We’ve been hearing about bitcoin for a number of years now in the mainstream media and the common understanding is that it is a digital currency. Of course, this currency has not hit the mainstream in use, and so there is still a cloud of mystery around how it works and why it is of great significance.
I’d like to start by clarifying that it is not Bitcoin itself that is so significant, but the potential for mass adoption of a cryptocurrency (also referred to as digital currency), and the underlying blockchain technology that allows for the incredibly safe and trustworthy transfer of the currency, and any other kind of data or information. To best put it into context, blockchain is the new internet, and Bitcoin is the app that leverages the internet technology. Blockchain is completely game changing and the opportunities for application are endless.
To best put it into context, blockchain is the new internet, and Bitcoin is the app that leverages the internet technology. Blockchain is completely game changing and the opportunities for application are endless.
There are many cryptocurrencies available today, Bitcoin is just one among them and likely most well know because of the media attention its supposed creator was given a number of years ago. It was said that the currency was created by a person (or group of people), by the psuedonymous name, Satoshi Nakamoto, but there was no real proof of origin. Just this year, an Australian businessman by the name of Craig Wright came out and declared he is the official creator of Bitcoin. At this point, it seems the internet has agreed to the conclusion that there’s no real way of knowing who coined the currency (I’m punny), and ultimately it is now somewhat besides the point, particularly seeing as we’re talking about a decentralized currency – there is no one person or institution responsible for managing it.
Q: So what exactly is a cryptocurrency?
Cryptocurrency is a currency that is not regulated by a central bank, it operates independently and is not attached to any one nation, as traditional currencies are, which also means there is no one specific failure point as there obviously is with centralized banks. Also, cryptocurrencies are intangible, only available in digital form. More specifically, what makes it technically different is that it is encrypted to control the generation of more currency, or units, and to secure and verify the transfer of funds.
(Q: Okay and what does it mean to be encrypted? Pretty much means converting private information or data into code to keep it safe.)
Q: What is Bitcoin, what is it worth and how do you get it?
Bitcoin is an example of cryptocurrency. It was created in January of 2009, interestingly just after the financial crisis when trust in the traditional financial system was at an all-time low. Bitcoin is purchased from an exchange (here is a list of 40 exchanges from all over the world), or from an individual. While cryptocurrencies themselves are very secure, as is the technology that facilitates them, it is the exchanges that have had trouble with hacking, like Mt. Gox, formerly the world’s largest bitcoin exchange when in 2013 it lost $460 million, apparently stolen by hackers (we say apparently because the CEO and founder were some shady bros).
At the time that I write this, 1 Bitcoin = $808.19 CAD or $613.68 USD.
If you’re interested in acquiring some, purchase Bitcoin from Coinbase, a well backed Silicon Valley platform (so you know it’s legit).
While it is the technology underpinning digital currencies like Bitcoin, blockchain’s valuable framework transfers beyond the financial sector into secure storage of important data, the insurance and music industries and even things like being able to tell you a product’s life before it lands on a store shelf.
Q: So what is blockchain, how does it work?
“Blockchain is [a] revolutionary protocol (an agreed-upon format for transmitting data between two devices), that allows transactions to be simultaneously anonymous and secure by maintaining a tamperproof public ledger of value.” (Blockchain Revolution) While it is the framework underlying digital currencies like Bitcoin, blockchain’s value transfers beyond the financial sector into things like secure storage of important data, the insurance and music industries and even consumer products so that you could tell a product’s journey to the shelf before you purchased it, particularly valuable today with our food coming from all over the globe.
This is because the very essence of blockchain is a story of information, or rather a chain of information. Each block in the blockchain records recent transactions, or recent information, and once completed goes into the blockchain as [part of the] permanent database.
This is also a great recent article, from The Guardian, if you want more about this.
Q: Why is blockchain said to be safe?
Each block of data is linked in chronological order to form the ultimate blockchain creating an unalterable story. This is why blockchain is considered to be so secure, because it is virtually impossible to hack a system like this where you would have to rewrite blocks and blocks, and blocks, of data (or code), and do it faster than the collective system is adding new blocks to the chain.
The technology has the power to revolutionize the financial services industry, aka banking, but I believe it will be some time before we see this kind of mainstream adoption that actually changes the archaic way of performing business that is the financial services industry.
Q: What does this mean for traditional institutions like banks?
The technology has the power to revolutionize the financial services industry, aka banking, but I believe it will be some time before we see this kind of mainstream adoption that actually changes the archaic way of performing business that is the financial services industry. However, I think we will sooner see offshoot adoption where banks and financial institutions launch smaller scale blockchain business applications. The Nasdaq has very recently done this with it’s new Nasdaq Financial Framework, “designed to provide end-to-end solutions to Nasdaq’s financial infrastructure clients around the world including traditional exchanges.”
Want a little more? Deloitte explains blockchain:
At its core, blockchain is a distributed system recording and storing transaction records. More specifically, blockchain is a shared, immutable record of peer-to-peer transactions built from linked transaction blocks and stored in a digital ledger. Blockchain relies on established cryptographic techniques to allow each participant in a network to interact (e.g. store, exchange, and view information), without preexisting trust between the parties. In a blockchain system, there is no central authority; instead, transaction records are stored and distributed across all network participants. Interactions with the blockchain become known to all participants and require verification by the network before information is added, enabling trustless collaboration between network participants while recording an immutable audit trail of all interactions.
