Analysis & Opinion

What is ‘Blockchain’ and why ‘Bitcoin’ is more than just cryptocurrency

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” — Don & Alex Tapscott, authors Blockchain Revolution (2016)

What if there is a technological advancement so powerful that it transforms the very basic pillars of our society – the technology which fundamentally influences the way that our economy, governance systems and businesses function and could change our conceptual understanding of trade, ownership and trust. This technology already exists and it’s called CryptoCurrency.

People often think of ‘Bitcoin’ as only virtual money or transaction system. But if you look closer you will see that the monetary aspect is just the tip of the iceberg, that’s because bitcoin is the groundbreaking internet technology for which money is merely one of the possible applications.

Money exists to facilitate trade, through the centuries trade has become incredibly complex, everyone trades with everyone worldwide. Trade is recorded in book keeping and this information is often isolated and closed to the public, for this reason we use third parties a middleman we trust to facilitate and approve our transactions, think of governments, banks, accountants, notaries and the paper money in our wallets, we call these ‘Trusted Third Parties’.

This brings us to the essence of bitcoin, bitcoin software enables a network of computers to maintain a collective book keeping via the internet. This book keeping is neither closed nor in control of one party, rather it is public and available in one digital ledger which is fully distributed across the network we call this the “BlockChain”.

In a ‘blockchain’ all transaction are logged including information on the time, date, participants and amount of every single transaction each node in the network owns the full copy of the blockchain on the basis of state of the art mathematical principles.

The transactions are verified by the so called “Bitcoin Minors” who maintain ledger. The mathematical principles also ensure that these nodes automatically and continuously agree about the current state of the ledger and every transaction in it. If anyone attempts to corrupt the transaction the nodes will not arrive at a consensus and hence will refuse to incorporate the transaction in the blockchain, so every transaction is public and thousands of nodes unanimously agree that a transaction has occurred at date ‘x’ and time ‘y’.

The ledger doesn’t care wether a bitcoin represents a certain amount of euros or dollars or anything else a value or property for that matter. Users can decide for themselves what a unit of bitcoin represents.

A bitcoin is divisible in a 100million units and each unit is both individually identifiable and programmable, this means that a user can assign properties to each unit. Users can program a unit to represent a euro cent or a share in company or kilo watt hour of energy or a digital certificate of ownership. Because of this bitcoin is much more than simply money and payments. A bitcoin can represent many kinds of property.

The programmable open character of bitcoin allows us to completely rebuild and innovate our financial sector and our administrative processes – make them more efficient and transparent and significantly decrease bureaucracy. But there is more, in an Internet of things our economy will be dealing with machines that actively participate in the economic traffic. In fact they are already here, think of the vending machine or drones delivering packages, these machines are unfamiliar with the concept of trust. But bitcoin is not – because of bitcoin the drone can be a 100% certain that it will deliver the package to the right recipient and know for sure that its been paid for and we can program the vending machines in such a way that it will automatically keep track of its supplies, order new supplies from the supplier and pay for them automatically.

Ofcourse you will understand that this is only the beginning – Internet technology is disruptive and breaks the status quo, it opens markets and breaks the position of middleman all the time.

Blockchain is a decentralized system, which means you don’t get charged to transfer money the way you would with typical financial institutions. This disrupts the international socio-economic landscape because remittance is costly, and as such can deter businesses from reaching certain regions of the world, severing opportunities for developing nations. It also creates a financial strain for people sending money to their family members overseas.

Bitcoin and cryptocurrencies have caused a paradigm shift, its time to explore this new technology constructively and critically and openly discuss potential applications.