My original interest in blockchain was based on greed, I watched the price of bitcoin rise from $175 when I first started watching it to it’s present level of just under $1200. Not only does it seem like a good investment but like gold and silver, it is a separate asset class, one that is non-correlated to the stock market, which all the finance wizards tell us is set to topple any day now.
We will start with the basics. If you are one of the smart guy’s that already knows stuff, please check back in a few weeks and see where it’s going. In the meantime please help by providing any information or suggestions.
Here we go, blog style so please comment. I’m seeing a lot of crazy terms and will attempt to add definitions as I run into them. I will also point out any information on possible investment opportunities, although I am not recommending that you put any cash, real or crypto into any of them.
Paraphrasing Greg Maxwell, CTO of Blockstream, blockchain is transformative for society. But you have to sort through the hype. Blockchain and bitcoin mean different things to different people;
- it’s a form of money
- it’s a chance to operate under a different regulatory regime
- an opportunity to refresh technology
- a way to improve security
- can fix some of the systemic risk in the internet by decentralizing and minimizing trust.
It’s a revolutionary idea and is still experimental. It may be gone in the future although it has been around for 8 years. It is a fiat money whose value comes from network effects. In other words, like the $50 bill in your pocket, it has no intrinsic value, it’s value comes from the fact that people are willing to accept it.
How does Bitcoin use Blockchain
Zoko Wilcox of ZCash explains it very simply. Think of bitcoin’s blockchain as a replicated spreadsheet with a column for sender, receiver, and amount sent. Whenever a transfer occurs a new row is added to the spreadsheet. All the computers in the network inspect whether the sender’s address had enough bitcoin to cover the transfer and that the bitcoin had not been committed to someone else. In order to do this each computer had to be able to see the whole history of that bitcoin. You can’t lie or change your story. There is also no privacy in these transactions. ZCash is currently working to add encryption to the fields, but we’re getting ahead of ourselves.
I’m starting to get the picture. Today’s transaction networks are all centralized, a central authority like PayPal, Visa, or your bank needs to be in the middle to certify ownership and clear transactions. Bitcoin’s blockchain uses a distributed ledger which requires no 3rd party. Distributed ledgers can be open, verifying anonymous actors in the network, or they can be closed and require actors in the network to be already identified. Bitcoin is the best known existing use for the distributed ledger. There will be plenty of others.