Blockchain — Is the Blockchain the future of the digital economy?

More than 80% of the world’s chief executives are already involved with Blockchain and every seventh company has already implemented one or two pilot projects. But what the PwC Global Blockchain Survey 2018 reveals is only the tip of the iceberg. Over $13 billion US dollars were invested in Initial Coin Offerings (ICOs) in 2018 with the sole goal of not losing out in the race for the top positions in the new global economy.

If you are faced with the decision to buy one or the other asset as cryptocurrency using Blockchain, you are definitely in good company: Starting with the big technology companies like Microsoft and Samsung, up to the leading investment companies like BlackRock, almost all global players are currently securing a piece of the crypto market.

But what is behind it and is it worth all the hype? We’ll get to the bottom of it and show you what Blockchain is all about:

• Where does it come from and since when does it exist?
• Who is behind the Blockchain?
• Who profits from it?
• What is a Blockchain?

Some say, it is the long-awaited technology that the digital economy has been waiting for for a long time. A gigantic flop that will lead naive investors unregulated and untamed into bankruptcy, say the others. While some (mostly technology companies and software developers) see the necessary consolidation in the price decline of recent months, others (mostly traditional bank managers and economic policymakers) think this is the beginning of the end.

For a well-founded Blockchain info it is worth taking a look at the beginning and to examine two central questions:

• When was the Blockchain invented?
• How does it work?
• Why was the Blockchain developed?

It is the year 2008 and the financial industry is in the middle of its biggest crisis of confidence, which it has created itself. The overheated US real estate market threatens to drag the global monetary system into the abyss. Many billions of euros of taxpayers’ money are taken into the hands of the world to avert the crisis. Nevertheless, the global economy is slipping into the biggest recession in 80 years.

In this situation, Satoshi Nakamoto publishes his Bitcoin white paper, which is now undisputedly regarded as the founding document of the crypto economy.
The basic idea is as brilliant as it is simple: a decentralized booking system (Distributed Ledger) is to replace the traditional currencies and the forgery-proof encryption technology is managed by the users themselves. This makes central banks and economic manipulation superfluous, and speculative bubbles can no longer endanger the new digital currency.

Few people are initially inspired by the idea of a technical currency that cannot be manipulated. It soon becomes clear, however, that the newly developed technology can not only replace currencies, but can also fundamentally revolutionise the exchange of information. Ten years after the first Blockchain went online (January 2009), we are already talking about the second and third generation. But before we look at the latest developments, let’s take a look at the basics.

How is a block structured?

A block is basically a series of encrypted data about past and present transactions. Each one contains two different types of information:

The header contains all metadata. In addition to a timestamp, hash code of the predecessor and basic information, this also includes the nonce. It is one of the variable parts that are modified so that the newly calculated code meets the requirements of the proof-of-work.

The transaction part contains the newly added transfers that still have to be confirmed and thus saved. The transaction part is prepared according to its own encryption mechanism, the so-called hash tree.

Together, the two parts form the block, which is the starting point for the encryption. A so-called SHA-256 algorithm is used, which generates a unique binary number with 256 digits — the so-called hash value. The result is virtually forgery-proof and the users themselves do the work — the mining.

What is Blockchain Mining?

“One computer, one vote” is one of the guiding principles of Bitcoin. The idea behind it is that a network of decentralized computers does all the cryptographic work: they encrypt the information blocks by calculating a new key, the HashCode. For their performance, the successful miners receive newly generated coins on one hand and the user transaction fees on the other.

Which HashCode wins the race at the end is determined by an automated consensus procedure — the Proof-of-Work (PoW) is currently the most widely used procedure.
PoW ensures that no one can manipulate the network: New blocks of the Blockchain are determined by the hashing algorithm and the degree of difficulty of the PoW.

Depending on how many computers are active in the network, the level of difficulty is also adjusted regularly. This mechanism is the heartbeat of the whole system.
The enormous popularity of crypto currencies has led to the development of a real mining industry.

Private individuals today only have a chance to be rewarded for their efforts in cooperation in so-called mining pools. In addition to the miners, the operators of nodes are also decisive for smooth operations.

What are nodes and master nodes used for in the Blockchain?

A cryptocurrency works on the basic idea of distributed ledgers — all information is stored simultaneously on many different computers. Anyone who wishes can connect to the network by installing a so-called node, i.e. the entire Blockchain of a cryptocurrency.

Nodes therefore function similarly to cells in a living body: even if others fail, each cell has all the information it needs to keep the system running and to restore it if needed.

However, a basic installation of this kind now has to meet a number of requirements. All blocks in the BTC network have been stored since January 2009 and even if a block is not particularly large, the sum counts here: anyone wishing to install a Bitcoin node must now have around 200 GB of storage space available, and a new block(1MB) is added every 10 minutes (the block time of the BTC).

The nodes thus fulfil a central role for a Blockchain, and to ensure that the function of the network is secure, so-called master nodes are used: they have to meet higher requirements than normal nodes, such as 24/7 continuous operation. In the ripple network for example, they also have the task of monitoring the validation of new transactions.

The concepts united in Blockchains were not invented by Satoshi Nakamoto: Cryptography has existed since humans have kept secrets and alternative currencies have been developed at every currency crisis. The new one, however, is the unique combination of the different techniques to a particular network and the speed with which the technology has spread, which brings us to the next central question.

Who’s behind Blockchains?

In the ten-year history of Blockchain, a huge community has emerged and each network basically has its own ecosystem. In addition to users and investors, it is now mainly companies and traders who provide the means to create new solutions and infrastructures. When it comes to the future and the survival of the Blockchain, they also take on the most important roles — here a few examples:

The Bitcoin universe consists of many different interest groups. In addition to the core developers who drive the technical development forward, it is above all the miners and traders or platform operators.

Behind the Ethereum platform is a non-profit foundation based in Switzerland on one hand and the Enterprise Ethereum Alliance on the other — together they decide future stepsdevelopments. The most important role, however, is played by the numerous freelance developers who animate the network with their own tokens and ICOs and develop exciting new solutions.

Ripple’s destiny on the other hand, will be directed by one company. The central structure has some advantages but also the disadvantage that it does not have the enormous innovation potential of a community. This is why XRP creators have worked hard in recent years to retain financial service providers as partners and to create incentives for freelance developers.

However, the most important group behind every distributed ledger are developers who create the basic technology and infrastructure.

How and who can program a Blockchain?

The hype about the new digital money has also led to a mystification of the new technology. A look at the basics shows, that any developer with sufficient knowledge of a programming language can participate. The decisive question, however, is at what level the introduction takes place.

If you are interested in contributing an application or your own Blockchain wallet, then you can participate with any common programming language. The infrastructure is often programmed in Java, Kotlin or Swift. One exception is Ethereum, which provides its own language for its platform with Solidity. But this is very similar to the common JavaScript syntax and should not be too much of a challenge.

If you want to work on the core, you have to be able to do a bit more. The base code is usually written in C or C++, which traditionally have higher requirements. For IOTA, Abra also adds a new language that works with trits instead of bits: Instead of 0 and 1, a ternary system (-1,0 and 1) is used. The challenge however, is not the programming knowledge but the understanding of the entire concept.

If you are a core developer looking for an entry level position, you must have a good command of mathematics in addition to computer science. The most important key qualification is enthusiasm for the new technology; it is this enthusiasm that stands behind the rapid development of recent years.

What types of Blockchains are there?

The history of digital technology is fundamentally rapid and is constantly accelerating. However, the development of distributed ledgers has once again shown a new dynamic and today the question “Blockchain 1.0 vs 2.0 vs 3.0?” is already central to presenting the topic exhaustively.

The most important growth driver is the insight that decentralized encryption can be used not only as a currency but also for secure information processing. With every new technical solution, the fields of application have therefore grown in recent years. Here is a brief overview:

• Application Technology — most important representatives using it
• Currency — Blockchain and Bitcoin as a payment service
• Smart Contracts, decentralized Apps and Blockchains based on Virtual Machines like Ethereum and Rootstock
• Industry 4.0 and Internet of Things like IOTAs Tangle

With the last step, the new digital solutions have finally succeeded in demonstrating their real economic benefits. In the meantime, encryption technology can provide an increase in performance in almost every business process. The question “Which well-known companies already use the Blockchain principle today” is therefore increasingly connected with which companies will be able to assert themselves in the future.

Who benefits from cryptocurrencies and what is a Blockchain ETF?

The recent development of the share price has strengthened some critics in the opinion that the end of the new technology is now finally sealed. Admittedly, the fantastic profits from 2017 have now returned to normal. On the other hand, more and more financial products have appeared on the market.

Although the necessary regulations and decisions have been delayed for a long time, more and more Exchange Traded Funds — ETFs have been launched. These are exchange-related funds that are traded in a similar way to equities. Basically, two types can be distinguished:

• ETFs that are based on the price of a cryptocurrency.
• ETFs that refer to companies that use the new technology.

While the first type is only possible indirectly due to the lack of official decisions, the second type has recently become more and more present on the market. The reason lies, contrary to the wishes of the critics, in the outstanding problem-solving competence.

What problems does the Blockchain solve?

For a long time, the Blockchain(Cryptocurrency) trade was a domain of the financial industry. Investors have shaped the image we have of cryptocurrencies. In parts, the fact that the original interest was awakened by the technical performance, was neglected. Those who concentrated too much on prices overlooked the fact that the Blockchain future will be determined by the real economy.

The crypto market has long since ceased to be a pure currency market. Rather, it is about a digital economy that will take place under new framework conditions. Almost every economic sector will be affected and the most innovative sectors are already showing where the road is heading.

What does the Blockchain have to do with the energy industry?

The energy shift towards renewable resources has undeniably become one of our most important survival issues. A central problem, however, is that wind, solar and hydroelectric power are on one hand more unpredictable and on the other hand also more fragmented than coal and nuclear energy: hardly any large-scale plants and energy production are accomplished by renewable technologies.

As has been known for several decades, the solution is the so-called Smart Grid. Instead of large central plants and power grids, countless small-scale systems work together in a network.

An energy self-sufficient house produces electricity during the hours of sunshine and delivers it to a grid in which numerous batteries (for example in electric cars) temporarily store the energy for peak times. An accounting system of the old system (Regular booking system) is hopelessly overburdened with this wealth of micro-billings — in contrast to a distributed ledger.

A fully developed Blockchain energy economy can handle the abundance of transactions as well as provide a cost-effective form for micropayments. Blockchain 3.0 in particular is now able to guarantee both high user numbers and low costs. The solutions are currently still in the pilot phase, but will become mainstream in the coming years.

Why will the Blockchain also revolutionize logistics?

Delivering products promptly where they are needed is one of the central business issues of the last 60 years. This applies not only to consumer goods but above all to production goods as well. “What is Supply Chain Management?” Is therefore one of the key questions in modern corporate management and has two topics:

• Security: How can it be ensured that all intermediate stages of a supply chain comply with quality and environmental requirements?
• Costs: How can delivery losses, warehousing costs and missed deadlines be reduced in a production process involving dozens (sometimes hundreds) of suppliers?

The seamless use of decentralized encryption provides an enormous advantage in both areas. On one hand, the integrity of the supply chain can be fully traced and verified. On the other hand, coordination in logistics can be implemented much faster by an autonomous system.

Those who see this as a mere administrative question should learn from history: The rise of the Japanese automotive industry in the mid-20th century is closely linked to the advantages of lean management and just-in-time logistics; Amazon is now the largest trading company, but in essence a pure logistician in the age of the Internet.

The first to be able to implement the advantages of Blockchain is not only a question of economic survival — it also involves the development of large economic areas. Over the past 20 years, China has created what is currently the largest global logistics network. It is therefore not surprising that according to forecasts, this country will provide the largest development budgets for Blockchain logistics in the next 5–10 years.

Conclusion: Is a future without Blockchain conceivable?

The decentralized account book, administered by the users themselves, went online in January 2009 and has not only turned the financial sector upside down since then. There is no business process that will not be affected by this transformation. SAP Blockchain is one of the first commercial cloud solutions to offer Blockchain-as-a-Service (BaaS).

Almost all critics see most of the time only the competition arising from the new technology. One of the most exciting and interesting features of the Blockchain however, is their adaptability and ability to cooperate. Blockchain vs A.I. for example, is a frequent and misguided escalation; Blockchain boosts A.I.- on the other hand, is a much more realistic perspective.

It’s true, artificial intelligence and distributed ledgers share one ability: both can process unimaginably large amounts of data quickly and reliably. While One (the Artificial Intelligence) uses its ability to recognize patterns and process them quickly, the strength of the Second (the decentralized account book) is to ensure the security and accounting of information processing.

In its ten-year history, Blockchain technology has undergone an unprecedented ascent: from the outsider vision, which at best was granted utopian qualities, to the most important growth technique of the present day. The technology has not only turned out to be extraordinarily robust, but above all also adaptable.

Even if not every cryptocurrency will survive the next five years, the technology behind it will. The exciting question today is therefore whether Google, Amazon or Facebook will make the transition from the Internet to the Blockchain economy, or whether the new generation of top companies is now preparing their decisive ICO. Whatever the outcome of this match is, it is certain that we will continue to pay close attention to it.

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