Essentially, Bitcoin is a form of cyber-currency enabled by blockchain technology.
Everybody has at least heard of Bitcoin and can grasp the idea, but most people still don’t know what blockchain exactly is. Simply put, blockchain is a public distributed ledger (database) of all Bitcoin transactions that have ever been executed. The blocks are added into the blockchain in a chronological order and each node (computer within the network) contains an exact and updated replica of the Bitcoin transaction history.
Bitcoin has yet to become a mainstream currency (if it ever does) and blockchain is still in its inception, but they have a potential to make the biggest revolution in the finance industry of the last hundreds of years. Moreover, blockchain has been successful in other fields as well, such as Internet of Things or banking. Blockchain technology could allow IoT products to become more autonomous and conduct financial transactions on their own, while banks could process large numbers of concurrent transactions almost instantaneously. And the best part is that blockchain is inherently secure: each transaction made through the blockchain is recorded and the records are distributed to each node on the network. It is not possible to modify or tamper with these records, which mitigates the risk of fraud.
“The first generation of the digital revolution brought us the Internet of Information. The second generation — powered by blockchain technology — is bringing us the Internet of Value: a new platform to reshape the world of business and transform the old order of human affairs for the better.”
What do Experts Say?
Analysts are in unison – they suggest that blockchain technology will greatly impact EU payments by year 2025. Nine in ten respondents believe that the blockchain technology will have a significant impact on future payments, since one of the greatest benefits of this technology is eliminating the middleman, thus accelerating the transaction. That way an individual can pay in real time without the need for a proxy.
Big banks are answering the potential that blockchain offers. For quite some time now, the big players had been avoiding Bitcoin like plague, fearing the risk of fraud and/or possible criminal intentions. But now they’re starting to see its huge opportunities and benefits, from speeding up the process to cost savings.
Green Light from Big Players
A big acknowledgment of the blockchain importance came recently, as four big lenders announced the development of a “utility settlement coin”, a new form of digital currency. While UBS, Santander, Deutsche Bank and BNY Mellon emphasize that they are not trying to create a new crypto-currency, the case in point is that the system they are developing uses blockchain technology to create different coins that are each directly convertible into existing currencies deposited at central banks. Essentially, they established a way of putting dollars, euros and yens on the blockchain. Although other digital cash projects are already on the market, like Citigroup’s Citicoin or Goldman Sachs’ SETLcoin, this is the first use of common digital cash.
The beginning of 2017 also brought an agreement between Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit, which signed a Memorandum of Understanding to collaborate on the development of a shared cross-border trade finance platform for small and medium-sized companies using blockchain technology.
Governments are Interested Too
Interestingly, more and more governments are looking into blockchain. Not only first world countries like US or Germany, but African and Asian countries as well, who are highly curious about digital currency. Developing countries see the opportunity to skip one cycle in their underdeveloped physical infrastructure, which can be avoided altogether by using blockchain.
Of course, some obstacles are still in the way. Security is, and will always be, an issue. Interpol has studied ways to interfere with Bitcoin creation using botnets and malware. Even so, Bitcoin and blockchain are clearly the inevitable future for the whole world.
Benefits of Blockchain Technology
- As a public ledger system, blockchain records and validates each and every transaction made, which makes it secure and reliable.
- All the transactions made are authorized by miners, which makes the transactions immutable and prevent them from the threat of hacking.
- Blockchain technology discards the need of any third-party or central authority for peer-to-peer transactions.
- Decentralization of the technology.
Bitcoin and Blockchain Timeline
- October 2008 – Publication of a white paper that introduces the Bitcoin to the world, the first application of blockchain. The white paper was published by Satoshi Nakamoto – a pseudonym for an unknown person or group.
- January 2009 – The Genesis Block (Block 0 – the first collection of transactions) is mined. The first Bitcoin transaction takes place between Satoshi Nakamoto and Hal Finney, a developer and cryptographic activist.
- February 2010 – The Bitcoin Market is established as a Bitcoin currency exchange.
- May 2010 – The first Bitcoin purchase takes place: 10.000 Bitcoins are payed for a pizza.
- January 2011 – 25% of the projected total of almost 21 million Bitcoins generated.
- July 2011 – First NFC Bitcoin transaction carried out.
- June 2012 – Coinbase, a Bitcoin wallet and platform, is founded in San Francisco, California.
- May 2013 – The first Bitcoin ATM in the world is debuted in San Diego, California.
- November 2013 – Space travel becomes possible with Bitcoin as Richard Branson’s Virgin Galactic begins accepting Bitcoin for space travel.
- December 2013 – White paper on what would become the Ethereum Project (a blockchain platform with the ability to build decentralized applications) published.
- January 2014 – Blockchain technology start-ups emerge to introduce blockchain to enterprise companies.
- April 2015 – NASDAQ commits to a blockchain trial. This signals enterprise level validation for the use of blockchains within finance.
- April 2016 – Interest surges in healthcare to connect the industry using blockchain technology.
(Sources: History of Bitcoin, Gem HQ)
- Bitcoin: global cryptocurrency that can be used as a medium of exchange. The bitcoin system works using a blockchain ledger to record transactions.
- Cryptocurrency: a type of digital currency that uses cryptography for security and anti-counterfeiting measures.
- Bitcoin mining: the process by which transactions are verified and added to the blockchain, and also the means through which new bitcoin are released. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the blockchain and claim the rewards. The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.
(Sources: Techopedia, Investopedia)