Blockchain: A source of trust and security

While official institutions have their place, decentralization always brings benefits. Without decentralization, how can our economy become a "decentralized economy"? This will never be achieved without giving more power to individuals. Decentralization implemented in the right way will take the sharing economy to the next stage, mainly by reducing the importance of the human factor, "trusted" third parties, and by providing access tools to participate in future developments.

What is blockchain?

First of all, from a technical point of view, blockchain is a chain of transaction blocks with timestamps.

Bitcoin blockchain (Source: bitcoin.org)

Just like it sounds, a transaction is just a simple action. For example, transferring 50€ to your friend's account, sending an email from your business mailbox, ordering a pizza online, or changing a value in your spreadsheet or database. Each action happens at a specific time, and the time and description of the transaction are recorded in a block with a special data structure. Blocks are arranged in a way that only allows sequential access. This means that if you want to read a block in the middle of the blockchain, you need to start from the first block and look through all the blocks between the first block and the desired block.

Imagine a brand new MC tape. If you want to record a song, you usually start at the very beginning of the tape. Each time you record a new song, you always start from where you left off the previous song (after a short pause). If you later want to listen to the songs you recorded, since the order of the songs is permanently fixed (not considering clearing or re-recording the songs here), you need to listen from the beginning until you find the song you want to hear. The same applies to the blocks of transactions recorded on the blockchain.

This phenomenon is called sequential storage. To get the content in the middle or at the end, you always have to start from the beginning. Another important implication is that the transaction blocks on the blockchain are immutable. This means that the content on the blockchain cannot be deleted, just like you cannot delete a song in the middle of an MC tape (note: if you consider cutting off a part of the tape with this song, the deletion may be successful, but you still need to paste the two parts back together, which will inevitably leave traces). In an Excel spreadsheet or a standard database, records are modifiable, which also means that you can change previous records without leaving traces. Therefore, when using conventional methods, it will be difficult to ensure a high degree of trust and security.

Cost saving effect

Secondly, blockchain applications reduce the importance of trusted parties, which plays a positive role in cost savings. We can imagine someone using SWIFT (Society for Worldwide Interbank Financial Telecommunication, used for international telegraphic remittances) to transfer tens of euros from Slovakia to Australia over a few days, including hidden fees such as opaque exchange rates. On the contrary, with Bitcoin, people can complete all the aforementioned businesses in a transparent way within 10 minutes for free (or with very little transaction fees). Nowadays, quite a lot of people choose to use blockchain.

Similarly, in the publishing sector, Amazon Marketplace acts as a middleman, earning 35%–70% commissions from e-book authors and publishers (source). This has a substantial impact on the income of the author himself. Let's imagine a poor author selling an e-book worth 10,000 euros, but only earning 3,000 euros before tax. Fortunately, the importance of middlemen can be reduced by using blockchain-based decentralized applications for publishing, which does not require any handling fees. This is not just for e-books, it applies to any document, music and video content. Paid decentralized streaming is also possible.

The potential of a decentralized economy

Third, many blockchain decentralized applications and platforms provide free API interfaces to allow application developers to fully tap the potential of the decentralized economy. People can encode their own smart contracts, which are simple computer programs that can be understood as a digital supplement to standard contracts. According to clear standards, smart contracts can promote, authenticate and promote the implementation of standard contracts.

For example, you want to sell your house. After you reach an agreement, you go to the notary and wait for the other party to transfer the money. Once the money is transferred to the notary, you have to update the owner's name in the land registry and wait for the notary to register the transaction and transfer the money to you. With smart contracts, this will be done automatically by translating your contract into code and then letting it run on a decentralized smart contract platform. The contract automatically executes, updates the land registry information and transfers the money to you from the buyer's bank account at the agreed time. The legitimacy of each transaction is verified by a decentralized peer-to-peer network of computers. Using a decentralized application platform can save service costs and no longer require a middleman.

Obviously, blockchain applications have promoted significant developments in trust and security. Moreover, all of this has greatly reduced the cost of services in the field of financial transactions, digital content distribution or other asset conversion businesses without the need for middlemen. In the future, we will see which industry will benefit the most from the untapped but unlimited potential of blockchain technology. But one thing is certain, the future of blockchain must be bright.
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Matej Michalko is a blockchain entrepreneur and founder of DECENT blockchain decentralized digital content publishing platform. He currently lives in Shanghai and Bratislava (the capital of Slovakia). DECENT project will start ICO on September 10, 2016.