The expert in new technologies, blockchain and cryptoeconomics and professor of prestigious business schools, Susana Rodríguez, participates in a digital event organized by Santalucía AM to understand these concepts.
Under the title “Deciphering the blockchain. Are cryptocurrencies the economy of the future?”, The expert has explained in a didactic way, with many examples and hypothetical scenarios, what this technology that supports cryptocurrencies consists of. The one-hour digital event had an interview format and was led by Beatriz Franganillo, head of institutional business development at Santalucía AM.
What is the blockchain?
Susana Rodríguez gives us two definitions of blockchain, one more technical and the other more earthly. The latter defines it as “the Internet of money,” a coded system where people can send money without intermediaries that have evolved into exchanging not only currencies but also assets, hence the “Internet of value.”
Technically, Rodríguez defines it as “an immutable data record (we make a note of a transaction that cannot be modified), “as in Las Vegas, what is written on the blockchain, stays on the blockchain.” In addition, it is distributed to many nodes (computers), which makes it impossible to corrupt. As it is immutable (everything is noted), the transaction can be tracked (traceability)”. It is also safe. “We have been with the crypto world for 12 years, and no hacker has been able to corrupt it,” she says.
“For me, it is the decentralized nervous system of our life” that is going to “eliminate a lot of red tapes,” she says by way of summary. A system that, on a day-to-day basis, will “allow citizens to have a digital identity to authenticate themselves before any Public Administration or institution. We are not going to have to prove who we are with a DNI”.
Cryptocurrencies and bumper cars
As we started, the greatest use of Blockchain technology is cryptocurrencies, whose origin comes from cryptography. “When a transaction is entered in that immutable record, it is sealed with cryptographic techniques.”
Every cryptocurrency is a token, a representation of a value, “similar to the token we buy at the fair to get on bumper cars,” and there are four types, depending on their purpose: value (currency), utilities (currencies that do not serve means of payment that use blockchain technology), securities (associated with assets) and NTF (non-expendable goods).
Susana Rodríguez has been blunt and insisted that cryptocurrencies “are not a financial asset, but a digital asset” that has come to stay and will coexist in a complementary way with currencies in the official course. “Traditional money has had many competitors, but the money of the States will continue to operate to have greater control over the economy.
She recalled that currently, it is not a legal tender, so it is not accepted as a means of payment, except in some countries and companies. She has also warned that there is no supervisor to regulate it and that at a regulatory level, work is being done in the European Union on the so-called MiCA (Markets in CryptoAssets).
In her opinion, “you have to be positioned” on Bitcoin, as time has shown that it is a system that works. “The crypto world is a technology that has been around for 12 years, and a hacker has never been able to corrupt the Blockchain network. On the other hand, it is a deflationary currency and a good that will be scarce”.
As she has stressed, governments, central banks and large companies are positioning themselves in favour of digital currencies as a financial asset. Although, she has warned that there are cons: volatility and lack of understanding. In addition, “it moves through tweets.”
At Santalucía AM, we do not invest in cryptocurrencies; they are complex and extremely difficult to value for three reasons:
- It is not possible for us to obtain an intrinsic value of the asset to know if it is overvalued or undervalued.
-Registers high volatility
-It has a little historical history.
The term blockchain will not be completely unknown to readers, given its unstoppable advance in the socio-economic environment and the various studies presented in monographs and doctrinal articles on the matter. Although at first, it seemed like typical profiles of seasoned technology, the truth is that it is becoming more and more common in everyday language, moving away from that kind of technological limbo and approaching more common areas (for example, logistics in companies1, food traceability2, medical record keeping3, payment systems4, etc.).
Although this work does not focus on the detailed analysis of blockchain technology, it is necessary to partir of some basic ideas that allow developing the key element of this research, that is, the token or «unit of value that an organization [or private entity] creates to govern its business model and give more power to its users to interact with their products or services »(Mougayar, 2016, p. 24).
The “tokenization” process, based on abstractly representing security in correspondence with the real asset, assumes a transcendental innovation in different areas, especially financial or corporate. This is how ICOs or Initial Coin Offerings (initial coin offerings) enter the scene, offering a new way of business financing through the online sale of cryptographic assets and DAOs or Decentralized Autonomous Organizations entities managed in a decentralized way through smart contracts by token holders.
The purpose of this study is to bring the reader closer to all these concepts and their unquestionable utilities, putting them in value, but, at the same time, analyze the practical problems faced by these technological developments, the main one being regulatory uncertainty.
All about the blockchain and cryptocurrencies
Blockchain can be defined as a shared digital book that encompasses a list of blocks connected and stored in a distributed, decentralized and cryptographically protected Network, serving as a repository of irreversible and incorruptible information. Recorded transactions, which can involve any value, money, property or votes (Beck & Müller-Bloch, 2017, p. 5390), cannot be modified retroactively without altering all subsequent blocks; in fact, the new blocks are validated by peers on the Internet, granting credibility and avoiding malicious activities (Wright & De Filippi, 2015, pp. 8-9).
Although the first blockchain came from the hand of the cryptocurrency bitcoin5, today, this technology has spread, with public chains, private chains and hybrid chains. Public platforms, which operate in a decentralized framework, allow anyone to join the Network, read transactions, transfer assets and participate in the consensus process6 (for example, Bitcoin and Ethereum). Private companies, of a centralized nature and with strict authorization, are characterized by being faster, allowing only certain previously approved members to operate, their main functions being auditing and internal management (Leonard, 2017, p. 3; Garzik & Bitfury Group, 2015, pp. 10-11). All public transactions distinguish the hybrids, but the participating nodes are invited – in the case of public institutions – (Legerén-Molina, 2019, p. 180). Its operation can be briefly described as follows (“What is a blockchain,” n.d.):
A chain of blocks (blockchain) is “a distributed database that records blocks of information and interlaces them to facilitate the retrieval of said information” and the verification that it has not changed. These blocks of information are intertwined through pointers or summary algorithms (hash7) «that connect the current block with the previous one and so on until reaching the so-called genesis block» («What is a chain of blocks (blockchain),» nd). Since this hash “is unique and corresponds only to the file on which the algorithm has been applied, it will serve to determine whether it has been manipulated or not.” If applying the algorithm to the referred file returns a different sequence from the initial one, it will mean that the file has been modified. Then, we are talking of an important integrity function (Legerén-Molina, 2019, p. 185).