TL;DR – The video is probably longer…
Understanding Bitcoin and Blockchain
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Everyone seems to be talking about it, but who really understands it and is investing in it? The rise and growth of cryptocurrency, specifically Bitcoin has everyone questioning “what is Bitcoin, and why is it so important?” The value of Bitcoin has been ripping recently and hitting fresh new highs. As of writing this post on May 23, 2017, the price of Bitcoin has surged past $2300. That valuation puts the total market cap of Bitcoin at $38.86 billion.
Bitcoin is a fairly new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. You have probably heard of Silk Road, where users of this black market would use Bitcoin to buy everything from drugs to organs. As Bitcoin is gaining more traction, more and more legitimate merchants are adopting this new currency.
I first learned about Bitcoin in May 2013. I was walking past my co worker’s desk, where he was doing some research on Bitcoin. Being fairly intrigued, I asked him to explain what Bitcoin was and how one would go about buying coins. We debated the sustainability and scalability of this new currency. I honestly thought this was going to crash and burn since it did not have real value and was not backed by gold or any specific currency. He even informed me of groups that would host various meet-ups in the area to discuss how this new currency was going to change the world. Thinking that this was too good to be true, and that there was no way the value could sustain and grow, I brushed it off and forgot about it (insert face-palm emoji here).
Since my initial introduction to Bitcoin in 2013, Bitcoin has gained enormous popularity and has even surpassed the valuation of gold. This is due to the increased world-wide demand for digital currency. Bitcoin is now so mainstream, that investors see it as a new asset class and creating large funds to acquire it. Even the Winklevoss twins, notorious for their roles in The Social Network, are attempting to create an ETF for Bitcoin.
Investors see digital currencies as an asset like gold, which can hold its value amid times of government and political instability. Investors flock to gold and other commodities during times of uncertainty. As one’s country’s currency is being debased, one will find an alternative or stand to lose everything. Recent political upheaval such as in Brazil and in Venezuela, has lead to increase buying as the inflation rate has skyrocketed. Since Bitcoin is decentralized and not governed by any one country, it’s not susceptible to major changes in valuation should a country do something that could make their money less valuable. Many people are using the cryptocurrency to keep their money safe from devaluation, or even to use it as they would paper money.
So Bitcoin is becoming a valuable investment, and everyone is buying it…but how are these transactions recorded and stored for reference? I believe true technology and innovation lies in where all these transactions are documented. The Blockchain is the world’s leading platform for digital assets. It is a distributed database that maintains a continuous growing list of records called blocks, secured from tampering and revisions.
The Blockchain is a set of technologies that enable secure transactions between users in a distributed peer-to-peer network. In addition to Bitcoin, there are numerous applications the Blockchain can be used for. The abstracted idea behind it is called smart contracts. That is, the details of a contract between two (or more) parties are written into code which is verified by the network and executed automatically. Said contract is not limited to financial transactions. There are many experiments ranging from digital identity to ride-hailing and even energy management.
What’s common among all of all the use cases is that the Blockchain eliminates the need for trusted third parties. Regular currency is issued by central banks, important contracts are authenticated by notaries. On the Blockchain, however, that task is delegated to the network. The legitimacy of any transaction is ensured by the network and its fulfillment enforced by the code. The largest banks in the world have invested millions into optimizing the Blockchain.
Bitcoin and more importantly the blockchain technology hold great promise for our future. They have the potential to fundamentally change the very fabric of our global society. Giving billions of people access to a global financial system can do that, let alone the non-financial use cases that are just seeing the light of day. They can bring about greater transparency to industries that today operate without accountability.