The value of Bitcoin recently went up and everyone is talking about it. Though bitcoin has existed for quite some time you might be forgiven for thinking that it’s a new invention. When it first came onto the scene most considered it a hobby and any dreams anyone might have had that one day it would be have great monetary value were just that. Dreams.
Despite the fame that Bitcoin has managed to garner for itself in the short period it has been in existence very few people understand the underlying dynamics of the technology.
Blockchain, is the brainchild of the elusive Satoshi Nakamoto. Part of what makes Bitcoin stand apart from all other technology is how it allows digital information to be distributed without getting replicated.
Even though at first it was created primarily to create cryptocurrency, that is Bitcoin, technologists have found a variety of uses for it.
According to the creators of Blockchain Revolution, Don and Alex Tapscott, Blockchain is a ledger of economic transactions that is incorruptible. It can be used to record anything of value including financial transactions.
To give you a better idea, let’s use an example.
Imagine an Excel spreadsheet that has been replicated more than a thousand times in a network of computers. Picture that this network is engineered to regularly make updates to the spreadsheet. That is the most basic definition of blockchain technology.
The information that is contained in the blockchain is not only shared but is kept in sync with a database.
This of course has a number of benefits not least among them is the fact that since the information is not kept in a single location it is not only easily accessible but can be accessed with ease as well. Since this information is not centrally placed no hacker can contaminate the information.
Two other benefits of blockchain that make it a robust infrastructure is the fact that since information is maintained by storing identical blocks of information across its network it doesn’t have a single point of failure. Due to its nature, it may not be controlled by a single entity.
Many experts have defined the technology as a network that is in a state of consensus. It is worth noting that the blockchain checks itself every 10 minutes. What this means is that the technology synchronizes all the transactions that take place every 10 minutes.
Transactions are referred to as a block.
The blockchain consists of a network of nodes.
Any computer that is connected to the blockchain through a client that is responsible for the task of relaying and validating transactions is referred to as a node.
To further complicate the equation every node is an administrator of the blockchain. The primary incentive of contributing to a network is the opportunity to gain Bitcoins.
How Does A Computer Make Bitcoin?
In fact, the term normally used is “mining” bitcoin. However, this is a misnomer in the sense that no actual mining is taking place. Each computer “mines” bitcoins by solving very complex computational puzzles. With time the puzzles get harder and thus need more computational power to solve. This computational power requires more resources inherently increasing the value of bitcoin.
There’s a finite number of bitcoin in the blockchain and the more bitcoin is mined the harder it gets to win the cryptocurrency.
Just like with personal computers Bitcoin has a user interface which can be used when making purchases with bitcoin or when storing it alongside other currencies. This GUI is known as the wallet.
When blockchain technology was first invented its sole purpose was for the mining of bitcoin. However, so much has changed since then and it has been identified to fulfill various purposes.
Currently, it’s estimated that there might be over 700 cryptocurrencies. In addition, there are various versions of the original blockchain concept that are already functioning or are in current development.
Due to the fact that blockchain is decentralized it renders aspects of traditional commerce useless. By using blockchain for stock trading the transactions almost become simultaneous. Another application would be making the land registry record public.
Who Is Likely To Benefit from Blockchain
Financial Institutions are most likely to benefit from use of the technology.
According to the World Bank over $430 billion in money transfers were sent in 2015. The blockchain if applied to world remittances would effectively cut off the middleman.
Since data is not held in a single centralized location, hackers are unable to exploit the system. To further secure the infrastructure blockchain uses encryption technology.
To understand this there are some basic concepts will need to understand.
- Public Key
This is a randomly generated string of numbers that is very long. A public key is a users’ address on the blockchain. When any bitcoin transaction is made the blockchain records the transaction as belonging to that address.
- Private Key
Think of this as a login that a bitcoin owner uses whenever they want to access and transact their bitcoin. In order to safeguard your private key, you need to print it out as it’s safer to keep it that way.
Blockchain as a second level network
According to a survey conducted back in 2016, the value of bitcoins transacted in a single day averaged more than $200,000.
Goldman Sachs is on record for stating that it believes up to $6 billion a year stands to be saved if blockchain technology was used for clearing and making settlements.
- Smart Contracts
The way this works is that contracts execute when a specified set of conditions is met. For example, when financial instruments meet various benchmarks it could lead to the payment of derivatives.
- Sharing Economy
The sharing economy has proven to be a major hit with numerous startups taking advantage of the concept. By making peer to peer payments possible, blockchain enables direct interaction between parties.
By involving people in product development potential customers get to have a say in how a product is created. Blockchain technology would essentially take this to the next level. It would be possible to crowd source venture capital funds.
It would be interesting to see the application of blockchain to persistently problematic areas such as elections. If applied in polls, blockchain technology would make the results publicly accessible and credible due to its fully transparent nature.
- Supply Chain Auditing
Increasingly as consumers become more aware there’s a growing need to verify a company’s products. For instance, in the diamond market there’s a need to prove that the company does not deal with blood diamonds. This can be achieved via time-stamping that’s based on blockchain technology. The product number would correspond to a date and location of origin.
- File Storage
By distributing data across the blockchain it would be hard for files of information to either get lost or hacked.
The list of how blockchain technology can be used is endless. All these possibilities are what makes blockchain so fascinating.
Author Bio:Over the many years we’ve been in operation, Florida Vocational Institute has built a solid reputation in the technology space. We are regular contributors to developer blogs.