The Blockchain: What It Is and Why It Matters

The Blockchain:
What It Is and Why It Matters

Chances are that you’ve heard of bitcoin, the digital currency

that many predict will revolutionize payments – or prove to be a massive fraud – depending on what you read. Bitcoin is an application that runs on the Blockchain, which is ultimately a more interesting and profound innovation. The Blockchain is a secure transaction ledger database that is shared by all parties participating in an established, distributed network of computers. It records and stores every transaction that occurs in the network, essentially eliminating the need for “trusted” third parties such as payment processors. Blockchain proponents often describe the innovation as a “transfer of trust in a trustless world,” referring to the fact that the entities participating in a transaction are not necessarily known to each other yet they exchange value with surety and no third-party validation. For this reason, the Blockchain is a potential game changer.

In 2008, Satoshi Nakamoto, the pseudonymous person or group of people credited with developing bitcoin, released a whitepaper describing the software protocol. Since then, the network has grown and bitcoin has become a recognized unit of value around the globe. Bitcoin is extremely important because it provides a mechanism for accessing the Blockchain – but it’s not the only application that can leverage the platform. Bitcoin has also been on the receiving end of some bad press, such as around the collapse of the Mt. Gox bitcoin exchange earlier last year. The Mt. Gox story is not necessarily an indictment of bitcoin. For the purposes of this post, simply remember this: bitcoin is just a mechanism for transacting on the Blockchain and the Blockchain is the key innovation.

The Blockchain: Trustworthy Transactions in a Trustless World

The Blockchain enables the anonymous exchange of digital assets, such as bitcoin, but it is not technically dependent on bitcoin. The elegance of the Blockchain is that it obviates the need for a central authority to verify trust and the transfer of value. It transfers power and control from large entities to the many, enabling safe, fast, cheaper transactions despite the fact that we may not know the entities we are dealing with.The mechanics of the Blockchain are novel and highly disruptive. As people transact in a Blockchain ecosystem, a public record of all transactions is automatically created. Computers verify each transaction with sophisticated algorithms to confirm the transfer of value and create a historical ledger of all activity. The computers that form the network that are processing the transactions are located throughout the world and importantly are not owned or controlled by any single entity. The process is real-time, and much more secure than relying on a central authority to verify a transaction.

There are many analogous concepts both ancient and modern. Technology has and will continue to transfer power and control from central authorities and distribute them to the masses. For example, time used to be determined and communicated by large clock towers that were expensive to build and maintain. Engineering innovations ultimately decentralized the quantification of time to the individual. Likewise, WhatsApp, a popular cross platform messaging app, cut the transaction cost of sending messages globally – and cut profits for the carriers. The central authority (phone carriers) lost to the application (WhatsApp) built on a decentralized network (i.e. the Internet).

Similarly, third parties that currently verify transactions (the central authority) stand to lose against the Blockchain (the decentralized network). As such, the Blockchain essentially disintermediates these third-party transaction verifiers: auditors, legal services, payment processors, brokerages and other similar organizations. While you may not be convinced that exchanging bitcoin is an invaluable service, there are many other examples of value transfer that are critical – and currently very slow and expensive. Consider the exchange of property: numerous intermediaries are currently involved in this process, such as a third-party escrow service that works for both parties to ensure a smooth transfer. The escrow service, like other services built solely on trust and verification, collect fees that would be mitigated by performing the transaction on the Blockchain – as would wire transfer fees, third party financial auditing, contract execution, etc.

The use case of the Blockchain enabling a decentralized currency exchange – such as bitcoin – is well defined and will likely be the dominant use case near term, however there are a multitude of innovative and disruptive use cases. Companies are already building their own Blockchains for various applications such as Gridcoin that leverages the Blockchain to crowdsource scientific computing projects. Gridcoin uses its own protocols that require much less computing power and electricity to manage than traditional bitcoin networks.

The Blockchain: and Why it Matters (Let’s Not Mess it Up)

The Blockchain is a foundational technology, like TCP/IP, which enables the Internet. And much like the Internet in the late 1990s, we don’t know exactly how the Blockchain will evolve, but evolve it will. Similar to the Internet, the Blockchain must also be allowed to grow unencumbered. This will require careful handling that recognizes the difference between the platform and the applications that run on it. TCP/IP empowers numerous financial applications that are regulated, but TCP/IP is not regulated as a financial instrument. The Blockchain should receive similar consideration. While the predominant use case for the Blockchain today is bitcoin currency exchange that may require regulation, this will change over time.

Had we over-regulated the Internet early on, we would have missed out on many innovations that we can’t imagine living without today. The same is true for the Blockchain. Disruptive technologies rarely fit neatly into existing regulatory considerations, but rigid regulatory frameworks have repeatedly stifled innovation. It’s likely that innovations in the Blockchain will outpace policy, let’s not slow it down.

Chuck Reynolds

Marketing Dept
Contributor
Please click either Link to Learn more about -Bitcoin.

David https://markethive.com/david-ogden

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It’s practically guaranteed that in the next financial crisis, there’ll be a whole slew of bank failures.

Don’t believe a word of it. The amount of capital that banks hold compared to the money on deposit is frighteningly low. In the US, the five largest banks have a capital ratio as a percentage of assets of only 6% – although that’s double what it was in 2008. In effect, if every depositor in a bank demands their money back simultaneously – the classic “bank run” – the largest US banks could repay only six cents on the dollar before they ran out of money. And since most banks don’t keep a lot of cash on hand, it could even be less.

Indeed, there’s only a single type of bank that would be completely safe: one where 100% of each depositor’s funds are kept in reserve as cash or other highly liquid assets. The bank would offer conventional checking accounts for a monthly fee but hold no assets other than cash, gold, etc., in its vault.

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Happy (Silver) Anniversary to the World Wide Web

What a long strange trip it's been to arrive at the Internet of today! It's hard to imagine it has been 25 years ago, (August 6th 1991), that Tim Berners-Lee, the father of the World Wide Web (WWW), put the first web page online. It was about the World Wide Web project. You can visit the original website, (actually, more of a web page with hyperlinks), at this address.

http://info.cern.ch/hypertext/WWW/TheProject.html

Quite primitive by today's standards, but remarkable in it's day. The interconnected vast Internet had quite humble beginnings. Some would argue that it was actually in 1989 the proposal for html and the first client / server transaction took place. Regardless of the which way you look at it, our world has not been the same since.

It is quite easy for millenials who did not grow up in an analog world to take the Internet for granted. I think about my grandfather who was born in 1888, and grew up with gas lanterns, no electricity and no cars, how it must have been for him to see man on the moon. Similarly, this interconnected smart-phone enabled world we now live in is quite remarkable.

Similarly, this interconnected smart-phone enabled world we now live in is really quite remarkable. Sometimes it all seems a little Dick Tracy-like to me, almost to the level of Star Trek technology.

To all those who grew up in the digital age, I advise you to be grateful for those who pioneered this technological age in which we now live. men such as Samual Morse, Alexander Graham Bell, Thomas Edison, Marconi, Tesla, Tim-Berners Leed, Vint Cerf, and countless others who collectively developed and strove to perfect the technology that it is so easy to take for granted today.

Who knows what the Internet will look like in another 25 years? It stretches the limits of imagination to think of it.

Happy 25th – you old www!

John Lombaerde – VP-NJ Markethive

https://thehackernews.com/2016/08/first-website-ever.html

David https://markethive.com/david-ogden