In recent years, the terms “cryptocurrency” and “blockchain” have become commonly used, although not everyone knows what they mean. Although some savers are convinced that cryptocurrencies represent the future of finance, the majority are wary of these digital assets, which are considered – with good reason – to be extremely volatile and therefore high-risk.
The mistake many make is to be suspicious of blockchain as well, because of its inherent link to cryptocurrencies. In this short guide, we at Sellinnate will attempt to dispel this misconception, explaining what blockchain is and how it can be applied to a variety of contexts, ensuring full data security.
What is blockchain and how it works
The blockchain is a technology that, although it originated under the umbrella of cryptocurrencies, has all the makings of finding application in many different areas. A blockchain is a database built by blocks, distributed among a network of users according to a peer-to-peer mechanism. Blocks containing information are concatenated and unchangeable; each addition of new data results in the creation of a new block, which, once verified, is added to the tail of the chain.
The mechanism of operation is relatively simple: each new piece of information is recorded in the form of a new block of data, which is submitted for validation by users; when a majority of the nodes in the network have approved its validity, the block of information is confirmed and added to the queue of the chain. Approval, of course, is not done manually, but through the automated resolution of complex mathematical algorithms. The final step is to distribute the updated blockchain to the entire network.
Blockchain technology has a number of innovative features, from which its enormous application potential originates. First of all, it is a completely open source technology: its source code is open and anyone can analyze it; much more complex, however, is to modify it, since any change must be validated by 51 percent of the users of the blockchain itself. Blockchains, moreover, are based on a distributed database; if everyone can access the database and act as validation nodes, it is called a public blockchain; if, on the other hand, there is a managing body that allows access only to certain authorized users, it is called a managed blockchain. In terms of security, public, fully decentralized ones are preferable, where it is the high number of users that ensures the security of the database. Each member of a blockchain has a copy of the chain: if one of them decides to counterfeit its chain, the others will remain unaffected. Since, in many blockchains, a change is accepted only when at least 51 percent of the users have approved it, the greater the number of copies of the database in circulation, the lower the risk of a fraudulent change spreading. This overcomes the need for a trusted manager or centralized authority to approve transactions: it is the peer-to-peer system that – cumulatively – approves each transaction and ensures its future integrity.
Blockchain technology is secure “by design”: it is the very way it is designed that ensures its effectiveness. A blockchain is characterized by the following elements that guarantee its security:
- use of dual encrypted key systems;
- distributed database;
- concatenated blockchain structure, in which the alteration of one block invalidates all subsequent blocks;
- open-source software, evaluable by everyone.
In addition to these design-specific features, there are additional layers of security given by the way the blocks are managed. In fact, each block is identified by a hash, a unique alphanumeric code that changes if the block data is modified. Each block is also identified by the hash code of the block that precedes it, so that the chronological order of each packet of information can be accurately reconstructed. Finally, each block carries a time stamp, further guaranteeing chronological integrity. When a block is altered, not only does the hash and time stamp change, but the ability to reconnect it to subsequent blocks is lost: therefore, a security breach is immediately detected and breaks the chain.
Applications and projects
The very high security standards guaranteed by blockchain technology make it an excellent candidate to find application in a variety of sectors. Undoubtedly, the banking branch is where this technology has the most potential: it is estimated that, if applied extensively, it could save banks about $20 billion annually. Precisely for this reason, in 2015 the world’s 9 leading banking institutions established the R3 consortium to study the application of blockchain to traditional banking; today this network has more than 40 partners, including Italy’s Intesa SanPaolo and Unicredit.
Blockchain technology also has excellent application prospects in finance, healthcare, energy, commerce and insurance. Some governments are also increasingly moving toward this technology. The European Union, with eIDAS Regulation 91/2014, has provided guidance on techniques for affixing time stamps on blockchains. In 2019, Italy also took significant steps forward, enshrining the formal definition of “blockchain” and “smart contract” in Article 8-ter of the Simplification Decree Law. In general, however, legislation in this area is still very immature, and major technical and regulatory developments will be needed before blockchain can find wide application.
Sellinnate: the ideal partner for your projects
Given the endless possible applications for blockchain technology, it is not surprising that banks and companies are looking for IT experts to assist them in implementation activities. However, it is very difficult to find professionals on the market with appropriate skills in both technical and legal fields. The goal of Sellinnate web-agency is to provide answers to these needs: its team of IT and cybersecurity experts will be able to interface with the staff of your company or banking institution, to propose blockchain solutions tailored to your needs, allowing you to ensure full security for the data you manage.