The blockchain is a term, everyone who knows Bitcoin and cryptocurrency should know about.

The blockchain is a building stone of all cryptocurrencies, and it is also the most significant benefit to cryptography since the invention of Enigma cryptographic machine. The principle of blockchain technology solves many problems and it is usable in many different industries.

Image credit to PWC , blockchain publications

If you want to understand blockchain, you need to understand 2 things — asymmetric cryptography and distributed database.

Imagine you have a secret message that you want to tell a friend on the other side of the country. How would you get the message to them securely?

Here is one possible solution.

First, mail your friend an encryption key. Consider this encryption key as a way that you will make the message you send unreadable to anyone who doesn’t have the encryption key. Next, in another letter, encrypt your message with that encryption key and mail it to your friend. When your friend gets the encrypted message, they will already have the encryption key, so they will be able to decrypt read it.

This method is problematic because if an attacker intercepts the encryption key they’ll be able to read your message as well! If you were to send a lot of messages with the same encryption key, this could be a very dangerous proposition.

Now, consider a second possible solution.

Imagine that your friend has two encryption keys: a private key and a public key. The public key can encrypt messages that only the private key can decrypt. First, your friend mails you their public key. Second, you use your friend’s public key to encrypt a message and you send the encrypted message back to them. Finally, your friend uses their private key to decrypt and read the secret message.

With this new method, even if an attacker intercepts the public key and the message, they won’t be able to decrypt it because only the private key can decrypt. Since the private key never leaves the hands of your friend, it has no chance of being intercepted during transmission and you can continue communicating securely without worry of eavesdropping!

The first solution we outlined is symmetric cryptography. It’s symmetric because the same piece of information (the encryption key) is required on both sides — adding the possibility of interception when it’s passed from one side to the other.

The second solution is asymmetric cryptography (also known as public-key cryptography). It’s asymmetric because we use a different key on each side to decrypt and encrypt — we never have to transmit the key used for decryption, so there’s no risk of interception.

The second part is a distributed database.

Its main difference from the centralized database is that users are creating the database between each other, instead of connecting to one or more databases, as it is usually. Data exchange runs on so-called peer-to-peer principle, in other words, straight between two users. If you sometimes heard, that blockchain is decentralized, it was true because if it is distributed, it is also decentralized.

The mere decentralization, however, does not solve the problem that should be solved by bitcoin and blockchain — the distribution does. The technology is also far more resistant to attacks and unforeseen blackouts because if one block drops out, it does not cause exclusion of other blocks.

The blockchain is, therefore, a technology, which could be considered a distributed database.

Your private keys represent your rights to transfer some Bitcoin or fraction of Bitcoin (can be divided at 8 decimal places.) over the blockchain/database. Imagine blockchain like public deposit box, where everyone can store something, but only you have the private key to open the box and own the value in the box, which is based on the amount of Bitcoin tied to the unique private key. Except not even the public deposit box provider can open the box because there is only one copy of the private key and cannot be tampered with it in any way.

There is a golden rule in the Bitcoin world: “If you do not own your private keys, you do not own your coins.”

Blockchain use case

Blockchain technology is well proved and used as a means of storing and transferring of monetary value (which is given by the trust of peers in blockchain technology). Blockchain can be used in those computer networks, where users and admins of the site require (theoretical) anonymity and independence on the third party. In a distributed network with asymmetric encryption there is no admin and at the same time, all participants are admins.

The Classical democratic system could be based on this advantage. There we entrust our vote to the third party, thereby we give them our faith, that they will not manipulate the results.

Voting on the blockchain is one of the possible use cases because there is no way, how could votes be manipulated or counterfeited, because of public blockchain is the transparent book of records for votes and everyone can check if the vote count is corresponding to numbers of voters with voting rights.

There are other uses cases for blockchain technology in the finance world and beyond it. We can create shares that run on the blockchain platform the same way as a token on the blockchain platform, issuing shares using colored coins, Ethereum — token as a service platform. Encryption of the data and a distributed database is also usable in other fields, like cloud storage a Web 2.0 ( STORJ, SIA, Blockstack, Maidsafe, etc.). Blockchain technology is not interesting only as a means of the store of value or speculating, but also in many other industries, not even mentioned here.

We believe, the blockchain technology is going to persist, mainly because of its great disrupting market potential on many industries connected with our daily lives.

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