generally throughout the whole financial sphere. Nowadays, modern trade is far more complex than it used to be before the appearance of the internet. Practically, anyone can trade with anyone, anywhere and anytime. In order to approve the transactions more easily we rely on governments and banks or the so-called third parties and authorities. All information for the transactions is held in super protected servers, which are updated with the newest software and mainly are unavailable to the general public.
In one of these seemingly “relaxed situation” we have a guest – Her Majesty – cryptocurrency or for better understanding the bitcoin (although we should not equalize these two terms). In this case, banks are all the million computers across the world, which are connected through the internet. These computers are called nodes. Not even that these computers mark all transactions between all participants which are involved in the trade, but what more important is that these transactions are public and can be checked whenever. Of course, there are no names, addresses, phone numbers etc., but each participant is identified by the unique wallet number. This means that all data is recorded in a perfect way, but at the same time all our personal data is protected. In fact, the address is a combination of small and capital letters and numbers, which do not associate anyway to the identity of the participant. Once given address of the wallet is unique all over the world (and beyond) and cannot be assigned to anyone else – ever.
The question pops up: What will happen if a computer stops working? The answer is simple – nothing. All information for the transaction is kept in a distributed network (ledger), which is provided with help of distributed chain, called blockchain. The method of adding the transactions in this chain is performed by certain algorithms (for example, the bitcoin is SHA256 algorithm), as well based on certain functions, which are also called hash functions (but this is more of a professional aspect that we will not elaborate here). With help of these algorithms and functions, the transactions are enrolled (added) in the chain in blocks, in a way that is impossible to prepare a reversible function. This means that if we know the output quantity, based on it, there is no way to find out the input information, which in fact is the main goal and characteristic of the cryptography, from where the name of these currencies derives.
All transactions (blocks) are not downloading from a web server as it is done with regular use of internet on a daily basis, where the data are downloaded from one central server, but the downloading is at the same time with the other participants in the network across the world (something like peer to peer communication). This way each transaction or block is synchronized at every participant-node. For example, if we have 100 million participants in the network (miners, web developers, wallets, markets etc.) all of them own a complete copy of the chain and synchronize after the principle of the peer to peer communication.
This is how a network is formed, which is distributed to all participants within the network and when it is about the bitcoin. As we already said, the blockchain contains blocks, which beside the information for the transactions also contain much other information for the previous transactions, as well as referent connection with the previous bock(s), this way making a chain – from where the name itself derives. All nodes, participants in the network, own a complete copy of this chain. In order to verify a transaction, highly sophisticated mathematical principles are used, as well as algorithms and operations that are performed by certain participants in the network, called Miners.
Verifying the transactions and the blocks, in fact, means that the nodes match automatically with the current blockchain by the principle of consensus. If anyone tries to enter an invalid transaction or to change any transaction, the nodes will not come to a consensus and those transactions will not be added to the chain. Every block contains data for the previous blocks and transactions, so it is impossible (or completely unprofitable) to make modification to some of the previous blocks or transactions. This means that for a change of a previous block, all following blocks in the chain should be also changed, and at the same time the whole computer power is bigger than that one of the other participants in the network. This possibility is smaller than the one that in the next 2 seconds the Earth will be destroyed by a meteor. Bearing in mind that generating each block means a huge amount of energy consumed in the mining, even the attempt to corrupt a transaction is unthinkable.
This way all participants – nodes give a certain stamp, confirming that all transactions and blocks, which are added to the chain, are valid and correct. What is even more important in the whole story is that all of this is decentralized and that even the author himself has no control and cannot change it. Thus, it is certain that all participants have access to a unique and reliable source of information. Also, for keeping the network in condition, there is an award for all participants, which is given for each generated block (currently it is 12.5 bitcoins for one block). The award is distributed to all participants (miners), depending on the share they had at the time the block was generated (found). This way, every moment a certain number of bitcoins is circulating in the network, which prevents internal inflation.
From all of the above-said it appears that for blockchain technology, the bitcoin is less important, meaning it is just one kind of blockchain technology application, which is much wider than the financial one. The software is not interested on how much dollars or euros are one bitcoin worth. Each bitcoin is containing 100 million units, called Satoshi after the name of the founder. Each part of these 100 million units can be programed and identified. This means that every participant can program each of these units to represent cent, dollar, kilowatt hour of electric energy, address, phone number, digital certificate and much more. This way the bitcoin can indicate many other kinds of properties.
At the end we can conclude that the use of this technology can be found in different spheres outside the cryptocurrency. For example, companies can program the budget for various needs, as employee salaries, material cost, sales etc. The work in many state institutions, such as cadasters, statistics, elections etc. can be improved, so the corruption of the state apparatus would be significantly reduced. Having in mind the three major advantages in terms of ordinary database, and they are: it is completely decentralized – it is not controlled by third parties (states, goverments); security is at the highest level and almost impossible to corrupt (in fact, from the first appearance on the market there is not one of hacking); and the transactions are taking place almost in real-time, blockchain technology is considered to be introduced by some of the largest banks in the world. Isn’t it hypocritical?
Bearing in mind that nowadays many people have very powerful devices in their pockets, using the Blockchain technology they could contribute a lot and form a completely new decentralized internet.
Although all of these ideas and resumes are still impossible to be implemented due to the insufficient development and interest in the blockchain technology (which is perfectly fine for some people), it is certain that in future, many of the devices that we use will work on software based on the Blockchain technology and of course it will find much bigger application that is well deserved anyway.