The technology behind blockchain makes it possible to digitalize all kinds of assets – real estate, securities or even works of art. Once they are digitalized, these assets can be traded and swapped in the crypto world more easily, because, for one thing, there is no need for an intermediary.

In the “real world”, during a payment process, there will usually be several parties involved: Buyer, seller and, without fail, intermediaries such as a (central) bank. Those parties’ actions during the process will use up quite a lot of resources and, in addition, there will be time lags in between. These are caused mainly by different systems, possible coordination difficulties and high cost. With blockchain technology, these problems are a thing of the past.

A blockchain is a decentralized public database to record and track transactions. But what does that mean? The two parts of the term, “block” and “chain” come from the setup: individual blocks, consisting of transactions, are lined up and form a chain. The blocks are linked in a way to make it impossible to modify already saved blocks as well as the transactions they contain.

And this is how a block is created: Members of the blockchain network around the world simultaneously work on building a block. To do that, they need to carry out calculations. Once one member presents the finished block, the other members will confirm its correctness. The correct block will then be added to the other blocks of the already existing chain of blocks, leading to all the money transactions contained in the newest block being saved. And then, back to the start: all the members concentrate again on creating a new block with new transactions and new calculations. You are probably asking yourself, why would the network members bother to do this? They receive compensation, of course, if they manage to build a valid block and add it to the chain.

In 2017, blockchain technology became widely known mainly in connection with cryptocurrencies such as Bitcoin. However, the technology behind it opens up new possibilities not only for finance, but for many other areas of society and economy as well.

An increasing number of companies use blockchain technology and develop blockchain-based platforms and systems. What is the reason behind this?

• Speed, safety, and data transparency, since the data is stored immediately and distributed to the entire network in encrypted form. Each action within a blockchain can be traced immediately. And since the blocks build on one another, manipulation is virtually impossible.
• There is no more need for a data center. No more central server on which to store the data. All the blockchain members save all of the information. Each node, that is, each network “knot” contains all the information.

Examples for the application of blockchain technology:

Finance: The decentralized data storage makes the so-called intermediaries such as banks redundant. And without intermediaries, the transaction costs decrease and the transaction speed increases.

Health system: Sensitive personal data such as patient files and medical reports can be stored in the network. The blockchain can be configured to allow access to these sensitive data only to selected users (the doctor attending the patient).

Insurance: The processing of claims and other insurance matters could be automated. The system, for instance, would then be able to spot a customer trying to claim a single incident repeatedly.

Logistics: The supply chain of goods would become completely transparent and traceable. This could avoid extensive searches and reduce administration cost.

Mobility: For one thing, the billing system could be improved. With this technology, it would be possible to book a vehicle as needed and only pay for the service actually used.

Because of the hashes. A hash is an abbreviated form of original information, shown as a string of characters. To produce a hash, the original information is always required. The other way round won´t work: it is not possible to trace back the original data through its hash. In the blockchain, all transactions contained in one block share one hash. The following block always starts with the hash of the previous block, forming a tamper-proof chain.

Changing the contents of a single block would make the corresponding hash incorrect. Even a slight change of the original information would lead to a substantial change in the corresponding hash. The entire blockchain would become flawed and finally break. This is what makes the blockchain tamper-proof. This feature is indispensable for the digitalization of assets and one of the main reasons for the growing popularity of the blockchain technology.

Peer-to-peer transaction is a term used for electronic money transfer between private individuals.

For these transactions, the blockchain functions as a shared “transaction book”. Because of the inherent safety of the blockchain system, the parties involved can have trust in the blockchain technology even if they do not know each other.

A lightweight wallet carries out and stores transactions using SPV (=Simplified Payment Verification). This special kind of wallet offers all the features of a regular wallet without requiring much computing power, making it possible to use it on e.g. a smartphone.

This is because the vital element for the wallet to work – regardless of the category – are the nodes on the blockchain, which, depending on their capacity, store some or all blocks of the blockchain. High storage and computing capacity are needed for the acting entities to be able to verify the transactions made on a blockchain. However, not all entities have that kind of capacity at their disposal. This is where “light nodes” and “full nodes” come in: light nodes store only the (currently) active part of the blockchain, whereas full nodes always have the entire blockchain stored.

Consequently, lightweight wallets, lacking the needed capacity, make use of the capacity of full nodes.

A smart contract is a program that can interact with the blockchain and with other smart contracts. They can be complex enough to create entire applications. Smart contracts “do jobs” depending on their programming within the blockchain.

Here is a simple example to illustrate one of the many applications of a smart contract: Lisa would like to transfer a specific sum to two different accounts each month, to Tony´s and to Peter´s account. The split of the sum is supposed to be 60/40 each month, but the amount always differs. It would be a hassle for Lisa to calculate every month how much to transfer to who, and she would have to make separate transactions.

This is where the smart contract comes into play, making Lisa´s life easier: Instead of having to transfer separate sums to Tony and Peter each month, she sends the entire amount to the smart contract, which has been programmed accordingly. As soon as the smart contract has received the transaction, it splits the sum, as programmed, to be sent to the two persons supposed to receive the money. In this case, the smart contract will send 60% of the money to Tony and 40% to Peter. Both can look into and check the transaction. However, no one can alter the smart contract once it has been set, which makes it safe and unchangeable. This can be an advantage and a disadvantage at the same time: it is important to make sure that the smart contract contains no errors.

Tokenization refers to the digitalization of various kinds of assets, such as real estate, art or other objects and its splitting into so-called tokens.

Purchasing a token of a particular real estate property, for instance, means holding a share of the property´s value. The tokens and with it the assets they stem from are transferable. This opens up new opportunities for all parties involved and means benefits for investors, issuers as well as intermediaries such as platforms.

NFT is short for Non-Fungible Token and refers to an irreplaceable token. A NFT could be described as a digitally protected object within a blockchain that cannot be exchanged or copied.

Through the use of modern technologies, a digital file (digital art, music, etc.) is marked as a unique piece and assigned to a particular tag, which makes it possible to collect and trade the NFTs. In the real world, a NFT would be an original oil painting, which is unique and the only one in existence.