Cryptocurrency, Blockchain, Bitcoins have managed to catch the fancy of investors, financiers, technocrats, and even the general public. The interest is so intense that Bitcoins have become a coveted gift option and companies have started incentivizing investors through ICOs. While almost everybody is keen to jump onto the blockchain bandwagon, few are actually aware of how this transformational technology works. Is Bitcoin just a bubble and blockchain a mirage? Or, do they really have some hidden potential that can overturn fortunes? This blog is a jargon-free account of the concepts underlying blockchain technology so that you can judge for yourself its merits and drawbacks and make a well-informed decision about its prospects.
Blockchain Bitcoin – A Block of Gold or a Chain of Blockheads?
The concept of blockchain technology is nothing new. It’s the application and orchestration of the concept that has the world awestruck.
From a bird’s eye view, a blockchain looks like the internet or world wide web- a chain of nodes attached and sharing information. But on a closer look, one notices the finer differences. While information in the web is stored on a centralized server and, nodes can access, modify, or delete information if they have sufficient access, blockchain has a public, decentralized “append-only” network system. There is no central authority that permits or forbids people (nodes) from accessing data in the chain. Data can only be added and, once added, data cannot be modified or discarded without the entire network shouting hue and cry. This is because a mirror copy of the entire blockchain is available to each node at all times.
A Public Distributed Ledger
Authentication of new transactions is done by solving complex mathematical puzzles that generate cryptic hash codes that are appended to the data; time stamped, digitally signed, and bundled into a block. This block inserts itself in the chain in a chronological fashion and the genius who solves the cryptic puzzle is awarded with some Satoshis. Each transaction can be traced back to its point of origin and discrepancies can be spotted along the way.
A Chain of Blocks
Now arises a legit question- why would people bother to solve these seemingly unsolvable puzzles? Because they are motivated by self-interest. When Satoshi Nakamoto concocted blockchain technology, he put a clever spin to it. The longer a blockchain, the more will be the nodes in it. All will compete to verify a new transaction because the first one to do so will bag a fraction of the transaction amount! So, greed motivates miners to keep a blockchain secure and verified.
With cryptocurrency blockchains, the aim is to prevent double-spending of the same coin. Motivated by lust for coins, miners dedicate computational powers and time to verify transactions and ensure that all initiated transactions are genuine and error-free. Environmentalists complain that mining is consuming precious energy reserves. At time of writing, Bitcoin mining is guzzling more power than all-electric cars in the world. In 2018, power demand for Bitcoin mining will be equal to that consumed by Argentina in a year! Surely, this is too large a price to pay for a few Satoshis!
Another catch: there is a limit to the number of Bitcoins in circulation at a given time. Out of the 21 million Bitcoins permissible at a time, 11 million are already generated. So, with each successive day, the mathematical puzzles for miners will become harder. And it certainly doesn’t help that each day thousands of new miners join the blockchain system. The financial model is made so unviable to keep the Bitcoin bubble in control.
Digital Trust- A Myth?
A trust mechanism between miners is established if they are able to satisfy the cryptic protocol on which a particular blockchain is based. The good news is that protocols can be tailored to suit unique needs. Here enters the concept of public and private blockchains. Private blockchains are not entirely public though they are distributed. Entry into these does require validation from a central authority. These are used primarily by banks and large firms to regulate and control accessibility to sensitive official data.
Trust boils down to two factors- identification and authorization. Authorization is by proving your mathematical solution to the chain. Identification of a miner is by his cryptic public and private keys.
Each miner has an encrypted public and private key
A combination of the two keys provides a miner with a completely unique digital signature. It also guarantees ownership of his/her digital assets. Since blockchains are pseudonymous, digital signatures serve to validate a miner’s identity and remuneration.
Digital signatures are unique to each miner and asset unit
So what’s the Verdict?
Hacks are not uncommon with the Interpol calling blockchains “vulnerable” and susceptible to intentional malware that can disrupt its working. But, by far, blockchain technology has shown great promise and tremendous scope. Still in nascent stages, enthusiasts vouch that blockchains will replace notaries and banks sooner rather than later. In fact, any system that hinges on verification and data security can leverage blockchain technology. Presently, 700+ use cases and applications have been discovered. Owing to blockchain’s robust architecture and infallible mathematical logic, it is being viewed as the next big thing in domains such as tokenization, liasioning, and financing.
Blockchain’s peer-to-peer (P2P) network can be used to eliminate expensive intermediaries that were used traditionally to verify monetary transactions. Plus, the verification process is quick and efficient. Moreover, unlike digital wallets like PayTM that rely on bank validations, blockchains are self-reliant and independent. Bitcoin blockchains can store value, keep accurate records and, validate transactions- all in one go- with little expense or time spent. No wonder, it has intrigued even the harshest skeptics.
You’ll find undiluted blockchain and Bitcoin news, insights, facts, and figures here. So, keep tuned…..
Sahil Gupta
With roll up the sleeves, dive in and get the job done approach, it was year in the year 2010 when Sahil started Parangat Technologies. Emphasizing on a healthy work culture and technology driven company, he has successfully created a workplace where people love to work and live. He is a software engineer and a passionate blockchain enthusiast.