For this blog post, I decided to write about blockchain technology. This is a term that has already been tossed around a little in class and twitter, and with the hype-around bitcoin and other current news, I am sure it will continued to be used. I personally did not know a thing about what blockchain was before this post, so I figured there may be some other classmates in my same position. For those students, I hope this post is just as enriching for you to read as it was for me to create. Here is my blockchain 101:
What is a blockchain?
“Blockchain: a distributed database that maintains a continuously growing list of ordered records, called ‘blocks’.” – Vinay Gupta in A Brief History of Blockchain
Blockchains store information across a network of personal computers, making them not just decentralized, but distributed. This means there is no central company or person who owns the system, rather everyone can use it and help run it. It is very difficult for one person to take down the network or corrupt it because no centralized version of this information exists. Put simply, blockchains offer a very high form of data security. How does it work you ask? Users of the system hold bundles of records submitted by others called blocks that are linked together in chronological order as a chain. This blockchain uses a form of math called cryptography to ensure that records cannot be counterfeited or changed by anyone else. Each blockchain is hosted by millions of computers simultaneously and it’s data is accessible to anyone on the internet.
So who invented it?
The invention of blockhain coincides with the invention of bitcoin. Satoshi Nakamoto is the pseudonym for the unknown person or people who designed bitcoin. As part of the implementation, he/her/they also devised the first blockchain database.
I could not write about blockchain technology without including its main use: bitcoin. Bitcoin is a virtual money that you can use to buy and sell things online. It is a cryptocurrency meaning it is encrypted in a way that prevents it from being copied. It mimics real world limited resources like gold, because there is a finite supply. Developers estimate there are 21 million bitcoin available, with about 16 million currently in existence and 5 million more to mine.
Where does blockchain come in?
Every bitcoin transaction is recorded using a blockchain. Through this system, all the information surrounding a specific bitcoin is complied into a ledger (the blockchain) that is encoded onto the bitcoin itself. This prevents people from spending the same bitcoin more than once since everyone else on the network knows it was spent. While a regular dollar bill can be counterfeited by making a copy, with bitcoin, their is no way to counterfeit. It is possible, however, to mine more. Just like gold, the more people mine bitcoin, the less there are to be found which makes them increasingly harder to find. Mining bitcoins involves solving very high level math problems with powerful computers. To put it in perspective, it is estimated the remaining 5 million bitcoin won’t be fully mined until 2040. In order to maintain a steady flow, the difficulty of these math problems increases as the amount of miners increase. Through this system, the value of bitcoin is value is boosted and they remain inflation proof.
What are the cons?
Because there is not a central organization regulating bitcoin, its value tends to fluctuate wildly. For example, on December 19th, 2012 a single bitcoin was worth $3.41 where as on January 17th, 2018 bitcoin was recorded at $18,387. There is also the security risk of security of hackers who target the banks and exchanges that deal in bitcoins. Just as you wouldn’t blame the dollar bill if a bank was robbed, this is not the fault of the cryptocurrency. Additionally, new research from Chainalysis estimates that 17% to 23% of existing bitcoins, have been lost due to mismanagement.
The future of blockchain technology?
Bitcoin is just the beginning for blockchains. As the full potential of these breakthroughs hits society, life for individuals and businesses will undergo change. According to the Institute for the Future and an article from Harvard Business Review, in the future blockchains that manage and verify online data could enable us to launch companies that are entirely run by algorithms. This could make self driving cars safer, help us protect are online identities, and even track the billions of devices on the internet of things. Self-driving cars and drones may be able to leverage blockchains to pay for services like charging stations and landing pads. It is even possible that international currency transfers will go from taking days to an hour, and then to a few minutes, with a higher degree of reliability than the current system has been able to manage.
The possibilities are vast and exciting, and I’m looking forward to see how these topics come up in class, our readings, and our Spring trip out West! Thanks for reading, happy blogging 🙂
Sources: Harvard Business Review Blockgeeks, BrainStuff, Institute for the Future, 99bitcoins