With the invention of the Internet, the world began to change rapidly, whereas the rate of technological changes has been constantly increasing. The concept of decentralization is not just another phase in the technological evolutionary tree (as was the switch from CRT to LCD displays). It offers something far more profound—a drastically new approach that has the power to change the fundamental principles of human interaction. This is especially notable when it comes to, for example, political systems or building confidence in financial accounting.
The traditional approach to building accounting systems does not allow users to ensure the integrity and authenticity of the provided data. As a result, all that is left for them is to trust the data. In today's world, however, people increasingly want to be able to verify rather than just to trust.
The appearance of digital payment systems brought high requirements on the confirmation time and the security of transactions. The side effect of such productivity enhancement was greater centralized control and total lack of transparency. This has affected the lives of entire groups of people and even countries. The possibility to disconnect users from payment systems (such as SWIFT) is used as a lever of political pressure; the non-transparency of systems reduces the trust and limits the free competition; access to transaction history by a limited number of organizations allows them to control people's lives; centralized storing of sensitive data allows hackers to steal it all at once.
Before Bitcoin, all financial systems were protected with "traditional" methods: firewalls, access control systems, security admins, etc. The appearance of Bitcoin has shown that a financial system can exist without a single decision-making center; it can be transparent to anyone while maintaining the privacy of user payments. Also, it can guarantee reliable operation using mathematics in accordance with the specified rules.
The principles and architecture of Bitcoin can be applied to solve a wide range of problems, from voting and mutual settlement to supply chain management. Blockchain as a method of secure storage and synchronization of data becomes a tool that allows building reliable and transparent accounting systems.
Many of the technologies discussed in this book have either been already invented or applied for the first time in Bitcoin. Therefore, we have decided to pay ultimate attention to Bitcoin: we will consider it not in the context of a financial or investment instrument but primarily as an example of the decentralized accounting system implementation.
Our main goal is to explain the principles of decentralized systems in the aspects of decision-making, data storage, security management, trusted audit, and privacy. Focusing on these principles, in our opinion, will allow the reader to deeply understand the nature of decentralized technologies, structure their knowledge, and use this information as a guiding map in the ocean of various protocols and systems. To achieve this goal, we have taken the following steps:
- Each section contains definitions and the context in which the considered systems operate.
- The focus is set on why a particular technology was designed in a certain way (with the application examples).
- The principles of how things work are explained using real examples with the minimum necessary technical details.
- The material is presented with illustrations, schemes, and diagrams.
- Technical concepts are explained with real-life examples.
- Common myths are discussed and disproved.
- Answers to frequently asked questions are given.
- Test questions have been included to enable readers to check their knowledge and understanding.
The audience for this book includes the readers with basic knowledge in computer science. The book is intended to prepare the reader for an upcoming digital economy. We have carefully selected topics to provide a comprehensive view of the most important technologies for those who wish to innovate. Some of the chapters are focused on technical details, and we do understand that they might seem complicated for the readers without a technical background. Although we aimed to concentrate primarily on a conceptual component, which can be striking for anyone interested in Fintech.
The book is primarily based on the course for the information security students originally created by Pavel Kravchenko in 2014. Later the material of the course was adapted into an online version by Bohdan Skriabin. The didactic aspect has been developed by Oksana Dubinina. By the moment the work on this book had been finished, the course had been taught 15 times in the universities of Kharkiv, Odesa, and Haifa.