The Potential Impact of Blockchain and Smart Contracts on the Chilean Telecommunication 

October, 2018 - Alfonso Silva, Raul Mazzarella, Matias Osses

Although blockchain and smart contracts are young, still-evolving and need to be tested and improved, they are already promising a revolution in different areas of the economy, and this is not unfounded; both could bring huge improvements across many areas. Imagine being able to get a mortgage, buy an apartment and get the relevant records immediately registered under your name with no need to make legal reviews of these transactions in just one click.

The telecommunications sector is no exception. In this article, we explore these technologies and their application in the telecommunications market and give an overview of potential regulations that could be implemented in Chile to facilitate their use.

What are they?

Blockchain

Blockchain was born in 2008 on the publication of ‘Bitcoin: A Peer-to-Peer Electronic Cash System’,1 a whitepaper signed by Satoshi Nakamoto which described the idea of a ‘purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution’.2 The most accepted theory is that Nakamoto developed the idea in response to the ‘subprime mortgage crisis’3 of 2007–2008.

The main problem solved by Nakamoto’s whitepaper was the ‘double-spending’ of a digital file in a decentralised environment, whereby a digital file is unduly duplicated or falsified, creating unwanted copies and artificially increasing the number of files.

Prior to the whitepaper, a touted solution to the double-spending problem of a digital asset was the introduction of a trusted central authority, similar to a bank, which would manage assets and review and confirm transactions. Nakamoto asked: do you need a central authority?

In simple terms, his answer was the creation of a decentralised and unmodifiable public ledger made of consecutive blocks of data that contain a record of every bitcoin transaction and are secured through cryptography. The ledger tracked the accountability of transactions that anyone anywhere can review.

To add a transaction to a block of this public ledger, the respective online transaction would need to be reviewed and confirmed by various decentralised third parties, called ‘miners’, that detected if the transaction is malicious and, at the same time, if other miners – that were also confirming transactions – were also malicious. A set of ‘consensus rules’ that miners must follow governed this process. As a product of the work in confirming these transactions, the miners were eventually rewarded with a newly created bitcoin (or fractions of it). Due to this system, and the first consensus algorithm called ‘proof of work’, the public ledger was extremely secure and, theoretically, almost ‘unhackable’.4 As a consequence, the blockchain and the first cryptocurrency – bitcoin – were born.

Today the blockchain is used by several cryptocurrencies. Some of them aim to perfect or produce new models of the blockchain and/or create a cross chain interconnection of existing blockchains in what is known as the ‘internet of blockchains’.

Likewise, various companies, institutions and even states use, have created or intend to create blockchains for different purposes because of the technology’s increased reliability, security and efficiency. The International Business Machines Corporation (IBM) has been a pioneer in offering blockchain services for food safety, private equity and trusted identity. Other companies such as Walmart, Visa, Mastercard, Samsung, British Airways, UPS and Fedex are implementing or have tested blockchain technology to fight fake identities, keep track of their supply networks, speed up payments, store records, manage data about flights or solve customer disputes, among other uses. Santander launched a foreign-exchange service that uses blockchain technology to make same-day international money transfers.

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