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I wanna be honest with you: Writting those last blog posts wasn’t always sunshine and lollipops. It was more like dead puppies and running out of willpower to live. Just kidding, probably shed a few tears but that’s about it. What got me into this mood? One word: Blockchains. Don’t worry, I pushed through and made it seem easy peasy lemon squeezy. But before giving you an epic overview of this topic, let’s kick this of with my favourite post last month → Christian’s story!
From farmer to “Technologieengel”
Christian Reich, the founder of “Technologieengel”, actually wanted to become a farmer in his younger days. Starting a company hadn’t been on his bucket list till he found himself unsatisfied as a software developer. But Christian was and is not one who grants dissatisfaction a place in his life. He discovered that there was one thing that accompanied him all the time during searching for what he really wanted to do: Christian always enjoyed helping people with their computer problems.
Becoming who he wanted to be
If Christian knows what he wants, the implementation of it often takes just a blink of an eye. On January 1, 2015, he founded his current company “Technologieengel.” With a focus on the latest technologies he finally became what he imagined to be: Someone who can support people and their businesses with the targeted use of the latest technologies. A shy, young man for whom self-confidence was a foreign word, became a confident entrepreneur.
The hard stuff
I truly feel sorry for you but we have to leave the fun things behind. We gotta talk about Blockchains now. Let’s start with the technology behind a blockchain and the technical terms you need to know.
Distributed-Ledger-Technology: A decentralized ledger is a digital database that is stored by a group of people and kept up-to-date in regular time blocks. To understand that you need to know some important terms.
Important terms
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Consensus: Events or happenings are always decided centrally. Governments, companies or important people decide what happens and what does not. So consensus isn’t build by many but a few. Therefore consensus-building is called “centralization.”
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Decentralization: The opposite of centralization is decentralization. For example, power, control or trust are not just focused on a few (companies, governments, individuals, etc.), but are spread across many or even all. Hence it’s never a single person in power but the participants of a group decide for themselves what happens and what does not.
What is a decentralized ledger now?
A ledger is a database containing information. The information in the file is controlled by all participants in a community, not by companies or a single person. In order to always keep a decentralized ledger in a consistent state, an update always follows certain rules. This is where the blockchain comes into play. It is the best-known decentralized Ledger technology. A blockchain is immutable, since all blocks are interlinked. As soon as you change a block, one link of the chain breaks and the entire blockchain is broken. For this reason, it is also impossible to cheat another participant or change the past.
Blockchain in detail
A digital file that contains the data of a group is called blockchain. To become part of the group, you copy this file from another participant to also get to the entire information. To avoid misunderstandings and to make sure that all participants have the same file, updates are performed in regular time blocks. These updates are chained together in the file, hence the name „Blockchain.” This way nobody can decide about others because all group members are equal. In addition, it is possible to check on the basis of your own file whether a statement another user made is correct. Central instances become redundant.
The good side about Blockchains
- Immutability: The older the registered data, the more expensive it will be to change it later. Modification costs are therefore usually more expensive than the value of the newly entered information and would mean an economic loss. Therefore, blockchains are called almost invariable.
- Safety: The data of the blockchain are identical on all servers of the participants. This not only enhances the integrity of stored data but makes hacker attacks almost impossible.
- Trust: Since blockchains are based on cryptography (= encryption of information) and mathematics (for example: algorithms), they can be clearly recalculated by everyone. Culture, race, gender, beliefs, etc. don’t matter. Almost without contradiction, the world agrees on the facts of mathematics. The universal mathematical rules are the foundation for trust in blockchain technology.
- Transparency and Privacy: Depending on the need, a blockchain ensures verifiability and transparency, or anonymity and confidentiality. For example, if a blockchain was created using an algorithm that allows a transparent update overview, nothing stands in the way of full transparency. Trust-building intermediaries such as banks, notaries or even states become superfluous in transactions that take place between the participants.These automated business processes in turn save time and money. On the other hand, you can participate in the blockchain just by creating a private key without further verification by e-mail address or mobile number. So everyone can act anonymously, without revealing who or what controls a private key. However, certain back-calculations make it possible to draw certain conclusions about the identity of a user. Blockchains are therefore often referred to as „pseudo-anonymous“.
The not that glamorous side
- Costs: As you already know, blockchains are decentralized systems. In such a system, data entry always has to cost something to ensure that the information is immutable. As soon as it would make greater profit to change stored information on a blockchain, one of the participants would exploit this sooner or later. The costs can arise in many different ways: direct transaction fees, or indirect costs such as deposited money, performed work, inflation, etc.
- Waste of resources: To keep a blockchain up-to-date, subscribers need to update regularly. They do this by creating a new consensus. The most commonly used process is „Proof of Work.“ Anyone who wants to participate in the consensus must solve a more or less meaningless math problem. This principle is also called „Mining“ and is immensely wasteful. Every day, millions of euros are spent on electricity just to generate consensus. Environmentally friendly looks different. To tell you the extent, Iceland currently uses more than half of its electricity for Mining.
- Rigidity: The Greek philosopher Heraclitus has already said that „change is the only constant in life.“ Here’s another blockchain problem. Upgrades can not be done just like that, it needs the approval of the majority of the community. Anyone who has ever done group work knows: Each group member has their own idea of how things should be like. Of course, it is on the one hand advantageous that blockchains are not controlled by a single party, but thought far into the future, rigidity also makes successful blockchains obsolete.
- Individual responsibility: If something does not belong to you, you do not really feel responsible for it. Or how much do you care about the broken bench in the central park of your city? It’s similar with a blockchain: no one is responsible, everyone has to take care of themselves. Many people believe that they would like to have more personal responsibility. In reality, we like to give some away. Especially in areas we are not interested in or where we do not have a clue what to do, for example taxes. In a central system, one party has the control and therefore also the responsibility.A decentralized system like the blockchain is missing this sort of control. At some point, you probably forgot your password for one of your accounts. Requesting a new password is not witchcraft. But if you lose your private key for your blockchain access, that’s it. Unlike your password, you can not request it from a service.
