definition, bitcoin … All you need to know

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

Blockchain is the new buzzword in the tech world. All industries are starting to work on concrete use cases. However, few players can claim to have developed revolutionary solutions. For good reason: blockchain technology is still very complex to understand.

The blockchain (whose French translation is blockchain) is a technology that allows shop and of transmit information transparently, safe and without a central control body. It looks like a large database that contains the history of all exchanges made between its users since its creation. Blockchain can be used in three ways:

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

The great peculiarity of the blockchain is its decentralized architecture, that is, it is not hosted by a single server, but by a part of the users. There is no intermediary, so that everyone can verify the validity of the chain for themselves. The information contained in the blocks (transactions, title deeds, contracts, etc.) are protected by cryptographic processes that prevent users from modifying them later.

NFTs refer to non-fungible tokens in English, i.e. non-fungible tokens in French. They represent a single non-interchangeable object, like a work of art (photography, digital painting …). The NFT designates a digital file, associated with a non-falsifiable certificate of authenticity. It is designed using blockchain technology. The latter allows you to record proof of ownership of the asset in a digital register. Ethereum is the platform on which most NFTs are distributed.

In 2021, the American artist “Beeple” (Mike Winkelmann) sold a digital photo called “Every day: the first five thousand days“for over $ 69 million from Christie’s auction house in New York. This digital photo in NFT can still be consulted and downloaded by all Internet users who wish. In vogue in the art market, NFT reassures collectors about counterfeiting risks, but raise concerns that NFT transactions from portfolios linked to illegal transactions increased in 2021, reaching $ 1.4 million in the fourth quarter, according to Chainalysis.

Bitcoin is the best known use case of the blockchain. It was created in 2008 by an unknown person whose pseudonym is Satoshi Nakamoto. Designates both a secure payment protocol and anonymous ea cryptocurrency. Anyone can access this blockchain (it is public, therefore open to all) and therefore use bitcoin. To do this, simply create a virtual wallet, downloadable from the application stores. Cryptocurrency is used to purchase 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 Paymium, a French company that allows you to exchange bitcoins for euros. Bitcoin has a very volatile price. It can go up or down by 20% in just two days. This volatility is linked to strong speculation in this currency and the absence of a regulator. At the beginning of December 2017, the price of bitcoin exceeded 15 for the first time. 000 dollars. It increased by more than 1000% in 2017. Faced with this surge, the Financial Markets Authority (AMF) and the Prudential Control and Resolution Authority (ACPR) have warned investors about the risks associated with buying bitcoin.

“This valuation could also collapse in the same way. Buying / selling and investing in bitcoin to date takes place outside of any regulated market. Investors are therefore exposed to the risk of loss. Very high in the event of a correction to the discount and doing do not benefit from any guarantee or protection of the invested capital “, indicate the two regulators in a press release. The latter would be increasingly urged by savers on this issue. In Japan, the bitcoin was recognized as a legal means of payment on 1uh April 2017. The capitalization of the first cryptocurrency reached $ 191 billion in November 2017.

The Ethereum blockchain has become as popular as bitcoin. Created in 2014, Ethereum also uses its own cryptocurrency: ether. Its price is lower (around 2,300 euros in February 2022, against 33,000 euros for bitcoin). Unlike bitcoin, which only allows simple transactions (mainly payments), Ethereum goes further. It allows you to run “smart contract“, autonomous programs that automatically perform actions previously validated by stakeholders.

Ethereum and its smart contracts interest banking and insurance operators, but also the legal professions. These actors will be able in the future certify the changes of ownership more securely or automatically pay compensation. Axa was the first insurer to issue blockchain-based insurance. In September 2017 it launched a automated insurance for flight delays. Based on the Ethereum blockchain, this insurance is actually a “smart contract”, a smart contract that triggers automatic reimbursement once the delay is detected. This offering called Fizzy was developed with start-up Utocat, which publishes a platform to accelerate the design of blockchain prototypes.

On the banking side, many projects are underway. Other industries are experimenting with blockchain, such as Boeing. The American manufacturer has filed a patent application for a blockchain-based system that would strengthen aircraft GPS systems. The application published December 14 by the US Patent Office mentions an “on-board backup and anti-spoofing GPS system (GPS location spoofing)” that could be used in the event of an aircraft main system malfunction.

Blockchain technology is still young. However, some applications are already operational. One of the most common is food traceability. Carrefour is one of the precursors with its QR code affixed to different types of food (chicken, tomato, eggs, etc.) which allows you to know everything about the origin of the product (origin, name of the manufacturer, date of packaging, etc.). ). .). Automatically activates compensation is an application of great interest to insurers. This is made possible through smart contracts, autonomous programs that run automatically under predefined conditions.

Axa, for example, allows passengers to be compensated for a delayed flight. Finance has also made good progress in the field of blockchain, particularly in the field “security token”, digitized financial securities and registered on the blockchain. For the issuer of the token (or token), there are only advantages: fewer intermediaries, almost immediate execution and settlement, and cheaper process.

The gaming world has found a use case in the blockchain: digitize features. Thanks to a token (or token) system, players actually own their items (and no longer the publisher) and can then buy, sell, and trade them as they please. There are many others like the guarantee commercial transactions in commercial finance or even disintermediation in advertising.

What differentiates the private blockchain from the public blockchain is its own degree of openness. The public blockchain can be viewed and used by anyone. Anyone can send them transactions and expect them to be recorded in the ledger (if they follow the rules of this blockchain). This is the case with the Bitcoin and Ethereum blockchains. In the private blockchain, an organization can change the protocol whenever it wishes. Nobody can participate without being authorized but everyone can consult it.

Private blockchains are widely used by companies for internal experimentation. They can also allow you to connect different information systems that do not speak well within the same organization. There is also the “authorized” blockchain where an entity has control authority over the network. This is the case, for example, of the Rippe blockchain because it is a (homonymous) start-up that determines who can validate transactions on the network.

The “consortium” blockchain brings together different actors who have rights and decisions are made by the majority of the actors. For example, a dozen financial institutions could agree and organize a blockchain where a block would have to be approved by at least 8 of them to be valid. So it is very different from the private blockchain and the public blockchain. Not only are the participants in the approval process limited and selected, but the majority rule is no longer required.

This hybrid blockchain is a real advantage for financial sector players, because they operate in regulated environments and are in particular obliged to know the identity of the participants (which is not the case with the public blockchain). The best known blockchain consortium is R3. It has around 100 financial institutions including BNP Paribas. In May 2017, it raised € 107 million.

In France, the blockchain has a legal definition from the April 2017 Ordinance on Cash Vouchers in the context of the creation of securities issued by a company against a loan granted on a crowdfunding platform. This ordinance amends article L 223-12 of the monetary and financial code which defines the blockchain as a “shared electronic registration device that allows the authentication of transactions on certain securities, intended for exchange on crowdfunding platforms: minibons”.

In early December 2017, the Council of Ministers adopted an ordinance allowing the transfer of ownership of certain financial securities via blockchain. This is the first in Europe. “The use of this technology will allow fintechs and other financial players to offer new solutions for stock exchanges, faster, cheaper, more transparent and safer solutions,” said the Minister of Economy Bruno Le Maire.

For its part, the European Union has launched an observatory and a forum dedicated to blockchain in partnership with the start-up studio ConsenSys, created in 2014 by the co-founder of Ethereum, Joseph Lubin. In the first half of 2022, the European Commission must present a directive on cryptocurrency markets, called the MiCA directive. Only some cryptocurrencies may be authorized in the European Union.

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