What is blockchain? – FrenchWeb.fr
The blockchain is an innovative and revolutionary tool which, according to many specialists, is about to turn our lives upside down, as the printing press and the Internet did before it. It promises to be a promise from the start, that of fundamentally changing the organization of transactions, and appeals to governments, large companies, investment funds and entrepreneurs. But what is the “blockchain”? Let’s go back to its origins to better understand how this new technology works and its applications.
The origins of blockchain
In the beginning was money. From primitive money to fiduciary and scriptural money, the instruments of financial transaction are based on the trust that its users place in it as a unit of account, a medium of exchange and a store of value. This confidence is based on a guarantee principle embodied by a centralized institution (States, banks or local authorities in the case of local complementary currencies).
The dematerialization of money, from the introduction of checks to the creation of payment cards, has accelerated over the past 25 years with the appearance of electronic transactions. It paves the way for a reflection on the creation of unconventional currencies, that is to say, independent of traditional centralized authorities, which are called digital currencies.
Digital currencies are distinguished from traditional currency, that of coins, banknotes and their dematerialized version, because they are based on an encryption protocol. Each unit of digital currency is a unique string of numbers that users can send to each other online during transactions.
The first attempts at digital currency fail, faced with a major challenge, that of securing the currency. This is because a string of numbers can easily be copied – and in the case of currency, spent multiple times – making its value zero. In 1990, David Chaum, designer of the DigiCash electronic money, tried to solve this problem by creating a single central register that records the transactions of each user, thus ensuring that each unit of currency cannot be in two places at the same time. time. Thanks to this single central register, the integrity of currency and transactions is guaranteed.
However, the solution provided by DigiCash has its limits because it is subject to the same risks as any centralized register (such as databases of banking transactions, credit card transactions, property titles, identity cards, driver’s license, reservations with an airline company, etc.): it does not guarantee that the content of the register is incorruptible and infallible. The latter can, for example, modify the database, exclude transactions that he does not approve, or even lose recorded data.
In October 2008, Satoshi Nakamoto, whose identity of the person or group behind this pseudonym remains unknown to this day, published his white paper “Bitcoin: A Peer-to-Peer Electronic Cash System” in which he proposed a new form of digital currency, Bitcoin. It overcomes this pitfall by relying on a new protocol, that of a blockchain or “blockchain”, allowing a decentralized verification system. Bitcoin is no longer the responsibility of a centralized authority but of a so-called “peer-to-peer” relationship, that is to say of a computer network whose participants are freed from a central server.
At the heart of Bitcoin
Bitcoin is a currency designed so that units of currency are introduced gradually. Unlike conventional currencies, it is not issued by a central authority and the total quantity of units issued is fixed in advance. Around 15.25 million Bitcoins have been issued so far, with the last Bitcoin expected to be produced in 2140.
Bitcoins are stored in Bitcoin addresses, the key to which is a unique string of letters and numbers, which can be stored on a computer, smartphone, or even a piece of paper.
As soon as a user sends a Bitcoin as payment, a record of the transaction is kept in memory. Transactions are grouped into blocks. Each block represents the equivalent of 10 minutes of Bitcoin transactions.
All the participants making up the network make their computing power available to check these blocks and confirm them in the system. This is called “mining”. The participants, who have previously been put in competition, are remunerated according to their participation in the calculation, receiving a percentage of the new Bitcoins issued by the system.
The system bringing together all of the blocks is called a blockchain. Blocks are ordered chronologically, and each block includes a digital signature (called a “hash”) from the previous block, which governs the arrangement of the blocks, and ensures that a new block can only join the blockchain where it ends. the previous block.
A copy of the blockchain, that is to say a copy of the record of all transactions carried out since the origin of Bitcoin, is updated by all those who have installed the Bitcoin software. To ensure that the system is functioning normally, blockchains are continuously checked by the computers of those who installed the software. Thus, at all times, the system knows exactly how many Bitcoins each user has in their wallet. They cannot be copied or spent more than once.
Below is a diagram summarizing how a blockchain works:
For the first time, ownership can be transferred without being duplicated, and without going through a centralized registry.
Bitcoin can be bought, sold, and traded for real currencies (USD, EUR, etc.) on the forex market.
Below the evolution of the price of Bitcoin since its creation:
Satoshi Nakamoto creates the Bitcoin protocol in such a way that it is peer-to-peer, encrypted, and quasi-anonymous, which makes the link between a Bitcoin transaction and the natural person at its origin very difficult. It is thus said to be pseudonymic. In short, the Bitcoin blockchain records all transactions, but not its authors.
Below is an image of the network of transactions carried out (which can be found in the center of the graph):
The “blockchain” revolution
Many today believe that what has been done for money, namely the shift from centralized operation to decentralized organization, can be applied in other areas.
Blockchain is a technology for storing and transmitting information that is transparent, secure, and operates without a central control body. By extension, it constitutes a public database, distributed – that is to say, shared by its various users, without intermediary – reliable and inviolable. Thus, it can be likened to a public ledger, anonymous and tamper-proof.
The blockchain could eventually replace all centralized “trusted third parties” (banks, notaries, cadastres, etc.) with a decentralized IT system.
A concrete case: the Ethereum project
From the various possible applications of the Blockchain protocol, an ambitious project was born, led by the programmer Vitalik Buterin, that of transforming the entire Internet. This is the project Ethereum.
Ethereum allows all users to create their own public, secure, tamper-proof database, thereby guarding against corruption, fraud or data erasure. Defining itself as a “revolutionary new platform for application development”, Ethereum is poised to disrupt fields as diverse as voting systems, financial infrastructures, intellectual property, encouraging the creation of decentralized autonomous organizations.
The Ethereum blockchain also makes it possible to program “smart contracts”, the code of which is a replica of the execution of a classic contract. These contracts are accessible by all authorized parties, their execution is controlled and verifiable. They are designed to apply the precise terms of a defined contract when certain conditions are met. “Smart contracts” make it possible to eliminate the risk of default by one of the counterparties and strengthen equality between all parties.
In short, the blockchain is a decentralized way of controlling and storing information. It thus enables the development of programmable and autonomous applications and contracts. It is a “new frontier” beyond which new technological breakthroughs await us.
Romain Rouphael is the co-founder of BELEM, a start-up exploring the applications of “blockchain” technology. A graduate of ESSEC, he specializes in FinTech and Data Science.
Como Jean Jarry is the co-founder of BELEM, a start-up exploring the applications of “blockchain” technology. Previously, he was an Executive Director at Daiwa Securities Group in Hong Kong.