Why You Need to Know What Blockchain is (For Dummies)

In 2017, many people started to talk about digital currencies, mainly due to the popularization of bitcoin: how to buy, what the risks, how the price is stipulated, would there be or not a bubble, the need for regulation, the scams and pyramids, the money laundering and the fiscal evasion.

Bitcoin, as well as more than 1700 digital currencies listed up to 2018, has appeared as an option in a saturated global market. The great majority of the media information via Google represents the superficial and apocalyptic opinion of the market of digital assets; by the way, one of the great virtues of cryptocurrencies has been to prove the lack of knowledge of the world economy's exponents in relation to the real meaning of money, its formation and basic economic principles.

In the same way, the number of investors has already exceeded the number of investors on stock exchanges of some emerging countries, driven mainly by a huge price increase of bitcoin that reached 1800% in 2017, not to comment the Initial Coin Offerings (ICOs) and trade operations that, not difficultly, can lead to astronomical profits or losses due to high volatility. On this topic, it is never too much to remember that we should only invest with sufficient knowledge and understanding of the high risks involved.

But the proposal of this article is to forget about the currencies and superficially scratch the technology associated with them, called blockchain. There is the blockchain of bitcoin, the blockchain of ethereum and so on, its origin is linked to the birth of bitcoin and its supposed creator, Satoshi Nakamoto, when he published his whitepaper in 2008.

It is a digital ledger, with debits and credits, where all the transactions are recorded, since its creation. The records are placed in blocks, each one has a reference to the previous block through a hash that, broadly speaking, is the cryptographic information.

Since its criation, the blockchain has never been corrupted and it functions uninterruptedly as a public and decentralised register, in a peer-to-peer network.

As examples of some of our day to day centralized records, we can cite banks, insurance companies, general and real estate registries, medical records, citizenship records, credit card transactions, hotels, universities, among others.

The centralization resides in the confidence that a single point or individual, incorruptible, is capable of safeguarding the security of all information, to which an unreliable party will never be able to access.

But what happens, in fact, is that centralized registries are not reliable, because they represent a unique point of security, they are subject to corruption (e.g.: to accept a bribe to prioritize a registry), exclude people who are not aligned with their business, limit third party transactions and may lose the information registered, intentionally or not (withhold evidences, theft of information or natural disasters).

In return, the blockchain (which is a type of distributed network or DLT - Distributed Ledger Technology) is practically invulnerable to the exclusion or censorship, making it almost impossible to fraud the records and to lose information of any nature. All the registrations are constantly validated through the nodes, where each participant of the network has the consensual registration of all the transactions that took place since the creation of the blockchain.

That's why we have reached the point where entrepreneurs of any segment, executives or IT developers should be interested in this technology, but the adoption in "real" instances has been slow. There are still not many examples consolidated worldwide, but the projects have multiplied at an exponential level, including in the banking segment, which already seeks to address the potential threat of the exclusion of third parties that are linked to decentralized network technology.

Many countries (among them Germany, Japan, Canada, United States, Netherlands, Australia, and most of the European Union) have made substantial progress in the technology through incentives, consortiums and training of professionals, and have an optimistic and favourable trend towards decentralized networks.

It is important to know what the blockchain offers and if it fits your project or not. Since you can't use blockchain for anything you want, you need to understand it first and use it as a tool in second. To be more specific, don't change your project to use blockchain just to be part of the hype.

We don't know the speed in wich the blockchain will be highly adopted, but the disruptive potential is overwhelming; it could take years, a year or it could be that another solution could supplant the decentralized networks, but have in mind that platforms like Uber, Airbnb and Facebook, of a centralizing scope, are becoming overpassed by the blockchain's potential.

It is necessary to look for practical examples, positive or not, study a lot, talk with the entrepreneurs who are ahead of you, get to know all the difficulties along the road and to find the specialized professionals in the area.

I recommend patience and careful analysis to learn this new technology. When participating in an ICO, you should have in mind that 60% were unsuccessful (consider either that 75% of the startups that raised funds by traditional means also broke and took part of the money of their investors).

Thus, when talking with those eager for new knowledge, try not to give emphasis to the promises of speculation and enrichment, but rather to the opportunity for innovation that accompanies the blockchain.