Bitcoin &Blockchain(Part: 01)
Introduction:
The economic, political, humanitarian, and legal system benefits of Bitcoin and
blockchain technology start to make it clear that this is potentially an extremely
disruptive technology that could have the capacity for reconfiguring all aspects
of society and its operations. For organization and convenience, the different
kinds of existing and potential activities in the blockchain revolution are broken
down into three categories: Blockchain 1.0, 2.0, and 3.0. Blockchain 1.0 is
currency, the deployment of cryptocurrencies in applications related to cash,
such as currency transfer, remittance, and digital payment systems. Blockchain
2.0 is contracts, the entire slate of economic, market, and financial applications
using the blockchain that are more extensive than simple cash transactions:
stocks, bonds, futures, loans, mortgages, titles, smart property, and smart
contracts. Blockchain 3.0 is blockchain applications beyond currency, finance,
and markets particularly in the areas of government, health, science, literacy,
culture, and art.
What is Bitcoin?
Bitcoin is digital cash. It is a digital currency and online payment system in
which encryption techniques are used to regulate the generation of units of
currency and verify the transfer of funds, operating independently of a central
bank. The terminology can be confusing because the words Bitcoin and
blockchain may be used to refer to any three parts of the concept: the underlying
blockchain technology, the pro and client through which transactions
effected, and the actual cryptocurrency (money); or also more broadly to refer to
the whole concept of cryptocurrencies. It is as if PayPal had called the Internet
“ PayPal," upon which the PayPal protocol was run, to transfer the PayPal
currency. The blockchain industry is using these terms interchangeably
sometimes because it is still in the process of shaping itself into what could
likely become established layers in a technology stack.
Bitcoin was created in 2009 (released on January 9, 2009) by an unknown
person or entity using the name Satoshi Nakamoto. The concept and operational
details are described in a concise and readable white paper, “ Bitcoin: A Peer-to
Peer Electronic Cash System.”? Payments using the decentralized virtual
currency are recorded in a public ledger that is stored on many-potentially all
-Bitcoin users ' computers, and continuously viewable on the Internet. Bitcoin
is the first and largest decentralized cryptocurrency. There are hundreds of other
" altcoin " (alternative coin) cryptocurrencies, like Litecoin and Dogecoin, but
Bitcoin comprises 90 percent of the market capitalization of all cryptocurrencies
and is the de facto standard. Bitcoin is pseudonymous (not anonymous) in the
sense that public key addresses (27–32 alphanumeric character strings; similar in
function to an email address) are used to send and receive Bitcoins and record
transactions, as opposed to personally identifying information.
Bitcoins are created as a reward for computational processing work, known as
mining, in which users offer their computing power to verify and record
payments into the public ledger. Individuals or companies engage in mining in
exchange for transaction fees and newly created Bitcoins. Besides mining,
Bitcoins can, like any currency, be obtained in exchange for fiat money,
sometimes because it is still in the process of shaping itself into what could
likely become established layers in a technology stack.
Bitcoin was created in 2009 (released on January 9, 2009) by an unknown
person or entity using the name Satoshi Nakamoto. The concept and operational
details are described in a concise and readable white paper, “ Bitcoin: A Peer-to
Peer Electronic Cash System.”? Payments using the decentralized virtual
currency are recorded in a public ledger that is stored on many — potentially all
Bitcoin users ' computers, and continuously viewable on the Internet. Bitcoin
is the first and largest decentralized cryptocurrency. There are hundreds of other
" altcoin ” (alternative coin) cryptocurrencies, like Litecoin and Dogecoin, but
Bitcoin comprises 90 percent of the market capitalization of all cryptocurrencies
and is the de facto standard. Bitcoin is pseudonymous (not anonymous) in the
sense that public key addresses (27–32 alphanumeric character strings; similar in
function to an email address) are used to send and receive Bitcoins and record
transactions, as opposed to personally identifying information.
Bitcoins are created as a reward for computational processing work, known as
mining, in which users offer their computing power to verify and record
payments into the public ledger. Individuals or companies engage in mining in
exchange for transaction fees and newly created Bitcoins. Besides mining,
Bitcoins can, like any currency, be obtained in exchange for fiat money,
products, and services. Users can send and receive Bitcoins electronically for an
optional transaction fee using wallet software on a personal computer, mobile
device, or web application.
What is Blockchain?
The blockchain is the public ledger of all Bitcoin transactions that have ever
been executed. It is constantly growing as miners add new blocks to it (every 10
minutes) to record the most recent transactions. The blocks are added to the
blockchain in a linear, chronological order. Each full node (i.e., every computer
connected to the Bitcoin network using a client that performs the task of
validating and relaying transactions) has a copy of the blockchain, which is
downloaded automatically when the miner joins the Bitcoin network. The
blockchain has complete information about addresses and balances from the
genesis block (the very first transactions ever executed) to the most recently
completed block. The blockchain as a public ledger means that it is easy to query
any block explorer (such as https://blockchain.info/) for transactions associated
with a particular Bitcoin address — for example, you can look up your own wallet
address to see the transaction in which you received your first Bitcoin.
The blockchain is seen as the main technological innovation of Bitcoin because
it stands as a“ trustless " proof mechanism of all the transactions on the network.
Users can trust the system of the public ledger stored worldwide on many
different decentralized nodes maintained by" miner-accountants, " as opposed to
having to establish and maintain trust with the transaction counterparty (another
person) or a third-party intermediary (like a bank). The blockchain as the
architecture for a new system of decentralized trustless transactions is the key
innovation. The blockchain allows the disintermediation and decentralization of
all transactions of any type between all parties on a global basis.
innovation. The blockchain allows the disintermediation and decentralization of
all transactions of any type between all parties on a global basis.
The blockchain is like another application layer to run on the existing stack of
Internet protocols, adding an entire new tier to the Internet to enable economic
transactions, both immediate digital currency payments in a universally usable
cryptocurrency) and longer-term, more complicated financial contracts. Any
currency, financial contract, or hard or soft asset may be transacted with a
system like a blockchain. Further, the blockchain may be used not just for
transactions, but also as a registry and inventory system for the recording,
tracking, monitoring, and transacting of all assets. A blockchain is quite literally
like a giant spreadsheet for registering all assets, and an accounting system for
transacting them on a global scale that can include all forms of assets held by all
parties worldwide. Thus, the blockchain can be used for any form of asset
registry, inventory, and exchange, including every area of finance, economics,
and money; hard assets (physical property); and intangible assets (votes, ideas,
reputation, intention, health data, etc.).
The Connected World and Blockchain: The Fifth Disruptive
Computing Paradigm
One model of understanding the modern world is through computing paradigms,
with a new paradigm arising on the order of one per decade (Figure P-1). First,
there were the mainframe and PC (personal computer) paradigms, and then the
Internet revolutionized everything. Mobile and social networking was the most
recent paradigm. The current emerging paradigm for this decade could be the
connected world of computing relying on blockchain cryptography. The
connected world could usefully include blockchain technology as the economic
overlay to what is increasingly becoming a seamlessly connected world of
multidevice computing that includes wearable computing, Internet-of-Things
(IoT) sensors, smartphones, tablets, laptops, quantified self-tracking devices
(i.e., Fitbit), smart home, smart car, and smart city. The economy that the
blockchain enables is not merely the movement of money, however; it is the
transfer of information and the effective allocation of resources that money has
enabled in the human-and corporate-scale economy.
With revolutionary potential equal to that of the Internet, blockchain technology
could be deployed and adopted much more quickly than the Internet was, given
the network effects of current widespread global Internet and cellular
connectivity
Just as the social-mobile functionality of Paradigm 4 has become an expected
feature of technology properties, with mobile apps for everything and sociality
as a website property (liking, commenting, friending, forum participation), so
too could the blockchain of Paradigm 5 bring the pervasive expectation of value
exchange functionality. Paradigm 5 functionality could be the experience of a
continuously connected, seamless, physical-world, multidevice computing layer,
with a blockchain technology overlay for payments — not just basic payments,
but micropayments, decentralized exchange, token earning and spending, digital
asset invocation and transfer, and smart contract issuance and execution — as the
economic layer the Web never had. The world is already being prepared for
more pervasive Internet-based money: Apple Pay (Apple's token-based ewallet
mobile app) and its competitors could be a critical intermediary step in moving
to a full-fledged cryptocurrency world in which the blockchain becomes the
seamless economic layer of the Web.
K Q V:
1970s 1980s 1990s 2000 $ 2010s
17
Figure P-1. Disruptive computing paradigms: Mainframe, PC, Internet, Social-Mobile, Blockchain
M2M/ OT Bitcoin Payment Network to Enable the Machine Economy
Blockchain is a revolutionary paradigm for the human world, the “ Internet of
Individuals," and it could also be the enabling currency of the machine economy.
Gartner estimates the Internet of Things will comprise 26 billion devices and a
$ 1.9 trillion economy by 2020.º A corresponding “ Internet of Money"
cryptocurrency is needed to manage the transactions between these devices, 10
and micropayments between connected devices could develop into a new layer
of the economy. 11 Cisco estimates that M2M (machine-to-machine) connections
are growing faster than any other category (84 percent), and that not only is
global IP traffic forecast to grow threefold from 2012 to 2018, but the
composition is shifting in favor of mobile, WiFi, and M2M traffic. 12 Just as a
money economy allows for better, faster, and more efficient allocation of
resources on a human scale, a machine economy can provide a robust and
decentralized system of handling these same issues on a machine scale.
Some examples of interdevice micropayments could be connected automobiles
automatically negotiating higher-speed highway passage if they are in a hurry,
microcompensating road peers on a more relaxed schedule. Coordinating
personal air delivery drones is another potential use case for device-to-device
micropayment networks where individual priorities can be balanced.
Agricultural sensors are an example of another type of system that can use
economic principles to filter out routine irrelevant data but escalate priority data
when environmental threshold conditions (e.g., for humidity) have been met by a
large enough group of sensors in a deployed swarm.
Blockchain technology's decentralized model of trustless peer-to-peer
transactions means, at its most basic level, intermediary-free transactions.
However, the potential shift to decentralized trustless transactions on a large
scale global basis for every sort of interaction and transaction (human-to-human,
human-to-machine, machine-to-machine) could imply a dramatically different
structure and operation of society in ways that cannot yet be foreseen but where
current established power relationships.