Bitcoins and Ether are forms of alternative digital currency that are decentralized; meaning the source of value does not come from one central source or authority. In fact, the functionality of its operation may be distributed among the collective creating a more communal type of currency. If you haven’t heard of cryptocurrencies such as Bitcoin and Ether, chances are you haven’t heard of the blockchain. A blockchain is a structure that makes concepts such as cryptocurrencies possible and is one of the most innovative applications of the 21st century.
Image Source: Bitcoin Space
A blockchain is a data structure that produces a digital ledger of transactions and can be publicly viewed among a dispersed network of computers. The structure uses cryptography enabling those in the network to make transactions thereby adjusting the ledger without centralized supervision. The concept of a blockchain was introduced by Satoshi Nakamoto (his actual identity is still in question) when he invented Bitcoin in 2008. Bitcoin transactions are payments between key pairs that are broadcast[ed] on a peer-to-peer network.” In easier terms, it is a chain of transactions and the participants of that particular network contribute by adding blocks of value to the ledger hence the title: blockchain.
Image Source: Blockchain.com
How to Contribute to Blockchain:
When a party wants to contribute to the existing blockchain, users are able to run evaluations to determine whether a proposed transaction can be approved. If the majority of people conclude that the contribution can be done, than the new transaction will be carried out manifesting an additional block to the chain. Because the blockchain is a public ledger that cannot be manipulated, abused or altered, users are able to easily assess whether or not proposed transactions are valid. Once a block of data has been recorded, it’s nearly impossible to alter or eliminate. According to Francisco Corella, CTO of Pomcor, there are potential loopholes to this theory. He has observed that, “the network by itself cannot guarantee that all transactions are seen by all nodes as occurring in the same order. So a cheater could pay for a good or service with the amount of bitcoin available to a key pair that he/she owns, receive the good or service, then make a second payment for the same amount to another key pair owned by him/herself, and pretend that the payment to him/herself happened earlier, thus invalidating the payment for the good or service.” He goes on to say that the, “blockchain prevents such cheating by recording all transactions in a particular order in a chain of transaction blocks, which are “minted” at the rate of about one in 10 minutes. Minting a block requires solving a computationally expensive puzzle.”
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For instance, let’s say an organization has 5 transactions every second. Each of these transactions contain an exclusive digital signature. Utilizing a chain framework, these signatures are then blended together and receive an individual online fingerprint i.e. a unique symbol representing that particular transaction. This procedure will occur for every entity that made a transaction in that specific time frame as well. Once approved, the fingerprint is stored and made public in the blockchain so users and miners can confirm a transaction’s validity. This enables ultimate transparency and security for all parties involved.
The Significance of Blockchain:
A blockchain is a substantial step away from conventional financial and authoritative systems because it does not rely on a central monitoring party or source. Because the blockchain requires collaboration, it encourages a communal atmosphere where people are able to transfer value independently and places power back into the masses. Rather than having a central entity dictate the activity of consumers, people are able to monitor, enhance and manipulate transactions thereby disabling any chance of foul play or fraud. Francisco concurred with these implications saying, “the blockchain was significant because it made it possible to achieve consensus (on the order of transactions) without relying on a central authority.”
Image Source: Coin Telegraph
The Future of Blockchain Technology:
The possibilities are endless with the blockchain and to an extent, the future of its uses are already here. For instance, Ethereum allows users to integrate business applications into the blockchain. This means that unlike Bitcoin, Ethereum’s platform will increase in value because business applications will continue to be added. Moreover, the idea of a trustworthy and honest financial system is appealing to virtually everybody. Although its unregulated, the transparency factor has the ability to weed out risks before they become too big to manage. The blockchain can quite possibly stop any chance of future financial disasters. This is why banking institutions are betting on the future of blockchains while some have already adopted its practice. Even some online casinos are accepting BitCoin. Francisco expressed his excitement over Ethereum’s use of the blockchain saying, “The scripting language in bitcoin is simple, but blockchains invented after bitcoin, such as Ethereum, feature scripting languages that are Turing-complete, i.e. as powerful as any general-purpose programming language. Such blockchains have the potential to disrupt the financial industry because they make it possible to write smart contracts that are executed automatically and do not require trusted arbitrators.”
By Rich Foreman, CEO / Apptology and Director of Startup Grind Sacramento. Rich co-authored the book Tap into the Mobile Economy and his blog has been listed in the Top 20 Mobile Marketing Blogs of 2014. Follow Rich on Twitter at@ApptologyCEO or attend a Startup Grind Sacramento Event.