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What is blockchain?
Blockchain is a technical solution to manage data in a distributed infrastructure without a central instance in a traceable and tamper-proof way by consensus. With blockchain it is possible to trustfully and transparently verify transactions (for example in payment transactions with cryptocurrencies) without a central authority.
The name blockchain is derived from the type of data documentation: blocks of data records are strung together and linked to form a steadily growing blockchain. In a consensus procedure, all nodes in the network agree on a uniform block chain status. Among other things, cryptographic mechanisms ensure that once data has been added to the blockchain, it can practically no longer be changed.
The most important goals of blockchain technology at a glance:
- Virtually immutable data
- Transactions that are transparent and traceable for all users
- Distributed (and not centralized) and consensual data storage
- No middlemen
What are cryptocurrencies?
A cryptocurrency is a digital means of payment based on a blockchain system. Funds are transferred from one participant to another in the form of computer code. Such a transfer is documented by a cryptographically signed transaction in the blockchain.
The computers in the network are responsible for verifying these transactions (signature verification). Only those who have a suitable secret signature key can enter a valid transaction and thus have the credit behind it. You store your keys in a digital wallet.
Recipients of transactions are usually only represented by an abstract address (a kind of account number), so that cryptocurrencies can ideally be used pseudonymously. The transactions are monitored and booked by so-called miners. With huge computing power, the miners buy the right to create new blocks and to extend the blockchain. For this effort, the successful miners are rewarded with currency units.
Cryptocurrencies such as Bitcoins, Ether or Monero are still the exception for paying online. Accordingly, there are only a few online portals and shops that accept crypto currencies as a payment method. And even offline, shops, restaurants and museums have rarely offered cryptocurrencies as an alternative means of payment. The payment process is usually processed via QR codes using a digital wallet (a wallet that is available on the smartphone). The following measures are useful to minimize security risks:
- Make several backup copies of your wallet in case your PC or smartphone is stolen or has a technical defect. These backups should be kept safe and provided with cryptographic access protection
- As with cash, you shouldn't keep large sums of money in your wallet on your PC or smartphone; only smaller amounts for daily needs are useful
- The most important thing is the encryption of the wallet and the backup copies made
The advantages of cryptocurrencies are that they can be used worldwide, pseudonymously and without intermediaries (banks). Even large sums can be transferred worldwide in a matter of minutes. However, there is no state regulation of the currency, which can lead to various problems such as the exclusion of own transactions due to a majority decision by miners. Due to the complex mining process for managing the blockchain, cryptocurrencies are also often inefficient. There are currently over 1000 different cryptocurrencies on the market, the best known of which is Bitcoin.
As a rule, cryptocurrencies are not a currency in the legal sense, but belong to the "financial instruments" according to BaFin. The tax office classifies them as economic goods. Tax aspects must also be taken into account when paying with cryptocurrencies.
In the following video, Dr. Sarah Maßberg from the Federal Office for Information Security (BSI) once again explains the connection between cryptocurrencies and blockchain and gives an insight into the security structure of this technology:
Where is blockchain technology used?
Cryptocurrencies are certainly the most prominent and first example of blockchain technology applications. In addition, opportunities and potentials for the use of blockchain technology are discussed in many other branches of the economy, as we show with individual examples:
In addition to its use in digital means of payment, blockchain could be used in electronic trading systems such as after-hours trading or participation in the financial system for those parts of the world population who have not yet had access.
Automotive industry and insurance
So-called smart contracts (dt. "Intelligent contracts") - computer protocols that run on the blockchain and technically support the handling of contracts - could complement the insurance market. For example, a contract could be made directly with a rental car that is only ready to drive once the appropriate rate has been paid.
Transportation and supply chain management
Here there are suggestions for seamless, efficient documentation of processes with the help of blockchain technology.
Blockchains and the question of security
Blockchains are secured using cryptographic processes such as hash functions or digital signatures. As things stand today, these are safe and proven concepts that can protect against manipulation and forgery. In addition, there are many other aspects - in particular the practical implementation, that must be taken into account when considering blockchains. In practice (for example with Bitcoin) problems arise in particular from errors in the implementation, insecure network protocols or poorly secured end applications (e.g. wallets).
For the BSI, technical and design aspects for the secure use of blockchains are primarily in the foreground. The BSI sees challenges in particular in questions of implementation security, data protection and long-term security. In terms of long-term security, it should be noted that progress is being made in the area of quantum computing which, in the long term, could endanger the cryptographic algorithms commonly used in blockchain applications today. These aspects are explained in more detail in the cornerstones of the BSI. In the future, these cornerstones will be expanded to become a guideline.
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