definition, bitcoin… Everything you need to know

[BLOCKCHAIN] Blockchain is one technology to keep an eye on in the coming years. This could revolutionize several sectors of the economy, starting with banking and insurance.

Blockchain is the new buzzword in the world of technology. All sectors are starting to work on specific use cases. However, few players can claim to develop revolutionary solutions. For good reason: Blockchain technology is still very difficult to understand.

Blockchain (translated from French as a chain of blocks) is a technology that allows keep and from communicate information transparently safe and without a central authority. It looks like a big database containing history of all exchanges between its users since its inception. Blockchain can be used in three ways:

  • For transfer of assets (currency, securities, shares, etc.)
  • For the best traceability assets and products
  • For automatically execute contracts (from “smart contracts”).
Infographic from the Understanding Blockchain white paper. © Change

A big feature of the blockchain is its decentralized architecture, meaning it is hosted not on a single server, but on a subset of users. There is no intermediary, so everyone can check the validity of the chain for themselves. The information contained in the blocks (transactions, ownership documents, contracts, etc.) is protected by cryptographic processes that prevent their subsequent modification by users.

NFTs refer to non-fungible tokens in English, i.e. non-fungible tokens in French. They are a single object that is not interchangeable like a work of art (photography, digital painting…). NFT stands for digital file associated with an unforgeable certificate of authenticity. It is developed using blockchain technology. The latter allows you to register proof of ownership of the asset in a digital ledger. Ethereum is the platform on which most NFTs are distributed.

In 2021, the American artist “Beeple” (Mike Winkelmann) sold a digital photograph called “Daily: first five thousand daysfor more than $69 million by auction house Christie’s in New York. This NFT digital photograph can nonetheless be viewed and downloaded by all Internet users who wish. In vogue on the art market, the NFT convinces collectors of the risks of counterfeiting. but they raise concerns that NFT transactions from wallets linked to illegal transactions have increased in 2021, reaching $1.4 million in the fourth quarter, according to Chainalysis.

Bitcoin is the most famous blockchain use case. It was created in 2008 by an unknown person under the pseudonym Satoshi Nakamoto. It denotes as secure payment protocol and anonymous and cryptocurrency. Anyone can access this blockchain (it’s public, so it’s open to everyone) and therefore use bitcoins. To do this, simply create a virtual wallet that can be downloaded from the app stores. Cryptocurrency is used to buy goods and services and can be exchanged for other currencies.

Some platforms offer the conversion of dollars, euros or yuan into bitcoins. This is the case of the French company Paymium, which allows you to exchange bitcoins for euros. Bitcoin has a very volatile price. It can increase or decrease by 20% in just two days. This volatility is due to strong speculation around this currency and the lack of a regulatory body. In early December 2017, the price of bitcoin topped 15 for the first time. 000 dollars. In 2017, it increased by more than 1000%. Faced with this surge, the Financial Markets Authority (AMF) and the Office of Prudential Control and Dispute Resolution (ACPR) warned investors about the risks associated with buying bitcoin.

“That valuation could also collapse in the same way. Buying/selling and investing in bitcoin to date takes place outside of any regulated market. Therefore, investors are exposed to the risk of loss. very high in the event of a downward correction and do not enjoy any guarantees or protection of invested capital,” the two regulators said in a press release. The latter will be increasingly requested by contributors on this issue. In Japan bitcoin was recognized as legal tender 1uh April 2017. The capitalization of the first cryptocurrency in November 2017 reached $191 billion.

The Ethereum blockchain has become as popular as Bitcoin. Ethereum, created in 2014, also uses its own cryptocurrency: ether. Its price is lower (about 2,300 euros in February 2022 compared to 33,000 euros for Bitcoin). Unlike Bitcoin, which only allows simple transactions (mostly payments), Ethereum goes further. This allows you to run “smart contract“, stand-alone programs that automatically perform actions previously verified by stakeholders.

Ethereum and its smart contracts are of interest to banking and insurance players, as well as lawyers. These actors will be able in the future certify the transfer of ownership in a more secure way or automatically pay compensation. Axa was the first insurance company to release blockchain-based insurance. In September 2017 he launched automated flight delay insurance. Based on the Ethereum blockchain, this insurance is actually a “smart contract”, a smart contract that triggers automatic refunds after a delay has been noted. This offering, called Fizzy, was developed in conjunction with startup Utocat, which publishes a platform to accelerate blockchain prototyping.

As for the banking side, many projects are underway. Other industries are experimenting with blockchain, such as Boeing. A US manufacturer has filed a patent for a blockchain-based system that will enhance on-board GPS systems. The filing, published Dec. 14 by the US Patent Office, mentions a “backup and anti-spoofing (GPS location spoofing) on-board GPS system” that can be used in the event of a malfunction of the aircraft’s main system.

Blockchain technology is still young. However, some applications are already running. One of the most common is food traceability. Carrefour is one of the forerunners with a QR code attached to several types of food (chicken, tomatoes, eggs, etc.), which allows you to know everything about the origin of the product (origin, manufacturer’s name, date of packaging, etc.) . .). .). Automatically activate compensation The application is of great interest to insurers. This is made possible by smart contracts, autonomous programs that run automatically according to predetermined conditions.

For example, Axa allows you to compensate passengers for missing a flight. Finance has also made good progress in the field of blockchain, especially in the field of “security tokens”, digitized financial securities and recorded on the blockchain. For the issuer of a token (or token), there are only pluses: fewer intermediaries, almost instant execution and settlement, and a cheaper process.

The game world has found application in the blockchain: digitize objects. With the token (or token) system, players actually own their items (not the publisher) and can therefore buy, sell, and trade them as they see fit. There are many other similar securing commercial transactions in trade finance or even disintermediation in advertising.

What distinguishes a private blockchain from a public blockchain is its degree of openness. The public blockchain can be viewed and used by anyone. Anyone can send transactions to it and expect them to be recorded on the ledger (as long as they follow the rules of that blockchain). This applies to the Bitcoin and Ethereum blockchains. In a private blockchain, an organization can change the protocol at any time. No one can participate without authorization, but everyone can review it.

Private blockchains are often used by companies for internal experimentation. They can also make it possible to connect different information systems that do not interact well with each other within the same organization. There is also a “permissioned” blockchain in which an entity has the authority to control the network. This applies, for example, to the Rippe blockchain, because it is a startup (of the same name) that determines who can verify transactions on the network.

Blockchain “consortium” brings together several entities with rights, and decisions are made by the majority of participants. For example, a dozen financial institutions can agree and arrange a blockchain where a block must be approved by at least 8 of them to be valid. Thus, it is very different from private blockchain and public blockchain. Not only are the participants in the approval process limited and selected, but majority rule is no longer required.

This hybrid blockchain is a real benefit for financial sector players as they operate in a regulated environment and in particular are required to know the identity of the participants (which is not the case in a public blockchain). The most famous blockchain consortium is R3. It has about 100 financial institutions including BNP Paribas. It raised €107 million in May 2017.

In France, blockchain has been legally defined since the April 2017 regulation regarding cash receipts. as part of the creation of securities issued by a company in exchange for a loan provided on a crowdfunding platform. This regulation amends Article L 223-12 of the Monetary Code, which defines a blockchain as “a general electronic recording device that allows the authenticity of transactions with certain securities intended for exchange on crowdfunding platforms: minibons.”

At the beginning of December 2017, the Council of Ministers passed a resolution allowing the transfer of ownership of certain financial securities through the blockchain. This is the first time in Europe. “The use of this technology will allow fintech companies and other financial players to offer new solutions for the exchange of securities, solutions that will be faster, cheaper, more transparent and safer,” said Minister of Finance and Economy Bruno Le Maire.

For its part, the European Union has launched a blockchain observatory and forum in partnership with ConsenSys, a startup studio created in 2014 by Ethereum co-founder Joseph Lubin. In the first half of 2022, the European Commission is due to introduce a directive on cryptoasset markets, called the MiCA directive. Only certain cryptocurrencies may be allowed in the European Union.