Bitcoin, as the most popular and internationally most prevalent crypto currency, has a predetermined volume that is limited to 21 million whose “emission” will end by 2140. While the offer is thus controlled, demand depends on the degree of acceptance by the market.

When someone mentions blockchain, your first inevitable association is Bitcoin. The technology is originally developed as part of this crypto currency, but it is far more than that. Whether it’s about identification or some kind of transaction, blockchain is the beginning of big changes in the way we all do business.

Before I go on deeper into the subject, I would like to refer one historic situation.  Namely, the Byzantine generals surrounded the enemy city. Each of the generals stood with his army somewhere around the city, geographically separated. Communication among the generals went through the messengers who carried messages. In order for the attack to succeed, the generals had to agree on a joint action – to move all at once at the agreed time. However, the problem was that among generals, even among the couriers, there could be traitors – people who work for the enemy and who will deliberately transmit the wrong message in order to sabotage the attack. How to organize the transmission of messages among generals so that the action succeeds, regardless of the traitors?

The solution to this problem exists and it’s a very complex mathematical algorithm developed at the beginning of the 21st century. With the appearance of faster computers, this problem has become solvable in a shorter period of time. In practice, this meant that we found a way to establish complete trust between two people on the Internet even if they do not know each other at all. It has opened up a whole new range of possibilities – one of which is digital money.

There are various theories, some of them being even conspiracy theories, about who created Bitcoin and whether its creator exists at all. Officially, it all started in January 2009 when Satoshi Nakamoto began this crypto-revolution. Today there are over 1300 active crypto currencies with their importance and use constantly increasing. They experienced the boom due to the guaranteed privacy of the participants in the transaction system.

While the exchange and value of standard currencies is under the scrutiny of regulatory bodies and monetary policy measures, the value of crypto currencies cannot be determined by one authority, either politically or financially.

Bitcoin, as the most popular and internationally most prevalent crypto currency, has a predetermined volume that is limited to 21 million whose “emission” will end by 2140. While the offer is thus controlled, demand depends on the degree of acceptance by the market.

Bitcoin slowly starts to enter mainstream water through small or rather slightly larger door. So far, it has already found his way to ATMs, payments in certified companies and even to the interbank market.

Concerns about possible abuses but also complaints addressed to the system itself, however, exist. In addition, further developments may be limited by pressures from competing systems such as Visa and MasterCard, a lack of regulation that prevents big players from entering the game, lack of confidence due to significant volatility, the fact that only 880 participants hold 50% of the total values but also an unavoidable fear from hacking attacks.

Here we come to the main task of blockchain as a technology of trust.

Basically it is a decentralized system without one specific vendor-authority to determine the necessary hardware support along with requested location, as is the case of traditional software solutions. All participants in the system, from different parts of the world, contribute with their own processing power to establish a unique history.

What it is and how it works?

Blockchain is a encrypted database shared by a large number of computers that are part of one community, i.e. system. Its ability to reduce the possibility of security incidents, even ones committed by its own operators, is a feature that makes it so revolutionary.

If we describe a blockchain in one sentence, we would say that it is a technology that serves to collect and organize data into blocks and then securely connects them into chains using cryptography.

Collecting and organizing is not carried out by itself but by the “miners” i.e. computers who compete in solving a particular problem (proof of work). On average, every 10 minutes, the winning miner publishes an overview of the processed transactions and orders them into the valid block. For the work done, he will be rewarded with new units of a particular crypto currency.

Each completed block is sent over the network and connected to the previous one in order to create a chain i.e. blockchain.

If you just thought this was a good way to make some money, you should keep in mind that mining is incredibly competitive, risky and followed by great initial investment in a world where technology is changing rapidly. Some firms in China have tried to get rich by doing this but the whole system is designed so that big companies cannot just buy and employ large number of powerful graphic cards with guarantee of great financial gain.

Essentially, blockchain is a record of transactions in the form of a general ledger. Once a transaction is registered, it is preserved forever. The very concept of a transaction should be understood broadly. This can be any movement of money, goods or secured data. Blockchain is designed to store information in a way that prevents the additions, removals or alterations of data without awareness of other participants.

The key to the security of the block and this entire story lies in something called a hash function, which takes the information from each block using cryptographic mathematics and creates a unique string of characters, i.e. hash.

Hash from one block is added to the data in the next block making connections between the blocks virtually unbreakable. With each new block, its hash is wrapped in the next. These steps repeat through the entire chain.

This process is precisely what prevents any attempt to modify previously created block. Even if some brave and persistent hacker tried and managed to change at least one letter, the block could not be transferred to the general ledger because the hash encoded in the next block would no longer match. And all the efforts of an unfortunate hacker would be in vain.

The blockchain potential is reflected in a wide range of possible applications. The new technology will redefine the way we perform transactions regardless of whether we buy, sell, fulfill obligations toward government, enter into contracts or we need to check the authenticity of something. A faster and more secure way of checking information critical to what we do is enabled by a combination of openness of the Internet and the security of cryptography.

To give you some idea how this works in practice, I would take a simple example.

Let’s say you want to buy tickets for your favorite concert but you’re not sure that you will get the valid ticket via existing online ticket selling platform. Here enters a blockchain that enables going directly to the source, bypasses agents and third parties and ensures that the ticket you bought is reliable and original.

Once the ticket is sold, the address is assigned to it, i.e. a set of data that can be publicly seen on a blockchain. While your identity as a customer cannot be seen anywhere, only you will get a private key that is the only tool to “unlock” the address and download the ticket.

This technology can also spark additional efficiency of markets and the removal of bottlenecks. For example, on financial markets, trading is done in a matter of seconds but the exchange of assets and money may take several days and involve a larger number of participants. All this can lead to errors, delays, added costs and unnecessary risks. Blockchain allows direct contact and completion of the transaction in eight to ten minutes.

Concluding smart contacts is also a novel that represents section of this revolution. The contract is now part of the computer code that describes the transaction step by step, can connect multiple blocks of information and exchange assets as needed, all in order to carry out the portion or the whole transaction.

Another important application is the storage and use of sensitive information. Personal documents are traditionally issued and controlled by state authorities. Digitally issued blockchain identification can be a safer and faster mechanism. An international and personally yours blockchain, available anywhere in the world, would allow you to prove your identity, connect with family members and receive money wherever you are without a bank account.

Where are we today?

Some companies are conducting pilot projects with blockchain technology. Early adopters are also active. The next expected steps are engagement of more cautious players, followed by everyone else.

Although the potential for use is high, the technology is still in its initial stages. Before it is widely adopted, some obstacles must be overcome.

Even the best-developed blockchain technology behind Bitcoin can handle five to eight transactions per second. This is still incomparable to transaction processors such as Visa and MasterCard, which can process 10,000 times more transactions at the same time.

The solution is not behind the corner but it’s in sight. As usual, the whole process will be greatly supported by pioneers who are willing to invest time and resources in using cryptographic mathematics and technology advancement for general acceptance of blockchain technology. One thing is certain. Its time is coming.