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The digital technology incubator 1871 and the Chicago Reader recently hosted a presentation and interactive panel, called The Basics of Blockchain and Bitcoin. This event gave beginners to the topic a chance to hear from experts about the workings and implications of cryptocurrency and the system upon which it’s built.
Here are some takeaways from the event:
The history of Blockchain and Bitcoin
According to Investopedia, blockchain is a digitized, decentralized, public record of all cryptocurrency transactions. When someone pays someone in bitcoin, that transaction is timestamped and recorded on this public ledger that every user of bitcoin – all over the world – can see.
This technology burst onto the scene in 2008 with the release of a white paper called, “Bitcoin: A Peer-to-Peer Electronic Cash System.” In this paper, the pseudonymous creator of Bitcoin, Satoshi Nakamoto, breaks down this revolutionary system of paying someone online without the aid of third party verification system like a financial institution.
In traditional online payments, these third party systems are checking for double spending and other malicious actions. Double spending is a kind of digital counterfeiting in which the payer clones his or her payment data, sending the fake information to the payee and keeping the original information for himself or herself. For example, if you were to give a barista a $5 bill for a coffee, it is next to impossible to spend a duplicate of that $5 bill elsewhere because of the defenses put in place by our financial institutions and government. The same cannot be said for digital payments since users can theoretically copy the data on his or her computer and continue to “spend” over and over again.
The need for a “decentralized” system
Several of the speakers at this event reiterated that, up to this point, the traditional form of third-party verification has worked just fine for most people – and then the Recession hit. Some people no longer feel that they can trust the institutions verifying their transactions, as these institutions can represent a single point of failure: if that institution becomes compromised, then the entire system can fail.
Blockchain is said to be “decentralized,” because it does not utilize a central authority or third-party verification system to guard against malicious actors. On a blockchain, everyone can see what everyone else is doing or has done. If you try to duplicate a bitcoin, every user on that system will see and essentially “exile” you from the platform by refusing to give or take any payment from you.
What are the implications?
One of the speakers at the event, co-founder and CEO of Bit Capital Group, Jimmy Odom, said it best when he explained that never before in the history of humans trading with each other have we been incentivized to act “right” until now. Because blockchain allows others to see what you’re doing, the thought is that it will hold people accountable for their actions and encourage them to play by the rules.
This nascent technology is revolutionizing everything from online payments to international supply chains to the Internet of Things because people from other industries are now realizing that blockchain’s visibility and accountability can be applied to other systems as well. Despite this, there are still so many undiscovered business applications for it. If you would like to learn more how your company can position itself as an expert on this topic in the media, check out Walker Sands’ other blog posts that break it down even further for you!