Blockchain-Technology

From a centralized to a decentralized System Architecture

1. Blockchain-Technology – What is it?

Although the term blockchain is being picked up more and more by the media, there are only a few board members and business owners who really know what’s behind it. Mostly, the term is associated with cryptocurrencies and then takes a back seat, because the discussion of whether a new digital currency is going to prevail seems to be more interesting. But answering the question as to whether and, if so, which cryptocurrency will prevail, is not the relevant one. You need to look at the underlying technology, the opportunities which come up with this technology and what exactly this means for the market of the future – the blockchain technology.

First, let me explain in simple terms what that is:

While centralized networks are used today to transmit information, data, and transactions, Blockchain technology transmits them through a network of independent computers from people like you and me scattered around the world – a so-called decentralized network.

Let’s take an example to illustrate this:

If you send a message to a friend today, then this message goes first to a server, e.g. What’s App. There, the message is saved and goes in the next step to the recipient. Thus, the server used automatically has your data. In this case, a central network is used for the data transmission.

New innovative technologies, however, allow the message is not sent to a central server, but to a network of independent computers. In this case, the message is split up and each computer takes over a share of the work. In this way, nobody can access the complete message, so the message arrives safely at the recipient. It is a decentralized network that is used. And the technology behind this system is called blockchain.

This illustrated example of message delivery is equally applicable to the transmission of information and the execution of transactions such as money transfers via centralized versus decentralized networks.

2. Blockchain-Technology – How does it work?

To illustrate how the system works, let’s take a financial transaction as an example:

If you want to transfer money today, a centralized network will be used where a trusted third party, e.g. a bank, is needed. This third party must first identify and verify the participants. Only then will the transaction be executed and stored in an in-house cash book for traceability. That costs time and money.

The principle of blockchain technology must be presented in several steps to make it plausible:

Let’s assume that several people want to transfer money using blockchain. In contrast to the in-house cash book an open cash book is used, which everyone can see. This means that every transaction that is made is recorded in this cash book. Thus, if A transfers money to B, it is registered there, just as when person B transfers money to person C, etc. This concept of open cash book is thus a chain of transactions that can be viewed by each participant in the network. Based on the knowledge from the open cash book, it is then possible to allow or reject transactions. So, if someone wants to transfer a sum of money that he doesn’t have, the other participants in the network would know, reject the transaction and not save it in the cash book.

But an open cash book alone is not enough, otherwise we would have a centralized network that would be used again. Therefore, there is not only a single open cash book, but each participant of the network can run his own cash book. This creates a decentralized network, which ultimately makes the central open cash book superfluous and unnecessary.

But somehow it has to be ensured that all decentralized cash books are in sync. And this is ensured by the use of so-called miners. Miners are a type of exam unit that compete with other miners. They each have two tasks: First, the miner checks, based on their cash book entries, whether the transaction is valid by looking to see if the person wishing to make a transfer also has the money. Second, he must find a key code to link the unvalidated transaction with his cash book. To find the right key randomly, a computing power is required. Figuratively, you could say that the miner is trying until one of the keys fits.

The miner, who first finds the right key, enters it with the transaction in his own cash book and is rewarded with a small amount. He also provides the key to the network. Now all other miners also enter this transaction in their cash books, because it makes no sense for them to continue to search for a key, because they wouldn’t get paid for it. Instead, they would rather search again for the next transaction, which has not yet been assigned a key, which is why there is again the possibility that they can earn money from it. This principle therefore ensures that the cash books are all synchronized and the network remains running.

In summary, there are three key aspects that make up the blockchain technology:

• There is a public cash book that everyone can see and in which all transactions are linked as a chain,
• this cash book is not centrally held and controlled by one authority, but distributed decentrally across the network,
• the miners organize and secure the transaction in the cash book and receive a small amount of money for this.

3. Blockchain-Technology – What does it mean? (Consequences)

Thus, Blockchain-Technology offers some unbeatable advantages:

• Decentralization and cryptical procedures ensure a high level of security. And the more network participants, the more secure the system becomes against cyber attacks.
• This infrastructure provides the ability to send financial assets and sensitive data without being reliant on a middleman.
• The transactions stored in the blockchain cannot easily be changed.
• The system is transparent, as all transactions and data can be tracked.

4. Blockchain-Technology – Relevance for your Business

If you understand the principle of blockchain, then it quickly becomes clear that this technology offers incredible opportunities for the future, as its capabilities are almost limitless. So it does not matter if and if so which cryptocurrency prevails. In contrast, the technology used in the background is relevant. This technology or one in more advanced form will prevail. So it makes sense to look at it today and think about which products and business ideas, regardless of the industry, can be developed. With a corresponding idea and strategy, this technology, especially in combination with other technological advances such as artificial intelligence, opens the way to market leadership.

5. Blockchain-Technology – Application areas of Blockchain today

5.1 Financial Sector

Banco Santander, founded in 1857 and headquartered in Spain, is a retail and commercial bank.

In their press release from April 2018 the Santander announced the launch of a new international payments service, called Santander One Pay FX, that is using a blockchain-based technology. With this new service it shall be possible, that retail customers complete international transfers on the same day or by the next day. As highlighted in the press release, with the rollout of this service, Santander is the first bank to offer a blockchain-based international payment service.

5.2 Information Technology

Minebox IT Services GmbH, founded in 2009 and headquartered in New Zealand, offers a decentralized cloud backend, where you can store files.

While some files are stored locally some other encrypted pieces of your files are kept on multiple nodes around the world. As the data is fragmented and encrypted into small packages, this solution bypasses the common security issues of cloud storage.

According to their website, it is the world’s first network storage that generates cryptocurrencies. How does it work? You do not only store your own data, but also enable other users to use your free space. For that you get SiaCoins, a virtual currency, which you can use to pay the backups of your data.

5.3 Communication

Status Research & Development GmbH, headquartered in Switzerland, developed the first decentralized chat app. In addition to the use of various applications and the chat function Status also offers the possibility to transfer money directly from person to person.

To ensure continued development over the next few years Status has completed a successful round of financing of approximately $ 95 million.

5.4 Administration

Estonia is in many ways a showcase when it comes to digitalization and the use of blockchain technologies. For example, Estonians have been able to vote online since 2005. Since 2011 even a turnout by SMS (short messaging service) is possible.

The interplay between digitalization and blockchain technologies is used in various contexts in order to exploit existing opportunities while taking transparency and security into account. E-government applications, e-tax for tax declaration and e-health for providing health data are just a few examples for Blockchain based application areas in Estonia.

6. Blockchain-Technology – Application areas of Blockchain tomorrow

6.1 Mobility

Blockchain technology offers carsharing the opportunity to lean complex processes. This includes all processes, from the selection of the right vehicle to the final conclusion of a personalized rental agreement.

Share & Charge based in Germany has already recognized the possibilities of blockchain technology and uses them. They have installed private charging points with a payment system and at the same time have significantly expanded the charging point network for e-vehicles.

The advantages are obvious: There is hardly any need for infrastructure. And contracts with payment service providers become superfluous. Payment is made by the e-vehicle itself via smart contracts.

It is to be assumed that in the future more and more car-sharing and rent-a-car providers as well as car dealers will recognize the opportunities of the technology and take advantage of it for themselves.

6.2 Insurance

Blockchain solutions are also becoming increasingly popular in the insurance sector. Existing vehicle and driver data could help in the future to set up more customized contracts. Intelligent sensors in cars could transmit data and information in the event of an accident directly to the insurance company. This could speed up damage reports and the processing of insurance claims.

Zendrive, headquartered in San Francisco and named to Fast Company’s Most Innovative list, has already started to measure and score driving behavior by using smartphones, helping insurers better manage risk.

6.3 Energy

As part of the Brooklyn Microgrid project, in New York, ten houses were interconnected into a distributed power grid in 2016 – five of them with rooftop solar panels. The electricity that the houses with solar system do not consume, is sold to the other houses. Through the use of smart meter, which capture the flow of electricity, and smart contracts, which ensure the autonomous execution of contractual agreements, a transparent and secure exchange of electricity and payment takes place on the basis of blockchain technology.

Similar to this example, thanks to the blockchain technology, it will be possible in future to better monitor and control the electricity distribution. Too much generated electricity, e.g. through wind and water power, can be better cached and used again when needed.

6.4 Advanced Smart City Systems

More and more cities are making a conscious decision to become a smart city. Holistic development concepts focusing on technical, economic and social innovations are in the foreground. With the help of the Blockchain, technologies can be networked to use resources more efficiently. Controlling energy requirements, reducing CO2 emissions by optimizing road traffic utilization, and nationwide broadband data connections for better communication are just a few examples of what is possible by connecting and combining new technologies.

 

© Image: VIGE.co – stock.adobe.com

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