Versatility, trust, security and scalability: with all these words, and many more, you can define blockchain
,
a technology that came with bitcoin and that is destined to play a relevant role in the future. It is very likely that, at some point, you have heard of it, but do you know exactly what it is and why it is so important? Linked to the management of significant amounts of data, its impact is already being felt in a multitude of sectors such as finance, commerce, intellectual property or even education.
Broadly speaking,
blockchain technology
(translated as “blockchain”) is like a large digital ledger that records all transactions in a transparent, secure and decentralized manner, thanks to, among other things, the use of cryptography. To understand what it is, how it works and what impact it has and will have on all types of systems and future transactions, we spoke with Alfredo Muñoz, professor of Commercial Law and director of the High Specialization Diploma in Blockchain at the Complutense University of Madrid.
Ask.
Professor, let's start with the most obvious. Can you provide an overview of what
blockchain technology is and represents?
Answer.
Basically, the
blockchain
is a type of distributed ledger (DLT), that is, it allows us to share existing information with the entire network of nodes (computers) of which it is a part. Every time information is added, it is shared between all these nodes, and each of them has, theoretically, a complete copy of the information that has been generated in that record. This is what happens, for example, in bitcoin: each member, each node has an entire copy of that
blockchain
network and of all transactions [which allows cryptoassets to be transferred quickly and securely]. It is also information that cannot be modified or manipulated, because every time new data is added, a
hash
(a mathematical logarithm) is generated and a mark that indicates the specific date and time in which a certain item was entered. content.
And what does that mean? Well, initially, all the information that is inside is immutable. If it is necessary to modify something, you can do it in a second block; You will be able to say “in the first block I made a mistake”, or “it is necessary to modify that transaction”, because the information, precisely, is accumulated by blocks. Imagine a court: the information you collect from holding a court hearing remains on
the blockchain,
and no one can manipulate it anymore. And the same thing happens with banking transactions.
Q.
But you can enter false information, right?
A.
The information you enter may be false, but if necessary it is information that you will be able to verify was entered, and identify when it was done. The eIDAS 2 regulation, which is about to be approved in the European Union, recognizes distributed records and, if certain conditions are met, gives them legal effects. And this is important because it means that, with the
blockchain,
it will not only allow us to incorporate transactions, but also to judicially accredit them.
Q.
What is the role of cryptography in
blockchain networks?
A.
What cryptography does is encode the information and prevent it from becoming vulnerable. By encoding it, we ensure that only the issuer and the recipient can open it, with their access codes. Therefore, cryptography allows us to shield and protect that information when making any transaction, whether it is an asset like bitcoin or when transmitting a simple file.
Q.
That is, it ensures both the immutability of the data and the security of communication.
A.
Exactly. Of communication and transactions. Keep in mind that we have been with bitcoin for 15 years, and it has never been
hacked,
because it uses a combination of technologies including cryptography.
Q.
What applications does this technology have in different industries?
A.
The first sector, and without a doubt the most affected, is the financial sector. We knew about
blockchain
because of bitcoin, which today is an investment asset, but when it emerged, the intention was to create a payment network. Furthermore, in 2022 the pilot regime regulation was approved, which allows us to create securities markets with
blockchain
technology and use it for quotes, to negotiate financial instruments, capital or debt of companies... It is also important to note that it allows us decentralized transactions
(peer-to-peer)
, that is, between individuals, without intermediaries. This is relevant because, in a centralized registry, I always have to go through the central node; If I make a bank transfer from one account to another at the same bank, I have to go through the central node: that is, so to speak, I have to “ask for permission.”
Then, on the other hand, another application is emerging, which has to do with transferable trade documents. I'll explain it to you quickly: when you order a container that comes from China to Europe on a merchant ship, the merchandise it transports is represented by a document called a bill of lading. But this is a paper, because we have always operated with paper. It may be that, for example, this container arrives at the port of Valencia but the document has not arrived yet, and that represents an enormous cost, because sometimes you have to leave the merchandise stored in the port until that document arrives and it is verified that it is real. Well, they are already introducing
blockchain technology.
Thanks to the immutability of the information, the traceability and auditability of the data, it is also an excellent mechanism to combat money laundering. Furthermore, in terms of intellectual property, and thanks to time stamping, it records the existence of any file that is registered in a DLT, proving its inalterability and traceability, which allows copyright to be protected. And in terms of educational certifications, an immediate and direct comparison can be carried out on the validity of any qualification that has been registered in the
blockchain
by the issuing entity.
Q.
And then there are the so-called smart contracts
.
A.
Yes, but it must be clarified that, although they have been literally translated like this, they are not necessarily contracts (be careful, they can be), nor are they “intelligent”. Rather, they are commands, self-executing codes entered by a programmer so that that order is executed when entered into the
blockchain network.
And it can be a benefit of any type: for example, I can tell a
smart contract
that, every 31st of the month, if a worker is still registered with a company, it will pay his or her payroll. And what this mandate, which is in a
blockchain network,
in a distributed registry, does is verify that that person is still registered and, if that condition is met, pay them.
However, it can be any type of order. I can tell you that every time the humidity drops below 50% in my garden, activate the sprinklers. So the
smart contract
goes to the Internet of Things (IoT), where it asks what that humidity is like, and executes the order if the conditions are met. And it could consist of, for example, the doors of the Retiro being closed at a certain time, unless there is daylight.
Q. Are
blockchain
networks
always decentralized?
A.
Not always. There are distributed ledgers, or
blockchains,
that are centralized and others that are decentralized. Bitcoin, to name the most representative, is one of the latter. And what determines that? Well, the possibility that users have sovereignty in decision-making. The
blockchain
allows you to create decentralized finance communities so that they vote, make and execute decisions under agreed terms.
However, it is true that, so far, decentralization has been very relative. Blockchains are distributed, but the vast majority are quite centralized: the future digital euro, without going any further, will be centralized
by
the European Central Bank (ECB) and the national central banks of the Member States, because they will be the ones who have the responsibility about it.
Q.
What other advantages does
blockchain technology provide?
A.
To begin with, it not only reduces costs, but also possible conflicts of interest: when the director of a company makes a decision, he must do so for the benefit of the company, but in the end the decision is made by him.
On the other hand, with
blockchain
we can audit all the information, because it is traceable and immutable. There are those who use it only as a database to trace their product, for example, to insert information and create a record that you already know contains secure information, that no one has touched.
Thirdly, in
smart contracts,
it allows what we call atomic operations: those that cannot be separated, in such a way that, when I deliver something, they have to give me the consideration at that moment. And, if there is no consideration, I will not deliver anything. In a traditional stock market, when you sell or buy a stock, the asset (i.e. money) can take even more than two days to arrive. With
blockchain,
operations are done in real time, so financial risks are eliminated.
Q.
Does
blockchain
have challenges or limitations?
R.
Well there are many. A huge challenge is regulatory, because we need regulations that tend to standardize how the
blockchain
is built and the standards of the networks and assets, so that they have legal security and are interoperable. Secondly, there may be high energy consumption, although this depends on how the network is configured and what the volume is. Then there is ignorance, and that is why training in
blockchain
is essential in these issues, both for judges and prosecutors as well as legal services operators, businessmen... If we insert the digital euro into this technology, we will have to train at full speed. And last (but not least) are cyber risks.
It is essential to seek specialized training; You have to read a lot and you have to read for yourself. But be careful, because in this sector there is also a lot of smoke: there are those who offer unreliable information and products that are not really justified in
blockchain.
But in Spain there are very good centers and very professionals. If you don't know, you have to look for a specialist, because this is a complex technology and you have to know the three legs on which it is based: the technological, the regulatory and the economic (the scope of the business model).
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