Bitcoins and blockchains

Before we really get started, I want to point out that there is a common misunderstanding that bitcoins and blockchains are terms for the same things – they are not. More of that to come.

Blockchain has some rather superfluous statements surrounding it; such as ‘The Great economic leveler’, or Silicon Valley investor Marc Andreessen refers to blockchain as “one of the most fundamental inventions in the history of computer science”, while the World Economic Forum’s Klaus Schwab describes it as “being at the heart of the fourth industrial revolution.” Last year, almost half a billion dollars was invested in VC-backed blockchain companies. But, I’m getting ahead of myself…

Let’s start at the beginning
A ledger is THE system of record for all businesses. Typically a business will have multiple ledgers based on the different networks within which they participate. In a global (or even regional) marketplace, there will be a whole network of transactions between organisations. This is very similar to the IT problem of point-to-point networks creating a huge amount of both over complexity, inefficiency, and of course increase in vulnerabilities. The response to this problem is blockchain; removing point to point transactions and replacing with a shared, replicated and permissioned network. Blockchain is the shared ledger technology, allowing any participant in the business network to see the ledger.

Well that sounds relatively easy…

dilbert-on-blockchain

Image source: Vox.com

 

A more technical summary

“The Blockchain combines cryptography & distributed computing to deliver secure, direct, peer to peer transactions without the need for a central party. At its heart is the Distributed Ledger. This is a tamper proof, public [or private], network-hosted, record of all consensus verified transactions. Initially realised via Bitcoin and similar ‘cryptocurrencies’, focus & investment is now shifting to the potential of Blockchain technology to revolutionise the infrastructure and processes of established Financial Institutions & other enterprises.” — First Partner

Blockchain has a number of core dimensions – all of which are fundamental to its success:

  • the transaction: for example an asset transfer
  • the contract: the conditions for the transaction (contractual terms can of course range from simple payment through to very complex conditions)
  • privacy – ensuring appropriate visibility, security, authentication, and verifiable
  • consensus – all parties agreeing to the verified transaction

Not surprisingly, the thinking and solutions around blockchain are maturing:
1.0 – digital currency including cryptocurrencies
2.0 – digital contracts using P2P business logic
3.0 – digital applications

So, what are bitcoins?

The negative connotation to them is that they are unregulated, censorship-resistant, shadow currency. This was the first blockchain application.  Many people buy bitcoins for speculation, betting on the price going up. There is also an interesting phenomena in bitcoins: currently, 25 bitcoins are created every ten minutes. In July, this number could drop to 12.5. Then, four years after that, it will half again. Why is this happening? There are roughly 15.5 million bitcoins in existence and the halving process means that the total can never exceed 21 million, expected to occur roughly a century from now. That’s all locked down in the code. The ownership (the holding) of a bitcoin is stored on the blockchain public ledger. The reason it’s called a block chain is that the transaction is recorded each time in a new data layer known as a block. Bitcoins don’t have serial numbers, they have provenance. The blockchain has more than 5000 identical copies – truly open source.

There are about 200k transactions a day using bitcoin- very small compared with Visa/Mastercard but nonetheless it’s gaining popularity.

Current price (Nov 2016) of a bitcoin is $732 making the network total value $15 billion.

Buying a bitcoin

It may seem a little antiquated, but I actually like the idea of going to an an ATM to purchase a bitcoin. (I’ve not plucked up the courage yet…)

To learn more

From the technology standpoint, check out the Hyper ledger Project – on Dockerhub. Not surprisingly, all public cloud providers (AWS, Azure, IBM) all have block chain service.

One of our Distinguished Engineers, Faisal Siddiqi, has also been blogging about blockchain lately, see Decentralization – The Napster-Metallica connection and Blockchains and birthdays.

 This post first appeared in Neil’s blog.

Neil Fagan  Distinguished Architect

Neil Fagan is CTO of the UK Government Security and Intelligence Account in Global Infrastructure Services. He is an enterprise architecture expert, leading teams of architects who work on solutions from initial concept through delivery and support.

See Neil’s full bio.

Comments

  1. Agree. Indeed useful stuff. I also recommend reading http://www.sofocle.com

    Like

Trackbacks

  1. […] One common train of thought that can occur when talking about Blockchains is to also think about Bitcoins. Often associated due to Bitcoins using Blockchains for their transactions, there are other uses for Blockchains.  A colleague Neil Fagan covers this point in his blog on Bitcoins and Blockchains […]

    Like

  2. […] One common train of thought that can occur when talking about Blockchains is to also to think about Bitcoins. Often associated due to Bitcoins using Blockchains for their transactions, there are other uses for Blockchains.  A colleague of mine, Neil Fagan covers this point in his blog on Bitcoins and Blockchains. […]

    Like

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