What is Blockchain and Bitcoin
As the Internet transformed communications and commerce in less than a decade, Blockchain will profoundly change how we acquire and convey property. Read on for a description how Blockchain works in less than 400 words using just nine words of jargon.
Electronic transactions have been displacing cash for convenience and safety for 50 years. In many third world countries, making payment by text is now the fastest growing form of cash.
All electronic transactions require third party institutions acting as arbitrators. Underlying faith comes from the countries where they operate creating stability or even regulation guaranteeing funds like the FDIC. However, certainty comes with the quid pro quo of imperial entanglements.
Therefore, trust, security, convenience and privacy are factors considered in every transaction. Blockchain is already disrupting property in fundamental ways:
- Trust Public, consensus-driven and auditable ledger
- Security Unbreakable encryption based on unsolvable mathematics
- Convenience Allows transactions anywhere the Internet can reach
- Privacy Personal identity not required to transact
What is Blockchain and How Does It Work?
Blockchain came to being in 2008 by Satoshi Nakamoto, a pseudonym for a person or group through a white paper Bitcoin: A Peer-to-Peer Electronic Cash System.
They also released open source code ultimately named Bitcoin Core forming the operational foundation of Blockchain that maintains records referencing any physical or virtual asset and tracks the transfer from one party to another.
Blockchain tracks two computer generated codes as:
- Public key identifies a participant
- Private key sending this code transfers ownership
This 35 character code is an example key:
Breaking it requires 4.29 billion guesses hardly a practical exercise.
Blockchain performs these functions through a federation of computers nodes owned and operated by volunteers miners.
Nodes collect and post transactions to a block containing:
- Reference to the previous block
- New transactions
- Computationally-difficult math problem proof of work
- Miner identity coinbase
Nodes compete to be the first to solve the proof of work. Solution difficulty adjusts designed to generate new blocks about every 10 minutes. Miners are paid in Bitcoins having collected $1.8B in mining revenue to date.
For a sense of size, there are dashboards and over the last 24 hours showed:
- 280k transactions
- 5,000 nodes active in 93 countries
- Spawning 553 new blocks
Blockchain is transparent, every transaction is public go and see them here, and this is the point, moving governance out of the hands of third parties and governments to the consensus of miners.
Blockchain is secure coming from the highly distributed community of miners operating nodes worldwide. Breaching the system requires an impossibly larger and much more coordinated mob of “dark” miners to overwhelm a system that reinvents itself every ten minutes. Only obtaining the private key can theft occur leaving physical completely security in the hands of the participant.
Blockchain has no back door because Bitcoin Core is completely open source. With every line of code in the open, unless a majority of miners were secretly cooperative, alternative access can’t exist.
Blockchain is private operating peer to peer only. Identity is not part of the system and therefore no role exists for a third party, including governments except by consensus.
Blockchain is smart able to carry out conditional tasks (contracts). Conditions can include anything publicly verifiable like a date, death or employment status. A derivative could be paid out when a financial instrument meets a certain benchmark.
Much like the Internet of 1995, Blockchain is pre-infancy with massive potential. Over $1.1B of land grab investment in any company that can put block and chain together is in place around the world. Aware incumbents are participating as well, for instance, MasterCard offering Blockchain resources for programmers developing new payment systems.
Some additional glimpses are:Peer-to-Peer (P2P) – bypass third party involvement and exposure of sensitive user information including credit card numbers enabling
Peer-to-Peer (P2P) – bypass third party involvement and exposure of sensitive user information including credit card numbers enabling ecommerce networks in which buyers and sellers interact directly without hackable stored records.
Keyless Security Infrastructure (KSI), using hash-function cryptography and public ledgers bypassing the required third party of Public Key Infrastructure (PKI) that limits scale and is exposed to brute-force attacks.
Central Security Depositories (CSD) settlement process is expensive and can take days to settle. Blockchain decentralizes the system cutting out the third party drag and expense.
Counterfeiters get their product to market, like drugs, by exploiting wholesale distribution systems. Blockchain transparency enables authentic supply chain brand, merchant and marketplaces.About the only certainty at this point is Blockchain will be the most transformative concept of the first quarter of this century if not sooner.
About the only certainty at this point is Blockchain will be the most transformative concept of the first quarter of this century if not sooner.