26. Denominating a Secure and Distributed Information Shared by Various Users

To understand the scope of fintech and blockchain revolution it is necessary to recognize a speeding up of hi-tech innovation. While observing these processes there are two phenomenons that became more and more visible and those are the tendency towards better connection with related parameters and the increased rivalry with fintech start-ups.

In the world of growing innovation there is an obvious tendency towards better connection with rules and their fulfillment, as well as changes in banking practice. For example, if a majority of “minors” agree on the possibility of the transaction, then it is validated, time-stamped and entered in the common register. A new block is then added to the blockchain in chronological order and definitively. This approach, which is at odds with the current model, however, faces certain slowness and a high cost because of the computing power required to verify each transaction, limiting its development.

On the other hand there is a growing rivalry among FinTech start-ups that take advantage of their quickness to have a strong impact on the outdated financial sector. This practice has been developing since the crisis of 2008, both in the securities and in cash system. The key problem that was visible from the earliest days of blockchain development was that the current banking system that is planned to be improved is that it requires outsized technical resources, as well as huge number of people on each side involved in these parts of transactions, such as the institutions who play roles of the lender and the borrower. The key element of change introduction is openness, fundamentally through the exploit of a blockchain.

By enlargement, a blockchain, literally a chain of blocks, denominates a secure and distributed information, shared by its various users, containing a set of proceedings, each of which can verify its validity. A blockchain can thus be assimilated to a large block public, anonymous accounting book that could not be falsified. This parallel statistics is a simplification and in reality, the names do not appear in plain text in the blockchain.

Instead, there is a bitcoin address, which can be considered as account numbers. A bitcoin address enciphers the hash of a public key. This huge book of records of transactions allows storing all the exchanges made between the associates from the creation to the present state. The main idea is that security and sustainability are ensured by all the participants that are to say by the community, that come to an agreement.

Smart contracts could be characterized as sections that are programmed to carry out specific actions. The traditional contract, which defines the obligations of the parties and their modalities, is superimposed on a computer program, which automatically checks that the conditions are fulfilled and executes the terms of the contract accordingly. Each block of the blockchain is a page of the transaction register.

The page contains a list of transactions and some other metadata. The red transaction is a special transaction that creates bitcoins and gives them to the author of the block. No central conciliator exists, it is therefore decentralized, which means that it is stored on the servers of its users. Indeed, even if investors were totally uninterested in the future of the bitcoin, this blockchain is already reused in many areas that require a trusted third party.

The blockchain becomes the agreement of an individual and an individual, even at a distance, without the controlling authority. The blockchain makes the virtual world the community it had ceased to be. To accept this interactivity, the conditions must be checked via the blockchain on which the smart contract is layered, and the resulting consequences can be generated from this blockchain.

Consequently, the smart contract as it is understood today consists of lines of codes stored on a blockchain, which activates as a result of transactions on this blockchain, which reads and writes data. The block also contains a hash of the previous block. The minor also had to verify that the previous page is valid, i.e. all transactions on the page are valid, that the previous minor has not allocated more bitcoins than expected by the protocol and that hash of the previous page is satisfactorily small.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

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