Since its emergence back in the late 2000s, Bitcoin has become a legitimate hype among investors. Over the years, the coin has experienced several episodes of alternating spikes in value. While the typical volatility associated with digital assets has been enough to convince many investors that BTC is not worth it, others are more comfortable with the risk. And so, many traders have added cyber coins or tokens to their portfolios in a bid to diversify their holdings and be safe in the event of a market crash. Others are also convinced of the abilities of cryptocurrencies to bring value when invested over a long time.
This has led to many investors looking up how to buy Bitcoin and adding it to their asset list. Unfortunately, there’s no shortage of those that have discovered that the system is a little more complicated than they initially thought. That’s because, unlike traditional assets, cryptocurrencies aren’t concerned only with the financial aspect of trading. There’s also a significant technological aspect that’s part of the deal. In the case of Bitcoin, this refers to the blockchain system, a decentralized ledger that allows for the existence of the digital coins you buy, sell or trade.
What is the blockchain?
Blockchain technology is nothing new. The idea of the blockchain was initially proposed in 1982 by David Chaum, a cryptographer, scientist and inventor, who wrote of a similar protocol in his 1982 dissertation paper. Later, in the early 1990s, computer scientists continued researching a system containing several chains of blocks that would be cryptographically secured. The first actual blockchain, however, was conceptualized with the creation of Bitcoin. The foundation was laid in 2008, and a year later, BTC appeared.
Little did anyone know that this innovation would later change the world.
The Bitcoin blockchain works by storing data into blocks of information linked together by a virtual chain, hence the name. A block contains the collection of transactions from a specific period that is all stockpiled together. Each new block relies on the existence and completion of the previous ones. One of the most exciting aspects of the blockchain is that once a task has been completed, there’s no going back and modifying it. The only way to change a previous action is to start a new one that undoes it.
After a task is recorded and stored in an information block, it is secured and time-stamped, and it becomes available for everyone using the same system. For many, this is a significant advantage of the blockchain, and researchers have estimated that platforms based on the blockchain model might soon be incorporated into several businesses and industries.
Their resistance to fraud and promotion of transparency makes them particularly valuable in business.
How does it work?
Since the Bitcoin blockchain works as a decentralized ledger, there’s no need for a formal overseer. However, that also doesn’t imply that the system works virtually on its own with no support from others. The main aim of the coin was to create a form of digital money that could be used for everyday tasks.
The second was the creation of a decentralized financial service. Typically, traditional services work by having a third-party individual or organization keep a record of a company’s or person’s data. While this method has its advantages, there are also some drawbacks. Many are concerned about how trustworthy these services truly are. Indeed, data breach events resulting from human error are not uncommon, while in other cases, some employees can share personal information willingly, with malicious intent.
In the case of Bitcoin, this is entirely different, as the aspects that create digital currencies are mining and hash power. The second refers to the action performed by specialized hardware used to solve complicated algorithms. These complex math problems produce new coins and allow them to be traded with one another, a process known in the field of crypto as mining.
In this sense, while BTC is traded through an exchange platform like any other asset, its nature is that of a piece of software, resulting from a series of complex processes unfolding in a predetermined pattern and resulting from the completion of several tasks. Bitcoin is, in a sense, the result of mathematics.
While the potential of the blockchain is undeniable, it’s likely there’ll still be a while until the system is implemented on a broader scale. Analysts are confident that decentralization could be the future of most industries. It could mean a potential breaking down of the barriers surrounding the worlds of business and finance.
The blockchain has the potential to link people from different parts of the world and make processes within large companies and enterprises much more efficient. Companies are likely to work better if everyone has access to the same platform despite geographical considerations. The risk that data will be lost along the way is also significantly reduced.
And while there’s no lack of incentives and programmers would surely be glad to give it a try, for blockchain to work this way, there needs to be a pre-established set of self-governance rules. And establishing these regulations is more complicated than it seems.
While there are currently several emerging communities appearing in the crypto landscape, it can be challenging to decide on a set of rules that everyone can agree on.
Moreover, many investors are likely to take these changes as an attempt at censorship. Since its beginnings, Bitcoin and the blockchain have existed as decentralized entities.
Any attempt at creating additional rules, except for the ones related to mining, can be taken as an attempt to centralize the ledger, which for many, is a defeatist action and a rejection of the foundational principles of the blockchain.
While the technology shows a lot of promise, and there’s certainly no shortage of businesses that would like to experiment with the blockchain, there’ll still be a while until the system can be implemented at such a huge scale. Until then, decentralized ledger technology can be improved, particularly in regard to security measures, so that when it is ready to enter the world of mainstream business, it can do so more smoothly.