How Blockchain Technology Could Help People Take Control Over Their Own Data Part 2

Blockchains and the history behind them.

 

When data breaches do occur, in many cases companies where breaches happened simply continue their existence as if nothing happens. Sometimes chief executive officers do resign, but even this doesn’t always happen.

For example, during the financial crisis of 2007 and 2008, many chief executive officers of large companies that have received large bailouts from the government not only didn’t resign but received huge bonuses and salary increases.

 

What are blockchains

In short, blockchain is technology. For this reason, understanding it can be somewhat complex because this is not a technology that you can simply turn on and use. If you use a cryptocurrency such as Bitcoin to make payments, blockchain is the technology in the background that enables Bitcoin to work.

Blockchain technology is a way to record and store information. An important part of blockchain technology is that there is no way to edit the information. Once information becomes part of a blockchain, it becomes immutable.

At the heart of the technology is a ledger. In a way, blockchain is similar to a regular paper ledger with pages. In a paper ledger, you can record all kinds of information because you can write anything you want. It works in a similar way with blockchain. While a blockchain network such as Bitcoin is a financial network and the Bitcoin ledger can only record information about financial transactions, blockchain networks in general can be just about anything, which is why the potential of the technology is so huge.

The word “blockchain” consists of two parts: block and chain. A block of a blockchain is similar to a page in a paper ledger. Just like pages in ledgers can contain all kinds of information, blocks of blockchain can also contain all kinds of information.

 

Decentralization and transparency of public blockchains

Blockchain is a technology, which means that it is software code, but intentions why the developer of Bitcoin, Satoshi Nakamoto, has created the code, include philosophical and conceptual reasoning. This is why discussions about Bitcoin and cryptocurrencies so often quickly switch to discussions about politics, worldviews, the role of government and the ways the societies operate.

It happens because blockchain is a decentralized technology. Here’s what this means: a blockchain is a ledger, but the ledger has no owner. Any and all members of a network can download the blockchain of the network and all copies are equal. Here is where, for instance, you can download a full copy of the Bitcoin blockchain: https://bitcoin.org/en/download Because the network has existed since 2009, the size of the blockchain is very large – over 100 gigabytes, and is constantly growing as the network is adding blocks to the blockchain.

The fact that a public blockchain network is decentralized means that blockchain networks do not exist without users because there is no blockchain government, no blockchain chief executive officer or office that you can call to get support. Public blockchain networks are ecosystems that will exist as long as people want to participate in their operation. This is a critical element of public blockchains. While there can be private blockchains and institutions such as banks could create a blockchain that is only accessible and available to banks, public blockchains such as Bitcoin, Ethereum, and others are open to anybody and everybody.

 

Before the blockchain: many paying for the mistakes of the few

Satoshi Nakamoto has launched the Bitcoin network in 2009, right after the financial crisis of 2007 and 2008. One of the main reasons for the crisis was the financial meltdown in the real estate industry in the United States, but the meltdown didn’t just include companies from the US.

The meltdown has occurred because banks in the United States were basing their operations on the assumption that the value of real estate properties in the country will be going up for a long time. If this were true, then it is profitable to give mortgages and loans to anyone. Here’s why: let’s say a person buys a home and he or she can’t really afford a mortgage and will default on it in several months. Let’s say the person has obtained a $100,000 mortgage to buy a $100,000 home. If property values keep going up, then in several months the value of the property would be, let’s say, $110,000. This means that the person or the bank would be able to sell the home for $110,000 and there would be $10,000 of profit and it doesn’t matter that the buyer of the home can’t afford the mortgage. This logic and approach have resulted in banks in the United States giving mortgages to just about anybody. Here’s what was happening then: banks would trade packages of such mortgages. The technical term for the mortgages is “asset-backed securities,” which the assumption that because there is a home behind a mortgage, the mortgage is a low-risk investment. The trading of asset-backed securities has been happening internationally, which is why when the market in the United States started to experience problems, banks in countries such as Iceland and Japan began to report losses. These banks were buying the US securities assuming that the securities were safe, which was an erroneous assumption just like the assumptions of the US banks about the direction of the market were erroneous.

Here’s what happened next: eventually, the number of mortgages given out to people who could not afford to pay them has reached a critical mass. The people started trying to sell their homes, but at this point there were many more sellers than buyers. Because of the laws of supply and demand, the values of properties started to go down and the homes were worth less than people paid for them, which also means that both buyers and banks started to lose money and homes. This has led to the collapse of companies such as Bear Stearns, Lehman Brothers, and others who have been working with asset-backed securities.