Digital Transformation MonitorBlockchainJanuary 2018Internal Market,Industry,Entrepreneurshipand SMEs
2BlockchainEmerging from the world of crypto-currencies, Blockchain appeared as a new class of IT infrastructure withnumerous applications in the financial sector but also in many other domains. It is a secure way to share digitalinformation that reduces the need for intermediaries and regulatory authorities. This raises several challenges,particularly regarding Blockchain’s ability to disrupt ecosystems, its legal acceptability and other risks linked with itsuse in financially speculative activities.To validate transactions, Bitcoin relies onadecentralizednetworkof“miners”2.Each “miner” is a computer – a node of adecentralized network - which competeswithothercomputerstovalidatetransactions. The first “miner” to validateatransactionreceivesafinancialincentive through the creation of newcurrency.This mechanism, called “Proof of Work”ensurethesecurityofthesystembydemanding that miners invest significantamounts of computing power and time inthe validation of transactions.To compromise the system, an attackerwould have to control over 50% of theprocessing power of the whole network3.Limits of cryptocurrenciesAlthough it brings security to the system,the “Proof of Work” mechanism is one ofthe limits of cryptocurrencies because itlimits thenumberoftransactions persecondandcontributestothehighenergy cost, limiting its scalability andmakingitimpracticalasaglobalpayments system.Blockchain gained notoriety with the riseoftheBitcoincryptocurrency;butbeyondthisinitialuse,itcanbeanimportant pieceof infrastructurewithwhich trusted digital applications can bebuilt.The technology behind BitcoinBlockchain is the technological heart ofthe cryptocurrency known as Bitcoin. ItactsasashareddigitalregistrythatrecordsandstoreseveryBitcointransaction.It ensuresthesecurityofexchanges in an online ecosystem wherethere is no trust between parties.The need for a transaction ledgerTheBitcoincryptocurrencywaslaunched in 2008-20091, and was seenbyitsfoundersasatechnologicalresponse to the global financial crisis.The objective of the Bitcoin initiative wasto create a form of currency that wouldserve as a day to day means of exchangeandthatwouldbeindependent,bothfrom nation states and central banks.The new currency needed a dependabledigitalinfrastructuretoensurethesecurity and validity of transactions. ThisledtothecreationofBlockchain:asecure digital registry that, for Bitcoin, isused to monitor and store every pasttransaction.Mining - peer to peer validation in anuntrusted environmentA technology not limited tocryptocurrenciesBeyonditsuseincryptocurrencies,Blockchain has found other applicationsthat have built upon its high level ofsecurity.