Blockchain is a continuous sequential chain of informational blocks built according to certain rules. Blockchain is an eternal digital distributed journal of economic transactions that can be programmed to record not only financial transactions as a cryptocurrency, but also almost everything that has a value.
Blockchain is a multi-purpose tool for building various databases, which has the following advantages:
• decentralization (there is no main storage server, all records are stored by each participant in the system);
• full transparency (any participant can track all the transactions of the system);
• confidentiality (all data is stored in an encrypted form; the user can track all the transactions, but cannot identify the recipient or sender of information unless he knows the wallet number; a unique access key is required for transactions;
• reliability (any attempt to make unauthorized changes will be rejected due to inconsistency with previous copies; for the legal change of data, a special unique code issued and confirmed by the system is required);
• compromise (data that is added to the system is verified by other participants; in other words, they recalculate the hash.
How does blockchain technology work?
Sometimes blockchain technology is called the “Internet of values.”
Each user can post information on the Internet, and then other people can access it from anywhere around the world. Chains of blocks allow you to send any values to any place in the world where the blockchain file will be available. But to have an access to blocks that he “owns”, the user must have a private key created using a cryptographic algorithm. Providing someone with his private key, the user, in fact, transfers to the other person the amount of money that is stored in the corresponding section of the block chain.
In the case of bitcoins, such keys are used to access addresses that store some amounts in foreign currency of direct financial value. This implements the function of registering the transfer of funds, usually this role is played by banks.
In addition, another important function is implemented: the establishment of a relationship of trust and confirmation of the identity, because no one can change the chain of blocks without the corresponding keys. Changes that are not approved by these keys are rejected. Of course, keys (as well as physical currency) can theoretically be stolen, but protecting several lines of computer code usually does not cost much. This means that the basic functions performed by banks (identity verification and subsequent registration of transactions) can be performed by a chain of blocks faster and more accurately.
• private – private blockchains are considered to be exclusive and are created for the development of private business. They are closed and centralized, maintained and controlled by their creators and subordinate to corporate goals. To become a member of a private blockchain, certain conditions must be met, and only certain certified users can mine new blocks;
• public – any user can join the public blockchains.
Blockchain technology scope of use :
• secure network administration, eliminating MIM (“man in the middle”) hacker attacks as well as eliminating the problem of “single administrator”;
• storage of digital certificates, which makes user access to sites completely secure (excluding the interception of passwords in particular,);
• safe bilateral transactions without involving a guaranteeing third party (law firm, notary, bank, etc.); fixing the time of documents placement, allowing to solve patenting, copyright and other related problems;
• confirmation of the authenticity of the product with the help of a secure certificate;
• confirmation of rights to any property;
• creation of public electronic business cards, the information on which is automatically updated even after the “distribution” to Internet resources;
• DNS system, invulnerable to DDOS attacks, etc.
Positive aspects of blockchain technology:
• reduction of transaction costs;
• reduction of transaction time;
• cost reduction;
Negative aspects of blockchain technology:
• an ever-growing database;
• low transaction speed.
A smart contract is an electronic algorithm that describes a set of conditions, the fulfillment of which entails certain events in the real world or digital systems. Implementation of smart contracts requires a decentralized environment that completely eliminates the human factor, and cryptocurrency is required for the possibility of using value transfer in a smart contract.
Scope of use of smart contracts:
According to experts, falsifying the election results is almost impossible, but thanks to smart contracts, the possibility of external interference in the voting system can be completely eliminated.
In this case, the votes will be placed in a distributed register, and their decoding will require exceptional computing capabilities. Such computers do not exist, so hacking this system will be impossible.
Blockchain not only offers a reliable and transparent shared registry, but also helps to avoid misunderstandings while working together or in situations where the parties draw up contracts independently of each other.
• Logistics and supply
Logistics suffers from bureaucracy too often, when various forms must pass approval in numerous instances. Because of this, fraudsters get the opportunity to make money, and companies suffer losses.
Blockchain allows avoiding these problems, as each participant in the supply chain gets access to a secure electronic system that monitors the execution of work and payments.
Think about the future, where everything will be automated. Google is already building it by creating smart phones, smart glasses and even smart cars. And here smart contracts come to the rescue.
Take, for example, self-driving or self-parking cars. Smart contracts will determine who is responsible for the accident – the sensor or the driver, and will also help in resolving any other situations. Through smart contracts, insurance companies can set fees based on where and under what conditions drivers drive vehicles.
Other industries, such as acquiring, lending and accounting, will also use smart contracts – for example, to assess risks and audit in real time. Lawyers will be able to move from drafting traditional contracts to creating templates for smart contracts. And on the Blockchain Technologies website, smart contracts have turned into an electronic-paper hybrid: they are confirmed by the blockchain and receive material embodiment in the form of a paper copy.
Positive aspects of smart contracts:
• independence – you no longer need intermediaries to conclude transactions;
• security – a smart contract is in a distributed registry, its conditions cannot be changed;
• saving –having no intermediaries, parties of a smart contract can cooperate on more favorable terms;
• absence of costs – in case of fulfillment of the conditions of the contracts, the parties immediately exchange assets.
The negative sides of smart contracts:
• legal status – cryptocurrency is used for the operation of smart contracts, but it is not yet accepted as an official financial instrument;
• mistakes – in order to draw up a smart contract it is necessary to prescribe all kinds of conditions and options for the development of transactions, the more complicated the process, the more difficult it is to create a smart contract;
• lack of understanding – most users still have little understanding of what smart contracts are.
Thus, blockchain in conjunction with smart contracts form a powerful tool that can be widely used in the modern digital world.