As the new era of the digital economy continues, it’s important to understand how bitcoin technology functions. While Satoshi Nakamoto, the man behind the origin of bitcoin, never explicitly wrote down the guiding principles behind blockchain technology, there are numerous principles that can be derived from it. These principles are key for shaping the future of the digital economy and those venturing into the digital currency sphere need to understand the basics of blockchain technology.
One problem that exists in the digital marketplace is the double-spend problem. When you send money to someone, the money must leave your account and go into that person’s account. The same money cannot exist in both places and the money sent may not spend multiple times. That is where the principle of network integrity comes into play. Blockchain technology provides an innovative solution to the double-spend problem by timestamping the initial transaction making any future spending of the same money impossible. In a digital economy, trust is essential, which is why network integrity is coded into every blockchain process. With network integrity, instead of putting trust in those you are transacting with or in a centralized third party, you can put your trust in and solely rely on the decentralized network.
Another issue that blockchain technology sought to eliminate is the lack of distributed power. In large institutions with considerable user bases, decisions are often made without the user’s consent. Blockchain actually distributes power through a peer to peer network, so there is no central authority that can shut down the system or alter the rules governing the network without the approval of the network itself.
Value as Incentive
Prior to blockchain, one problem with the internet was that large corporations held the concentration of power and exacted disproportionate value from those with less power. In order to combat this, Satoshi programmed source code so that even if people acted in their own self-interest, it would still benefit the system as a whole. The resource requirements and bitcoin reward, are a principle that incentivizes participants to work in the best interest of the system. With value as an incentive, blockchain rewards the people who work on the system so they will take care of it.
With identity theft, hacking, cyberbullying, spam and fraud threatening individual security, a system that protects user’s privacy is essential. That is why security is one of the main principles of blockchain. Instead of relying on weak passwords, blockchain requires users to utilize public key infrastructure (PKI) to create a secure platform. Technological security in the virtual currency world is enhanced with safety measures embedded directly into the network. With no single point of failure and the prerequisite of cryptography, transactions of varying value can take place on the network privately and securely.
Even though privacy is a basic human right, the internet is a source of confidential information leaks on a regular basis. Data mining, identity theft, and fraud are common, but blockchain technology combats this by requiring no identity verification. Users don’t need to provide their names, e-mail address, contact information or personal data to download and use the software. Because blockchain has no identity requirements and doesn’t need to know who users are, users can operate privately. By removing the need to know identities, users can use bitcoin without knowing private information of those they are interacting with.
Prior to the existence of blockchain technology, individuals needed to rely on centralized third parties (such as financial institutions, governmental services, etc.) on a daily basis for verifying and confirming transactions and ownership of things. These centralized intermediaries can be compromised (e.g. the ever-growing threat of hacking is a big concern for financial institutions) or corrupted (e.g. when the interests of an individual are opposite to the interests of a central authority). The decentralized nature of blockchain technology ensures the rights of its individual users by verifying and confirming transactions and ownership in a tamper-proof decentralized way. Indeed, compromising a powerful decentralized network, such as the Bitcoin network, is virtually impossible. This would require one or more bad actor(s) to acquire more than 50% of the network’s total computing power (an impossible feat given that the Bitcoin network is vastly more powerful than all of the worlds’ the super computers combined).
There are an estimate of two billion people in the world that do not have access to the banking system. Bitcoin and blockchain technology has the power to bank today’s unbanked. Anyone with access to the internet can participate in and contribute to the blockchain network (either through their smartphone, tablet or pc). You don’t need permission to use the Bitcoin blockchain. You do not need a bank account, nor do you need to provide certain personal information and/or documents, which greatly increases the number of people who are able to interact on the bitcoin network. By lowering the barriers to entry, blockchain technology creates a global free to use distributed platform for anyone to transact on.
If you are interested in finding out more about Bitcoin and blockchain technology, there are a number of excellent books on these topics. They will provide you with a valuable insight into the world of Bitcoin and its potential to disrupt the traditional financial markets.
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