Blockchain is another invisible technology giant heading into the digital future. Worldwide, work is being done on individual solutions related to blockchain. The pace is breathtaking. If you are not careful, digital dementia is about to be threatened here. The following lines can bring – right compact – a little light into the darkness.
Blockchain technology was first developed for Bitcoin, a private digital money system. Blockchain technology takes over the function of a register in which money transactions can be stored securely. This technology can be used far beyond Bitcoin.
Since then, blockchain technology has been further developed by a large number of individuals and organizations around the world and expanded for other applications. The possibilities of blockchain technology are not limited to simple money transfers between private individuals. On the contrary, it offers the possibility for a wide range of economic services.
The development of information technology has always had a major impact on the financial sector. In parallel with the performance of computers, its range of applications in financial services has also developed and the efficiency and performance of finance has gradually increased. In addition to the exponential growth in computing power, computer technology has enabled some other grassroots innovations that have a major impact on private life and the economy.
These basic innovations include the invention of the Internet and the smart-phone, which make it possible to access and share information from anywhere. In addition, there are offers such as the favorable and scalable availability of high-performance computers and data stores, as well as major advances in the field of artificial intelligence, which are accompanied by the performance enhancement of the computers.
These developments, which are usually summarized as a digital revolution or digitization, have made fundamentally new business models possible.
In the financial sector, these companies are summarized under the term “fin-techs.” Since the late 1990s, the fin-techs have adapted or supported more and more processes in the financial sector: While the focus in the beginning was more on payment services (e.g. Paypal), later the credit supply of individuals and small businesses Financing of start-ups and companies (crowd lending, crowd investing).
However, these types of fin-techs usually still use the traditional financial market infrastructure (bank accounts, payment infrastructure, etc.). The development of cryptocurrency, on the other hand, leads away from the traditional transaction system. Cryptocurrency (such as Bitcoin) is a digital means of payment created using the principles of cryptography. The concept and implementation of Bitcoin in 2008 set in motion a development whose effects are hardly fully estimable today.
Bitcoin’s inventor wanted to create a money-making and payment system that goes completely without government currencies, central banks and state-controlled banks. In doing so, he had several problems to solve. On the one hand, monetary stability had to be ensured. He solved this by setting the maximum limit of the money supply created and clear rules on how new money is being created. Another set of topics was the secure assignment of money to a person, the secure transfer of money as part of a payment process and – associated with this – the avoidance of the copy of the money (double spending problem).
For this purpose, he has created the so-called blockchain, a transaction protocol that is intended to ensure equivalent or better security with the help of encryption technology (cryptography) without central middlemen (central bank or bank). It is essential that the integrity of the transaction protocol is guaranteed purely by technology, while in the banking system a middleman (financial intermediary) must ensure this integrity. The logging, encryption and storage of the transactions only take place via the Internet.
In contrast to today’s payment system, in which each participant (e.g. a bank) keeps their own ledger and has to match this with their interfaces (e.g. correspondent banks) at a defined time, the blockchain has only one ledger, but it does Stored on all participating computers as a copy. It is therefore also referred to as the technology of the decentralized ledger technology or “distributed ledger technology” or “DLT” for short.
Bitcoin has spread and evolved widely since launching in 2008. Due to the high increase in value in recent years, it is increasingly used by specialist investors as an investment property (crypto asset). Due to the fact that Bitcoin does not know the holder of the money, Bitcoin is also repeatedly criticized for being used for criminal purposes (e.g. money laundering, ransom demands).
The first generation of blockchain developed for Bitcoin also has some problems that make it difficult for the broad economy to deploy, such as high energy consumption or relatively low transaction capacity. Some of these problems have already been solved intelligently by the newer generations of blockchain systems. In view of the innovative power used worldwide for the further development of the blockchain, it can be assumed that the future generations of the blockchain will solve the outstanding problems in a timely manner.
Blockchain is about a new software technology based on mathematical models to efficiently handle transactions. Barter transactions have always been the basis of the economy – the simplest form is the private exchange of a good for money through personal contact and contract. Specialist trading systems have been set up in order to be able to exchange goods over the distance between two parties that do not know each other directly. Examples include payment systems and securities trading systems.
In these classic trading systems, the connection between buyer and seller is established via one or more intermediaries and the transaction is handled legally secure. For this, however, a high degree of standardization and high demands on the quality of intermediaries are required. For quality assurance and to create trust, these are supervised by the state. Each intermediary keeps a ledger for itself in order to securely record the transactions and to ensure the assignment to the customers.
The coordination of these various main books, internal processes and government oversight are burdensome, which is why these trading systems are worthwhile only for certain assets.
The blockchain, on the other hand, offers a transactional system that does not require the quality assurance of intermediaries (middlemen) and without government oversight. Quality is backed up through a combination of encryption technologies, the possibilities of the Internet and software-based rules for preventing abuse. Technology and clear rules thus create the necessary trust in a blockchain to carry out secure transactions.
The most visible generations of blockchain today are based on the principle of the decentralized main book (DLT), in which all participants in the transaction system store a copy of the same main book in which all transactions are depicted and Use quality assurance. However, this does not have to be crucial for all future generations. Common to all will be the absence of a central intermediary for quality assurance of the main book. In a blockchain system, therefore, the traditional supervisory approach (e.g. financial market supervision) is missing.
This main feature places blockchain systems as basic technology close to the Internet protocols (e.g. TCP/IP), which form the basis of today’s Internet and also the basis for business models, but even by no intermediary directly Operated.
Because the classic approach to a trading system is burdensome and expensive, today only limited assets are traded on these systems. Blockchain technology will significantly reduce access costs. It can therefore be assumed that a much wider range of assets will be traded on such infrastructure and can be used as a basis for economic processes and related services.
The blockchain then takes over the function of a payment system together with the user interfaces (e.g. wallet app on a smart-phone). This information is called “tokens” on certain systems, in reference to the English term for a private embossing coin or “value mark.” There are blockchain systems such as Bitcoin, in which this information is not technically designed as a token, but the term symbolizes the independence and transferability of this information.
The technology of blockchain systems ensures that this information is clear. It is therefore not technically possible to make copies. As a result, blockchain technology meets the ideal requirements for the digitization of money, assets and intellectual property.