[1801-EU] (Digital Transformation Monitor) Blockchain.pdf -...

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Digital Transformation Monitor Blockchain January 2018 Internal Market, Industry, Entrepreneurship and SMEs
2 Blockchain Emerging from the world of crypto-currencies, Blockchain appeared as a new class of IT infrastructure with numerous applications in the financial sector but also in many other domains. It is a secure way to share digital information 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 its use in financially speculative activities . To validate transactions, Bitcoin relies on a decentralized network of “miners” 2 . Each “miner” is a computer – a node of a decentralized network - which competes with other computers to validate transactions. The first “miner” to validate a transaction receives a financial incentive through the creation of new currency. This mechanism, called “Proof of Work” ensure the security of the system by demanding that miners invest significant amounts of computing power and time in the validation of transactions. To compromise the system, an attacker would have to control over 50% of the processing power of the whole network 3 . Limits of cryptocurrencies Although it brings security to the system, the “Proof of Work” mechanism is one of the limits of cryptocurrencies because it limits the number of transactions per second and contributes to the high energy cost, limiting its scalability and making it impractical as a global payments system. Blockchain gained notoriety with the rise of the Bitcoin cryptocurrency; but beyond this initial use, it can be an important piece of infrastructure with which trusted digital applications can be built. The technology behind Bitcoin Blockchain is the technological heart of the cryptocurrency known as Bitcoin. It acts as a shared digital registry that records and stores every Bitcoin transaction. It ensures the security of exchanges in an online ecosystem where there is no trust between parties. The need for a transaction ledger The Bitcoin cryptocurrency was launched in 2008-2009 1 , and was seen by its founders as a technological response to the global financial crisis. The objective of the Bitcoin initiative was to create a form of currency that would serve as a day to day means of exchange and that would be independent, both from nation states and central banks. The new currency needed a dependable digital infrastructure to ensure the security and validity of transactions. This led to the creation of Blockchain: a secure digital registry that, for Bitcoin, is used to monitor and store every past transaction. Mining - peer to peer validation in an untrusted environment A technology not limited to cryptocurrencies Beyond its use in cryptocurrencies, Blockchain has found other applications that have built upon its high level of security.

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