The modern entrepreneur has, in many ways, a tougher time than ever before. Of course, digital tools assist us, and the internet has given rise to a world of advice and knowledge sharing. However, it’s also birthed innovation at a scale scarcely seen before.
New ideas, new ways of thinking and entirely new business paradigms emerge on a seemingly weekly basis – many of which go on to alter the ways we work profoundly. One such idea is the blockchain and its associated digital currencies. However, what do you need to know about Bitcoin and the blockchain? Join us as we take a look.
What is Bitcoin?
The hype surrounding Bitcoin has been considerable. However, what is it? Put simply; Bitcoin is an exclusively digital currency created by the mysterious, anonymous person(s) known as Satoshi Nakamoto. It was originally proposed in 2008 as an e-payments system, one which would be based on mathematical proof.
The big idea was to produce a means of exchange that would be entirely independent of a central authority like a bank, which could be transferred electronically securely and verifiably.
Ten years on, that’s exactly what we have. Although Bitcoin isn’t tied to any real-world assets (like gold), it is limited, unlike fiat currencies (dollars, yen, sterling, et cetera). Supply of Bitcoin is strictly limited, with a limited number of Bitcoins introduced hourly to be ‘mined’ (an excellent breakdown of that here), until the maximum of 21 million Bitcoins is reached.
Once at that point, no more Bitcoins will be made, and the market will have to trade amongst itself to determine the value of the currency. So, effectively, Bitcoin is a secure digital currency whose value is driven exclusively by the market, rather than by any centralised banking institution. The real magic, however, isn’t Bitcoin itself. Bitcoin is just one of many cryptocurrencies available built on similar principles. The real magic is in the blockchain.
What is the Blockchain?
The blockchain is perhaps best described as a single, permanent digital ledger that’s shared and confirmed across millions of separate devices.
With the blockchain, many people can write entries into the record, which is then verified and transmitted by everyone else on the network, effectively ensuring that everyone has a true record of the entry. This ledger is permanent and tamper-proof, containing every single transaction and all associated information, for total accountability.
Each of these transactions takes up only a tiny amount of memory. However, due to the sheer number of transactions on the network, the blockchain is a considerable size, weighing in at over 20gb. It’s a fact which ensures that synchronising the whole database with your Bitcoin wallets can be a struggle.
Nevertheless, those distributed ledgers are vital because information on the blockchain is shared and continuously checked and reconciled by millions of computers, smartphones and tablets every second. It offers remarkable permanence and security.
In the case that one block goes down or a transaction is disputed, the resolution is ultra-simple because everyone else on the network has a copy of the ledger.
Although everyone in the network can see the transaction has taken place, only the involved parties have access to the details, which ensures that you’re in control of all your information.
The Blockchain in action
All that theory is well and good but how does a transaction on the blockchain function? Let’s take a look at a basic example, the sort of which is completed thousands of times every single day. Let’s take a look at a Bitcoin transaction.
Let’s say you’ve got a Bitcoin, and you’d like to send it to another person. The first thing that happens is your transaction is added to the blockchain, which verifies that you have the Bitcoin to send (by referencing itself) and the person or organisation that you’re sending it to exists. Once verified, it broadcasts the transaction to the network, updating the global blockchain and locking in a permanent notice of the transaction.
Through this method, the blockchain is capable of verifying your ownership of the Bitcoin, completing the transfer and authorising it across a network of millions – all without a centralised authority.
That might sound initially unimpressive, but it’s anything but. Because the ownership of your item, be it a cryptocurrency, land, property or object is established on the blockchain, it’s impossible to dispute, destroy or alter the information. It’s a universal, secure and decentralised way to confirm and transfer ownership.
For businesses, the blockchain represents a huge opportunity, one which could theoretically save billions of dollars in transaction verification costs for banks, help establish ownership in companies or even establish more accurate voting practices, with everyone voting on the blockchain for results which are instantly tabulatable and verifiable.
Although Bitcoin receives the lions share of coverage thanks to its volatile recent history, it’s the underlying technology – the blockchain – which promises to be the truly revolutionary technology. For the modern entrepreneur, the blockchain might be the most transformative business technology of a generation. The sooner you get to grips with it, the sooner you can start leveraging it’s potential.