Normally, transactions are grouped into blocks of a certain size chained together (hence the name is “chain of blocks”) through a type of cryptographic keys, which require a consensus. This produces a shared and immutable record of “truth,” a truth that cannot be altered if everything is set up correctly.
Within this general framework, there are many variations. There are different consensus protocols; for example, debates often arise over which one is the most secure. There are blockchain-based public ledgers that do not require permits. So, in principle, anyone can connect their computer to the chain to become part of the network. This is how Bitcoin and most cryptocurrencies work. There are also private ledgers “under authorization” that do not incorporate digital currencies. These can be used by a group of independent, non-trustworthy organizations that need a common record-keeping system, such as a manufacturer and its suppliers.
The common thread between them is that the mathematical rules and unbreakable cryptography that guarantee the incorruptibility of the ledger offer much greater trust than we can place in other corrupt people or institutions. A blockchain is a version of what cryptographer Ian Grigg described as “triple-entry accounting.” This strategy has an entry on the debit side, credit, and a third in a shared, indisputable, and immutable ledger.
The benefits of this decentralized model emerge compared to the cost of trust in the current economic system. Consider this: In 2007, Lehman Brothers posted record earnings and revenue, all backed by its auditor, Ernst & Young. Nine months later, the collapse of those same assets bankrupted 158-year-old businesses and triggered the biggest financial crisis in 80 years. It was clear that the valuations cited in the accounting books of the previous years were incorrect. And we later learned that Lehman’s ledger wasn’t the only one with questionable data. Banks in the United States and Europe paid hundreds of billions of euros in fines and settlements to cover losses caused by inflated balance sheets. It was a powerful reminder of the high price we often pay for relying on internally created numbers at centralized entities.
The economic crisis was an extreme example of the cost of trust, but this cost is also ingrained in most other economic areas. Think of all the accountants in the world secluded in cubicles in the skyscrapers of the world. Their jobs, which consist of balancing the ledgers of their companies with those of their business counterparts, exist because neither party trusts the other’s record. It is a slow and expensive process, but a necessary one.
Other manifestations of the cost of trust are not seen in what we do but in what we cannot do. Some 2,000 million people in the world cannot access a bank account, and not having it leaves them out of the world economy because banks do not trust their asset records or their identities (see The day that ‘blockchain ‘returned the identity and the economy to the refugees). Meanwhile, the promise that the Internet of Things could connect billions of autonomous interactive devices to generate new efficiencies might not be fulfilled if microtransactions between devices require the prohibitively expensive intermediation of centralized ledgers. There are many more examples of how this problem limits innovation.
Cryptocurrencies
One of the well-known and famous is Bitcoin. However, it has spread to a wide range of other virtual currencies such as Etherium (ETH), Dash (DASH), Binance Coin (BNB), Cardano (ADA), Tether ( USDOT), Polkadot (DOT).
Industrial or intellectual property
It allows certifying the membership of any creation. For example, a musician can register the intellectual property of his work, or a graphic designer can create it without going through a complex registration process, which is generally very bureaucratic and expensive.
Money remittances from one country to another
These operations are subject to high charges by the companies that currently perform them, but cryptocurrencies and blockchain can solve this at a very low marginal cost.
Registration of persons
It allows adding them to identify them and send them basic services, bills, health, education, among others, they represent a high attraction, since the registry is inviolable and much better than a printed document, which is subject to possible falsifications or even loss.
Traceability It makes it easy to track anything or item throughout your logistics chain fully. For example, you might know where the meat in the hamburger we eat comes from or the cotton in the T-shirt we wear.
Smart contracts
The blockchain works as a scheduler since it gives rise to a certain action or response if certain and certain conditions are met.
It is self-executing and conditional on a set of specifications, which trigger an event or compensation if they occur, without the intervention of the contracting parties or the institutions related to the contract.
A clear example is the automatic collection of compensation for having suffered an accident, which was insured with a smart contract.
Electoral processes
In the blockchain, everything is recorded throughout the process, from the digital identity of the voter to the final count of the votes, and they can be auditable in their entirety.
Cloud data storage
Having large volumes of data securely and transparently is being used with the blockchain, eliminating intermediaries. An example of this is large laboratories where scientific work is used to obtain a final product.
Digital identity
Everything concerning the individual data of a person, company or organization can be contained in a blockchain chain. The information can be managed by the owner of the company or an authorized person; in the case of IDs, passports or other documents, they can be in blockchains for review and validation.
Economists often fail to recognize or analyze these costs, perhaps because practices such as account reconciliation are assumed to be an integral and unavoidable feature of the business (just as pre-internet-age companies assumed they had no choice but to do so). Pay large postage for mailing monthly bills). Could this blind spot explain why some prominent economists have thrown themselves into rejecting blockchain technology? Many say they do not see the justification for their costs. However, their analyzes generally do not compare these expenses with the far-reaching social cost of trust that the new models could exceed.
