The Blockchain, a Miracle Technology ?

Crypto RobotOctober 5, 20227 min

Blockchain, an innovative technology for cryptocurrencies but also for human activities in general.


Introduction, a miracle technology ?

When we hear about crypto-currencies, the term blockchain often comes up and rightly so. The blockchain is the basis of the whole ecosystem of decentralized cryptocurrencies and it is thanks to it that a lot of projects have been able to develop. Blockchain technology, not to mention the cryptos that can be derived from it, represents one of the biggest technological advances of the last few decades. Its future uses are enormous in the field of cryptocurrencies, in classical finance or in everyday life.

The literal translation of blockchain would be "a chain of blocks" and its function could be summarized as : A decentralized network of validation and recording of transactions. We will go into more detail in this article so that you can understand everything and interact more efficiently in this ecosystem.

How a blockchain works ?

As stated above, the role of the blockchain is to validate the transactions of a network in a decentralized way. To understand the mechanism we will take an example.

In the classical financial system, you have 3 actors, you, your money and the bank. When you want to make transactions (buy, sell, deposit, withdraw...) you have to ask for the authorization to your bank. It has the right to refuse your transaction if it considers that it does not meet certain criteria. If the bank defaults, you will surely lose your investment, like what happened during the subprime crisis.

In a decentralized network, the intermediary that will validate your transactions is not a single entity. Instead, you have a set of "validators/miners" from all over the world who will have the unique role of validating your requests without having the possibility to refute them. Each time a validator validates a transaction, it is recorded for life in a large library on the internet called the blockchain. There is no superior entity that can go bankrupt and thus reduce your investments to nothing. There are only validators (sometimes anonymous) like you and me who will have access to the blockchain via the internet.


Now let's imagine that I want to perform a transaction on a certain blockchain to send cryptos to a friend. Here is what will happen :

  1. In my wallet I have 1 BTC that I want to send

  2. I ask my friend for the public address of his wallet (in the same principle as an IBAN for banks, the public address corresponds to the ID of a wallet)

  3. I create and send my transaction of 1 BTC + potential network fees (the fees will go to the validators)

  4. My transaction is sent and it is received by the different validators of the network. (This step and the next one will have different modes of operation depending on the type of blockchain "Proof of Work" or "Proof of Stake". I invite you to finish this article before learning about their differences). My transaction and all other transactions with the same fees as me are placed in a block. A block is a big virtual box where we store a quantity of pending transactions. You can see them in real time via the following site which represents the blocks as a bus. Buses are blocks with specific fees that will fill up with transactions (little guys) before leaving for validation.

  5. On the different validators of the network, only one will take charge of the block and thus my transaction to validate it. He will be able to validate it by checking if I have the 1 BTC in my wallet. To do this, it will go through my previous transactions that I have made directly on the blockchain. He will give the whole block a precise identification code to find it and he will validate it. As a reward, he will receive the fees + a potential reward from the network.

  6. A new block has just been added to the big library, and my friend has received my BTC. A blockchain is therefore a series of blocks that are linked together by identification codes, hence the name "block chain".

All this mechanism works autonomously without the need of a superior entity. Here, security is ensured by the validators, the public blockchain and by very precise validation protocols.

On the market, a bit like for banks, you have tens or even hundreds of different blockchains, but why ?

What is a blockchain used for ?

As I said above, a blockchain allows to validate transactions but the word transaction has a wide meaning. Indeed, on a blockchain a transaction can be a purchase of a token, a sale, a deposit of money, an action in a game, the purchase of a virtual work of art (NFT), a validation of a transport .... In the end, a transaction is anything that requires validation and must be recorded in the blockchain.

The defi

Via this big subtlety you can create on the blockchain, a whole ecosystem of projects allowing you to perform a multitude of actions in a decentralized framework. This is called decentralized finance or the "defi".

  • Gaming ? Yes it is possible and all your important actions are transactions that are recorded (Axie Infinity...).
  • Borrowing ? With the AAVE project allowing you to borrow or deposit cryptocurrencies.
  • Buying NFT (virtual art work) ? Via Opensea you can buy or sell NFTs or even create your own works.

Here are a few examples of what you can find in a classic defi. There are dozens of them, and to stand out, they will play on the speed of validation, on the lowest possible fees, on the programming language, on the diversity of the projects present... The most known defi is the one of the blockchain Ethereum but you have many others like the BSC, AVAX, COSMOS...

The real world

The usefulness of blockchains tends to go beyond the framework of decentralized finance, which is still a niche market and little known by the general public. Nevertheless, blockchain is starting to be used by real life companies for different activities. The objective is to take advantage of a public network to offer new services to customers.

  • In 2022, the company Carrefour will offer to his customers a blockchain technology applied to its organic products. Indeed, via a public network, customers will be able to verify the origin of the different products. All the steps in the life of an organic product are recorded (transactions), so the information is accessible directly via the blockchain.
  • The notion of traceability of a product also comes back to logistics like DHL who are thinking about implementing this technology in delivery services.

What can we conclude ?

Blockchain technology offers many possibilities with the promise of total autonomy from centralized entities. The systems have been around for several years and have proven their robustness.

The defi allows the emergence of new projects offering users solutions in various fields.

In a world where transparency is becoming more and more important, blockchain brings a real solution.

We are only at the beginning and you can be the actor of tomorrow!

I invite you to read our articles on blockchains "Proof of Work" and "Proof of Stake". You will learn more about the different methods for validating transactions.

Founders of the YouTube channel Crypto Robot, we are specialized in algorithmic trading.