Article written by Paula Newton and Maria Fonseca
Bitcoin is one of the biggest changes to the financial sector that has happened for decades. A great many businesses already accept Bitcoin for transactions. Some of the most well known of these include Expedia, PayPal and Microsoft. Yet what many don’t now is what Bitcoin brought to the world which is revolutionary: the Blockchain technology. Blockchain is so promising that very recently, the Giant Swiss bank UBS announced that it is going to investigate blockchain technology in a new innovation lab based in London. Recently at FutureFest 2015, an event organized by Nesta, the UK Agency for Innovation, Blockchain was as well considered one of the most promising areas that will shape our future.
What is the Blockchain technology?
According to Investopedia, a blockchain is a public ledger of all Bitcoin transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.”
The promising outcome of the blockchain technology is that the creates a currency network which is decentralised, public and impossible to corrupt. The following video illustrates what the blockchain technology is:
Writing for Wired magazine in 2015 Kariappa Bheemaiah of the Grenoble School of Management tries to explain the Blockchain Protocol and the systems that are growing up around it that are revolutionising money. When transactions occur between the various members of the network these transactions must be verified and validated to make sure that all transactions occur between two accounts and that double spending does not occur. The verification process is performed by people within the network that are known as miners. These miners purchase equipment that allows the processing power that their computers have to verify the transactions. This process requires considerable power to be accomplished. It costs money in terms of electricity to carry out the process, and this means that the Bitcoin miners need to be paid for what they do.
The Blockchain is a part of this process. With a frequency of every few minutes, a block of transactions that are occurring on the Bitcoin network is put together by a miner. What this means is that the miner created a verified transaction file which includes a record of all of the verified transactions that took place over the preceding 10 minutes. To compensate the Bitcoin miners for their efforts Bitcoin itself is used for payment. Transactions are made at a set point of time and each block is linked to the previous block. This creates a chain of blocks that are created by a protocol. Blockchain is argued to be a value exchange protocol. The Blockchain protocol has not changed despite the fact that there are now several different cryptocurrencies on the market.
For micropayments it is explained that ChangeCoin makes use of the Block Chain protocol. The micropayment system that ChangeCoin has created allows people to make very small payments online. An example provided is when you are reading an article but in order to see more of it and continue reading you have to pay a small fee to the company that produced the content. Micropayments allow the reader to be able to do this, rather than setting up a subscription. Other potential applications of this technology are provided and these include a customer just paying for the data that they use at a Wi-Fi hotspot.
Blockchain APIs have also been created. Companies such as CHAIN allow developers the chance to create APIs based on the Blockchain protocol. These include micropayment APIs that provide greater opportunities for the shared economy and APIs on which to allocate digital resources like bandwidth, computation and storage.
Smart contracts and programmable money are other concepts that have arisen on the basis of the Blockchain protocol. Smart contracts can be defined as programmes that create encoding for different conditions and outcomes. This means that when two people have a transaction, verification can be made by the programme to ensure that the product or service has been delivered. The way that it works is that smart programmes effectively provide an escrow service for buyers and sellers.
There are many other developments upcoming in 2015 that people should look out for. Ethereum is one such concept. This is creating a browser that provides non-technical users to utilise the web in ways that they have not until the current time. Parallel Blockchains and side chains are also being developed, providing much better scalability and independent Blockchains. It is anticipated that this will provide the opportunity for greater innovation. Interestingly, the Philippines is planning to put its currency on the Blockchain. All of this shows that the Blockchain has a great deal to offer to the world and we are only really just starting to scratch the surface of the possibilities that it could bring. Watch the Blockchain space to make sure that you don’t miss out!
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.