June 20, 2017    7 minute read

Bitcoin: One Cryptocurrency to Rule Them All

Champion or Old-Timer?    June 20, 2017    7 minute read

Bitcoin: One Cryptocurrency to Rule Them All

Today’s society relies upon countless transactions of goods and services. This is largely dependent upon the handling, storage, safekeeping and delivery of information. One can argue that if the delivery of goods and services were to cease, civilisation as we know it would be altered dramatically. In order to exchange this information, intermediaries are needed. The intermediaries create the network through which information is passed along.

One day, an individual (supposedly Satoshi Nakamoto), had a disturbing, or, as we like to call it today, a disruptive thought. “How can we create a new type of system, enclosed and worldwide, which will allow us to make transactions without the use of so-called trusted intermediaries, such as governments and banks?’’

Something disruptive, as we call it today, is an element which has the potential of profoundly upsetting the current order of things, in whatever domain, without causing drastic change by force. Instead, by being adopted by a large number of users, it creates a self-generating momentum which, as a result, causes changes which would be otherwise nearly impossible. A disruptive idea can be compared to a viral concept which, through propagation among users, upsets the current societal equilibrium.

To achieve his vision, he made use of a novel technology, which had been around for a certain number of years, but still remains unknown to most people.

This technology allows for the creation of a public record of transactions, whose attributes are security, anonymity, inalterability, and unchangeability – a cryptocurrency. The entirety of this public record is completely digital and never centralised in one location. In today’s world, most records are private. This new type of decentralised depository only consists of public records, visible to all users.

There lies the biggest difficulty in trying to understand disruptive technologies. To do so, we must truly make an effort to think differently. Some people can and some people cannot, as much and as hard as they try. Blockchain and bitcoin have this effect on a lot of people, including very knowledgeable people, well-positioned in academic, financial, or political fields or professions.

Because bitcoin is made possible because of blockchain, we will speak of blockchain first.

What is Blockchain?

Blockchain, as a depository of information, can be described not as a huge library, filled with millions of volumes, each page of each volume, filled with millions of letters, each letter filled with millions of dots. No. Instead, picture the following. You can imagine a chain and to start it, you add the first block of information. So far, nothing dramatic has occurred. Next, you add the 2nd block of information, like in a chain, after the 1st block. And you add the 3rd block, after the 2nd, which comes after the first. And so on, and so forth.

Every time that a transaction occurs and information is created and needs to be stored and accessed, this information (related to this particular transaction) is added to the chain, in the form of a block, connected to all the previous blocks, which are all one after another, placed in chronological order, and the end result is an incredibly long linear sequence of blocks of information. Each block contains a digital signature which allows anyone to verify the identity and contents, the digital signature is permanent and transparent and has very high-security attributes.

To give an example, when Joe pays Paul a certain amount, the information about this transaction is stored in the blockchain, in the form of a unique code. The blockchain can now also be described as a very long linear sequence of unique codes. A complete copy of the entire chain is held by the entire network, and never in one central area. In order to go into the chain and alter or delete information related to anything stored in the chain, you have to access and alter all the blocks of information which have been added after the particular block of information you wish to alter or steal. Also, if one would ever attempt this, such a person or entity would be easily identified because the whole network acts as one sentinel. The fact that the entire chain of information is held by the entire network, at all times, creates nearly ultimate trust.

Because this novel type of storing, accessing and exchanging information allows for peer-to-peer contact, no intermediaries are needed. It now becomes awkward for the typical intermediaries, such as banks and governments, to grasp first of all what blockchain is and what it allows and what are the current and future possibilities. Then banks and governments need to see how and if they fit in this new order of things, one they have not approved, funded, and cannot manage or control. Here, it becomes more clear why blockchain technology is indeed disruptive. Banks and governments have created and now uphold a large number of rules and regulations. Bank fees which allow you to transfer money overseas. Income tax or licenses or permits which allow you to drive on recently paved roads or go hunting or buy a house. And here comes along this completely unorthodox information exchange, which no one can control, including any government.

What to do with this? How to react? What will happen to all our regulations? Will our existence still be required or are we facing the beginning of our extinction? Those are troubling questions, and every bank and government today has to face them and come up with intelligent answers quickly.

As bitcoin has both gained so much in popularity and has created such a vast amount of wealth, venture capitalists are now pouring billions into all types of blockchain and bitcoin-related companies. This wave of investment into firms which are actively propagating all kinds of versions of disruptive technologies is only adding to the overall effect of societal change, without asking banks or governments for permission. The huge enticing factor is that colossal fortunes have been made because of these concepts, and as more money comes in, in larger and larger amounts, it has now become impossible to stop this movement. We already see today that blockchain technology is already completely forcing all parties to re-evaluate entire industries where intermediaries are involved and were thought to be essential.

Before going further, because blockchain is the framework upon which bitcoin was built, let’s take a moment to explain briefly what bitcoin is, its uses and its properties.

What is Bitcoin?

Bitcoin (which refers to a bit of information) and coin (meaning a coin of value) refers to the value held by information. In simpler terms, Bitcoin is a currency, invented by an unknown inventor, whose source code is visible to everyone. It allows transactions between users, without the need for any intermediaries. It can be exchanged for other currencies or it can be used to purchase goods and services in legal or illegal markets. Two years ago, over 100,000 merchants were accepting bitcoins as payments and this number has grown substantially. No government can stop it, control it, regulate it, and the rate of propagation arguably exponential. This might be the perfect example of a disruptive idea, if well implemented and if the rate of propagation reaches critical values and spreads worldwide.

Conclusion

If people are under the impression that blockchain (the technology which allows bitcoin to exist) has stayed quietly in its corner and is only related to bitcoin, this is no longer the case. Walmart has done extensive studies in order to identify expired food, so it can be removed from shelves, and one shipping company is using it to track cargo as it crosses oceans.

It’s becoming evident that, like other contemporary disruptive forces, bitcoin is here to stay.

 

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