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The Ins and Outs of Blockchain Technology: From Bitcoin to Beyond/
Bitcoin blockchain is the backbone of the network and provides a tamper-proof data structure, providing a shared public ledger open to all. This article provides insight into blockchain technology, its current status, and its potential.
Microsoft recently became the latest big name to officially associate with Bitcoin, the decentralized virtual currency. However, the Redmond company did not go all out, and will only support Bitcoin payments on certain content platforms, making up a tiny fraction of its business.
What’s the Big Deal With Bitcoin?
Like most good stories, the Bitcoin saga begins with a creation myth. The open-source cryptocurrency protocol was published in 2009 by Satoshi Nakamoto, an anonymous developer (or group of Bitcoin developers) hiding behind this alias. The true identity of Satoshi Nakamoto has not been revealed yet, although the concept traces its roots back to the cypher-punk movement; and there’s no shortage of speculative theories across the web regarding Satoshi’s identity.
Bitcoin spent the next few years languishing, viewed as nothing more than another internet curiosity reserved for geeks and crypto-enthusiasts. Bitcoin eventually gained traction with several crowds. The different groups had little to nothing in common – ranging from the gathering fans to black hat hackers, anarchists, libertarians, and darknet drug dealers; and eventually became accepted by legitimate entrepreneurs and major brands like Dell, Microsoft, and Newegg.
While it is usually described as a “cryptocurrency,” “digital currency,” or “virtual currency” with no intrinsic value, Bitcoin is a little more than that. This is why we won’t waste much time on the basics – the Bitcoin protocol, proof-of-work, the economics of Bitcoin “mining,” or the way the Bitcoin network functions. Plenty of resources are available online, and implementing support for Bitcoin payments is easily within the realm of the smallest app developer, let alone heavyweights like Microsoft.
Blockchain technology is the technology backbone of the network and provides a tamper-proof data structure, providing a shared public ledger open to all. The mathematics involved are impressive, and the use of specialized hardware to construct this vast chain of cryptographic data renders it practically impossible to replicate.
All confirmed transactions are embedded in the Bitcoin blockchain. The use of SHA-256 cryptography ensures the integrity of the blockchain applications – all transactions must be signed using a private key or seed, which prevents third parties from tampering with it. Transactions are confirmed by the network within 10 minutes or so and this process is handled by Bitcoin miners. Mining is used to confirm transactions through a shared consensus system and usually requires several independent confirmations for the transaction to go through. This process guarantees random distribution and makes tampering very difficult.
The Potential of Blockchain Technology
While it is theoretically possible to compromise or hijack the network through a so-called 51% attack the sheer size of the network and resources needed to pull off such an attack make it practically infeasible. Unlike many Bitcoin-based businesses, the blockchain network has proven very resilient. This is the result of a number of factors, mainly including a large investment in the Bitcoin mining industry.
Blockchain technology works, plainly and simply, even in its Bitcoin incarnation. A cryptographic blockchain could be used to digitally sign sensitive information, and decentralize trust; along with being used to develop smart contracts and escrow services, tokenization, authentication, and much more. Blockchain technology has countless potential applications, but that’s the problem – the potential has yet to be realized. Accepting Bitcoin payments for Xbox in-game content or a notebook battery doesn’t even come close.
The Wild, Wild West Boomtown
The promise of blockchain technology has not gone unnoticed by venture capitalists and investors. According to a report by KPMG, blockchain technology investments hit an all-time high in 2018, with over $5 billion invested in blockchain-based startups. The report also highlights that the interest in blockchain technology is not limited to the financial sector; it has found applications in industries such as healthcare, supply chain management, and voting systems.
However, the unregulated nature of the blockchain industry has also led to a proliferation of scams and fraudulent schemes. Many startups have raised funds through initial coin offerings (ICOs), which are similar to initial public offerings (IPOs) in the traditional stock market. However, unlike IPOs, ICOs are largely unregulated, and many investors have fallen victim to fraudulent schemes.
The Future of Blockchain Technology
Despite the challenges, the potential applications of blockchain technology are vast and exciting. The ability to create decentralized, tamper-proof systems has the potential to transform many industries and disrupt traditional business models. In the financial sector, blockchain technology can be used to create a more efficient and transparent payment system, while reducing the risks associated with fraud and money laundering.
In the supply chain industry, blockchain technology can be used to create a more transparent and efficient system, reducing the risk of counterfeit goods and ensuring the ethical sourcing of products. The healthcare industry can also benefit from blockchain technology, with the potential to create a more secure and efficient system for managing patient data and ensuring privacy.
In conclusion, blockchain technology is still in its infancy, but its potential is undeniable. As more companies invest in blockchain-based solutions, we are likely to see a wave of new applications and innovations. However, it is important to approach blockchain technology with caution, understanding its limitations and potential risks. As with any new technology, the industry is likely to face challenges and setbacks, but those who persevere are likely to reap the rewards of a truly revolutionary technology.