Understanding Blockchain, Which is the Foundation of Crypto Assets【Basic Financial Knowledge】

Cryptocurrency assets such as Bitcoin have come to have high monetary value.

Cryptocurrency assets are operated by computer technology called blockchain, which allows them to have value even though they are not supported by the government or central banks. With blockchain, you can “reliably operate”, and people will be able to trust it, which will increase its value.

In this article, I will explain the basic knowledge of blockchain for those who “have heard but do not know how it works”.

What is a Block and What is a Chain

The “cryptography” of crypto assets is digital data. Cryptocurrencies play a role like currencies, even though they don’t use currencies like money or coins. Digital data is an alternative to currency.

Let’s take Bitcoin as an example. The unit of Bitcoin is BTC (read as Bitcoin).

For example, suppose you give 1 BTC to a car dealer and get a car. Bitcoin is data even if you say “pass”, so you just “pass” in your computer. In other words, the transfer of your 1BTC to a car dealership is recorded in the form of data.

If this data does not disappear, and if this data is approved by everyone who uses Bitcoin, it will have the same effect as moving an object called a wad of 10,000 yen bills.

Blockchain is the realization of “indelible digital data” and “digital data that is approved by everyone.”

One Page of the Ledger is a Block, the Connection of Blocks is a Chain

In the blockchain, all transactions are recorded in the “ledger”.

Every transaction is really every transaction. The fact that one BTC has moved to a car dealership and that the car dealership has purchased another car with that one BTC is a Bitcoin transaction and is recorded in the ledger.

There is only one ledger for every transaction recorded per crypto asset, but trying to manage it on one computer requires a tremendous amount of computer.

Therefore, the blockchain manages the ledger in a distributed manner. The image is that one page of the ledger is one block.

All pages of the ledger are linked, so the blocks must be connected. It is called a chain because the connection of blocks is like a chain.

Virtually Tamper-proof

Blockchain is an excellent technology, but it is still made by humans, so it cannot be said that transaction data will never be tampered with. However, in theory, the data in the blockchain ledger cannot be tampered with.

That’s because it uses a technique called “hash value”.

The Hash Value is the Content of the Previous Block

The hash value is the content of the previous block.

As the number of transactions using crypto assets increases, the number of blocks will increase. However, the contents of the old block will not disappear. This is because the information in the old block is stored in place of the hash value.

Suppose a malicious person tampers with a hash value in order to illegally obtain cryptographic assets. The information in the latest block is based on the hash value information, so if the hash value information is rewritten, the information in the subsequent blocks will be out of order.

In other words, in order to tamper with one hash value and prevent it from being tampered with, the information in all subsequent blocks must also be tampered with.

As the blockchain expands, it’s virtually impossible. Therefore, it can be said that the data in the blockchain ledger cannot be tampered with in theory.

All Users Share a Ledger

In the blockchain, all blockchain users share one ledger, which also makes it more secure.

For example, suppose a company’s accounting ledger is in a state where only management and accounting personnel can view it. At this time, if the management and the accounting staff collude, the financial results will be falsified in any way. However, if the accounting ledger is exposed to the eyes of many employees, it cannot be tampered with.

Since the blockchain manages the ledger by all users, it is considered that fraud is unlikely to occur.

Strong Because it is a P2P Network

The blockchain uses a model called P2P (peer to peer). People who are not good at computers may have a hard time understanding the concept of P2P models, but I think that it will be better understood if you know “non-P2P models” first.

The relationship between the server and the personal computer is a model that is not P2P.

You can browse the site on your computer because it requires you to connect to the server where the site data is stored and have it read the site data.

Thanks to this mechanism, even if 100 people browse the same site on their own computer, they can browse at the same time. This is because 100 PCs access the server independently.

At first glance, this relationship between the server and the computer seems reasonable, but it has the major drawback of being instantly unavailable if the server goes down. The P2P model solves this drawback.

In P2P, there are multiple terminals called peers that 1) hold data and 2) request data. The server does not exist. Because peers are connected to each other, you can view data in other peers or let other peers view your data.

In this state, even if some peers are destroyed, the entire ledger will not be damaged. Therefore, it can be said that the blockchain is more secure by the P2P model.

History of Blockchain: Developed as a Basic Technology of Bitcoin

It is said that the idea of ​​blockchain was born in the 1990s, but it is said that it was a paper published in 2008 by a person named Satoshi Nakamoto who raised this theory to a level where it could be put into practical use.

Satoshi Nakamoto is a Japanese-like name, but the person, including nationality, has not yet been identified. And Satoshi Nakamoto made Bitcoin in 2009 using blockchain technology.

The rapid growth of Bitcoin is as reported by the media, but the history of Bitcoin can be said to be the history of blockchain.

The future of Blockchain: The Bank of Japan and the Government are also Watching

It can be said that blockchain technology has a future. For example, the Bank of Japan stated in a report entitled “Digital Currency Issued by Central Banks” published in 2016 as follows(※2).

In some cases, the central bank conducts its own demonstration experiments on blockchain and distributed ledger technologies, which are considered to be FinTech’s representative technologies. The Bank of Japan will actively participate in international discussions on FinTech while carefully following trends in these research analyzes and demonstration experiments.

You can see that he has a strong interest in blockchain.

The Ministry of Economy, Trade, and Industry evaluates as follows(※3).

Blockchain technology (…) is FinTech’s next notable technology.

Since blockchain is a technology for the private sector originating from the private sector, private companies are also paying attention.

● Bank of Tokyo-Mitsubishi UFJ Bank of Tokyo-Mitsubishi UFJ introduced the trade finance platform “Komgo” as the first blockchain implementation project within the bank in December 2019, and has been a long-standing issue in the field of trade finance. Work to reduce the risk of fraud.
NEC has been engaged in blockchain research from an early stage, and the results have been adopted by well-known journals (ACM TISSEC) and international conferences (ACM CCS), and have been adopted for the official implementation of Bitcion XT. In addition, we are engaged in activities for the development of blockchain, such as writing articles in academic journals(※4).

Blockchain can be Called “Real Technology”.


Summary – Because There is a Great Deal of Concern That it Will not Expand Rapidly

From the discussion so far, we have found that blockchain is an excellent computer technology and a promising technology.
If that happens, the following questions will arise.

● Why Isn’t it Expanding Rapidly Even Though it is Such an Excellent Blockchain?

Even if you’ve heard the name of blockchain, not many people use it frequently.
The answer is included in the following view of the Financial Services Agency(※6).

It is becoming difficult to prevent money laundering and terrorist financing using crypto assets.
There is a risk that it will be difficult to grasp the actual situation of crypto assets.
It hinders proper user protection and transaction optimization, making it difficult to realize a secure, fair and reliable crypto asset economic zone.

From “Survey Research on Privacy Protection and Traceability of Financial Transactions Using Blockchain” (2019) by the Financial Services Agency and Mitsubishi Research Institute

There are a lot of uneasy words such as money laundering and terrorism. There are also some negative words such as difficulty, danger and obstruction.

The Bank of Japan, which is studying blockchain, has also stated that it has no plans to issue digital currencies that use blockchain or crypto asset technology(※7).

It seems that these concerns need to be dispelled in order for blockchain to become widespread.