Everything you need to know about the blockchain
It will be the next big revolution. It will spell the death knell for cash and banks. Nevertheless, you're not sure you've understood what it's all about. Don’t worry: The blockchain is based on a complex technology, and its field of application is as yet still being created. Here is an explanation of the principle, its applications, and the obstacles that must be overcome if the blockchain is to become part of our daily life.
From hand to hand: decentralizing transactions
The blockchain is a revolutionary technological outgrowth of the development of virtual currencies such as bitcoin, and it is revolutionizing the principle behind transactions, in particular financial transactions. Its principle is to replace trusted central third parties, such as a bank or a Notaire, with a public register in which transactions and contracts are recorded and then maintained by a community.
The blockchain functions like a digital accounting ledger that is inalterable[Cfr.the “Challenges” section below] and verifiable. This allows any two users to carry out binding transactions. Technical intermediaries, called “miners,” then organize the transactions into a blockchain.
Three principles to keep in mind
The blockchain is a solution to the problem of making trust-based transactions possible without a central authority. It can be public, and function like an accounting ledger accessible to everyone, or private, and be used by a limited number of authorized participants.
The blockchain technology reconciles:
- decentralized data that ensures independence (distribution among various system nodes);
- integrity of the data and the data’s history that is verifiable by all users;
- a consensus among users regarding the blockchain version to use. The data is updated after the users reach consensus on the transactions to be recorded in the blockchain.
What changes the blockchain could bring about
The blockchain principle can potentially be used for all data transactions between two parties:
- transfer of assets: real or virtual currencies, securities, votes, shares, mobile credit, etc. This flexibility is of great interest to banking and insurance companies since it reduces administrative costs,
- creation of registers and traceability of products and assets, with uses ranging from monitoring a patient’s medical history to management of intellectual property (photos, music, etc.) or real estate transactions, in particular in areas without land registers,
- execution of “smart contracts”: autonomous programs that automatically create and execute the terms and conditions of a transaction without human intervention. This is an important growth tool for the micro-insurance industry and management of secure loans between individuals,
- transnational exchanges: the blockchain has great potential in the area of international exchanges, in particular in regions that lack central coordination. For example: netting off of financial payments between entities in the same market, which could profit from the creation of a consensus and implementation without the intervention of a central authority.
What are the next challenges?
The field of application for the blockchain is becoming better defined every day. Major challenges must still be solved, however, if the technology is to become part of daily life.
- The security of the system is largely dependent on the type of consensus reached. In most cases, consensus requires complex calculations, and thus operating costs are high, as in the case of bitcoin.
- The decentralized logic induces a complexity that must be mastered by end users.
- The growth of blockchains will of necessity eventually lead to data storage problems.
- How can one protect sensitive data (for example, a medical file) in a decentralized system accessible to everyone?
- A limited life-span? The issuance span of digital currencies such as the bitcoin is limited and there is a certain amount of uncertainty to overcome regarding this period, beyond which the motivation of miners is questionable.
From a legal point of view:
- decentralized, collaborative management poses a governance issue,
- the tensions due to the influence of the technology on common law must be resolved (for example, the right to be forgotten),
- the legal value of a proof of work or participation must still be established,
- if bitcoins are lost or stolen, there is no recourse to recover one’s money.
The blockchain at Orange
As a major network operator, Orange has a role to play as an active blockchain node. Many case studies are currently underway in areas as diverse as healthcare and banking.
The Group has recently invested in Chain, the world’s first provider of blockchain technological solutions. The goal is to extend its use to the Internet of things and services.
The Group could also propose services as:
- a trusted authority, for example in charge of monitoring user registrations and permissions, infrastructure maintenance, and certification of private blockchains,
- an agent/service provider: coordination with other entities in the absence of a central authority.