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Everything you need to know about Blockchain

Blockchain is fashionable, but few understand what it is, and where and how to apply it. In this paper we explore the concept of this technology, its characteristics and applicability in the business context.

Firstly, it is important to understand that blockchain is not a product or service itself but a technological solution for general purpose such as internet. Therefore, it's hard to imagine all the applications that we have in the future: the truth is that blockchain will be present in people's lives transparently.

We can define blockchain as a solution consisting of encryption elements and distributed computing, to automate processes that require the establishment of trust between two or more parties. This trust is established by consensus algorithms and transparency in the recording of transactions.

We can better understand the workings of this technology by analyzing two of its main features:

  • Chaining of records: Records are written in blocks. These blocks are linked to each other through a process based on encryption, which is responsible for representing a block through a single string that becomes part of the next block, thus creating, a temporal sequence of records.
    This feature ensures the immutability of data.
  • Distributed system: The solution is given in network format where each node maintains a common vision of executed transactions, providing transparency for the entire system, which itself it is an important safety factor. Nodes can still participate in the validation of information, following pre-established consensus rules, which ensures the system's resilience. That means, the network can "survive" if one or more nodes are lost or trying to work out of the rules. This feature is important to check system reliability and impartiality.

It is important to make clear that there are other technical factors and variations that can be applied, bringing this universe a variety of platforms that have their own characteristics to meet specific purposes. These characteristics go through the nature of the network (public or private), the consensus model and even the way of "chaining" the records.

Fast forward to the discussion of the application of blockchain, it is necessary to bear in mind that this technology is embedded in a context of digital transformation. For this to be clear, just look on the optics of the potential impact in changing the relationship between people and companies, given the trust element; Gain efficiency by eliminating intermediate administrative costs and fees; and finally, the potential to enable new business based on the phenomenon of shared savings, decentralization and disintermediation.

For didactic purposes, we group the applications of this technology in four fields. It is important to keep in mind that the applications presented here include the most recent studies, however innovations are emerging every day.

1. Cryptocurrency

The most famous application of blockchain was as enabler for the Bitcoin system. This technology was primarily used to solve an old problem in the currency of digitization: the double spending.

The need to scan the money is not something recent. Watch the video where the Nobel economics, Milton Friedman talks about it in 1999 (https://youtu.be/BC4KuzXneGI).

The success of this application is demonstrated by the fact that bitcoin is on the air since January 3, 2009, currently accumulating a value of US 450 billion market, without any attempt of fraud in the validation or registration transaction being successful.

From the bitcoin, many other cases using the scanning blockchain money succeeded. These cases go through payment solutions in e-commerce environments and physical stores, remittances, global interbank transfers, peer-to-peer lending systems and micro finance systems.

Below is one of the most famous cases related to cryptocurrency:
Interbank transfers: Ripple (https://ripple.com/use-cases/)

2. Criptoactives

Still in the field of finance, another possible application of blockchain is in the representation of documents in electronic form, which facilitates transactions in general assets, increasing the liquidity and the potential market size of these assets. The active representation of a process is known for digitally tokenization.

For this application becomes clearer, consider how active a property with a market value of R $ 1 million.

Now imagine that will be created 20 tokens, each equivalent to 5% of the property value. This way, you could own a piece of property or, for example, receive part of the proceeds from a rental. The benefit relating to liquidity is evident in the emergence of secondary markets that allow the sale and purchase of these tokens instantly without intermediation or fees. This market can still work 24 hours a day without interruption, and quite simply enable transactions between people from anywhere in the world, thus increasing the size of this market.

Along the same lines, solutions related to the stock market, derivatives, private market and crowdfunding also fit in this group. However the revolution in financial markets, given the use of blockchain, still depends on scalability issues, and legislation.

One of the most emblematic cases related to this group of applications is the launch of LINQ platform, a partnership between NASDAQ and technology companies, which resulted in a platform for trading in securities of companies in pre-IPO.

3. Data management

"Data is the asset of the new era."

We live in an era where the generation of data grows exponentially, boosted mainly by the ability we create to interact in the digital environment. This interaction goes through the relationship between people, companies and things (IOT). At the same time, we went through a crisis of privacy and information security.

The blockchain can be applied in this context by returning people control of their data without the facilities generated by the sharing of your information is affected. The idea is that the network verifies the authenticity of each record, store and manage permission to access this information in an automated and decentralized manner.

This functionality is useful in a range of applications such as: copyright guarantees, control supply chains, Loyalty programs, proof of authenticity, data sharing among competitors and/or partners, identity management, among others.

The accession of the government in issuing digital identities is a great accelerator in this process and Estonia is at the forefront of using blockchain in the management of digital identities. Access: (https://e-estonia.com/solutions/e-identity/id-card)

Another mature application of blockchain is the management of supply chains, benefiting industry, retailers and consumers. Recently, a partnership between BRF, Carrefour Brazil and IBM released a blockchain-based solution for the screening of the entire production process of meat. The final consumer could, through a QR Code on the product packaging, check the origin of that product's factory, production dates, packaging and transport, as well as its validity. Any irregularity in the manufacture or distribution may be detected by the client.

I advise you to watch the video (https://youtu.be/CsxjlsBYmrI), in which is detailed in another case of application of technology, this time in the healthcare industry.

4. Smart Contracts

As its name suggests, we can apply the blockchain to digitalize contracts, which means establishing conditions that must be performed if a predetermined event occurs. However, this concept can be much broader. We can run entire programs from applications developed on blockchain platforms.

Smart contracts are maybe the application with the greatest potential disruptive. Its main features are: having to trigger transactions recorded in blockchain, be self-executable and impossible to be interrupted (if desired); They are precise in its execution and may involve information transactions, tokens and cryptocurrency; may involve two or several parts, and as agents people or things (IOT); and can also interact with external components such as applications, stand-alone machines and artificial intelligence. It is a vast field of action and very flexible as the possibilities of the program have no barriers.

The table below outlines the cases of smart use of contract considering the complexity of its implementation:

BC

In the known cases, we highlight the DAO - Decentralized Autonomous Organization. This application aims at the elimination of legal entities in the relationship between suppliers, partners, employees and consumers, breaking the current model of any organization, thus enabling the real shared economy.

Among the many cases we suggest the research of three of them:

  • Slock.it - Platform which allows the leasing of real estate and cars equipped with connectivity. Replacing companies like Airbnb: (https://slock.it/)
  • Arcade city - global platform for rides in peer-to-peer scheme maintained and operated by the drivers themselves. May be the end of companies like UBER, which currently mediate the relationship between drivers and passengers: (https://arcade.city/)
  • Xchng - Open platform that will provide stability, security, efficiency and transparency in the digital marketing industry: (https://www.xchng.io/)

As we have seen, blockchain is a vast subject with an enormous potential disruptive, both considering new business models, and the transformation of traditional business. In Brazil and in the world, this technology is still in development and we expect a higher adoption of blockchain for the next two or three years. Until then, many new applications and proof of concept should be part of the way.

We at Cosin, seek to be close to the development of this technology, studying and seeking partnerships to build our own cases.

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