I’ve been the CEO of global tech company (B2BGateway.net) for the past 18 years, so people often ask me about new technologies. Most recently, people have been asking if they should invest in BitCoin. My response is, “No, but BitCoin and the underlying technology, BlockChain, is amazing!”
Throughout the world, data is commonly held by a single owner, which can be a person or an organization. For example, your bank has a database which holds information on your accounts. The bank naturally has copies, but they are the “keeper” or "owner" of that data set.
BlockChain is decentralized, it stores information in thousands of databases located in different places on the internet... with no central ownership.
So, what is amazing about these BlockChain distributed databases? Well, not only is the data stored in many locations, but the data is stored in a way that it cannot be changed. Every single bit of data has to go through a series of computations (or HASHING) before it can be stored.
For example, if Ed Jones had $100 dollars stored in a bank account, the bank would have 100 next to Ed’s name in their computerized ledger. With BlockChain, Ed Jones still has 100 recorded next to his name but there is a bit more to it. Here is a simplified version of BlockChain storage:
1. Ed Jones and 100 would be entered to many computerized ledgers all over the internet.
2. In each of these distributed ledgers, the name Ed Jones would be broken down into separate letters with each letter assigned a value from 1 to 26. (A=1, B=2, etc.)
3. The values associated with each letter in Ed Jones name would be added together, (Ed Jones =72), and that number is added to the deposit amount. (72 + 100 = 172).
4. This computed number is called a HASH.
5. Now, along with Ed Jones and the 100, the 172 HASH would be entered into all the computerized ledgers.
Here is where it gets messy:
6. Now take the HASH from EVERY OTHER entry in the database and add them to Ed's 172
7. 172 + XXX + XXX + XXX … this creates a very large number from all the other entries.
8. This new value is now entered into the ledger as a final HASH.
9. Nothing (absolutely nothing), previously entered in this highly distributed database can be changed without affecting the final hash.
10. This process is repeated thousands of times around the internet on every single distributed database.
The final hash, since it is built from all the values in the ledger, is like a lock on the database. Sure, someone could hack into the database, but to change a value, you would have to redo the entire database to make all the numbers match. Then, you would have to repeat the process thousands of times all over the internet. For all practical purposes, a BlockChain database is 100% secure.
You may be thinking, "Het this is amazing, why aren't we doing it"?
But, we are...
The biggest user of BlockChain today is BitCoin. BitCoin is a digital currency invented by Satoshi Nakamoto, in 2003. To create BitCoin, Satoshi developed BlockChain as the underlying technology.
Why isn't everyone using Bitcoin? Well there are some problems.
• Satoshi Nakamoto has never been seen and in fact may not be a real person. Satoshi Nakamoto could be a pseudonym or even a group of people.
• There is concern about the credibility of the whole concept. Since there is no central regulating body, acceptance is slow and credibility is lacking.
• With all that hashing stuff, the processing of one BitCoin/BlockChain transaction, takes a huge amount of time to happen.
• Since the digital ledgers are scattered about the internet, each computer storing the data needs to do its own processing/hashing.
• The hashing process is so time consuming, a simple purchase at a retail store using BitCoin, would take about an hour.
• All of the processing on those thousands of computers for a single transaction, takes a lot of electricity.
• Processing a single transaction takes about the same amount of electricity as 1.5 American homes use in one day(1).
Even worse, although BlockChain is 100% secure, a BitCoin wallet is required to hold your currency. BitCoin transactions are sent directly from someone to someone else, since there is no central governing body. This means that the digital currency is sent from your computer wallet to another computer wallet. Remember, you can’t hack BlockChain, but your computer can still be hacked. If you are hacked, you lose your money. Also, if your computer crashes and it is not backed up, you will lose your data… and your money.
BitCoin/BlockChain has the potential to change the world, but it is not a disruptive change, it is a foundational change. If the problems are worked out and it does come into play, the very core of centralization could be removed from our society. No longer would we need a centralized bank, a centralized government or a centralized society... that is a big change.
If a reputable digital currency is built on top of BlockChain, it will greatly benefit people living in the third world. It will help to reduce corruption and theft that is inherent in a cash society. It could also be used to monetize assets that are traded in barter society. Essentially, a third world goat herder could monetize (assign a value to) a goat. Once the goat is monetized and converted to a digital currency, the goat herder he could use portions of it to purchase groceries.
So, BlockChain is amazing and BitCoin is incredible. However, they will not be adopted until the processing issues and energy requirements can be overcome. While those issues are being worked on, we can continue to refine the process of monetizing goats.
1. https://motherboard.vice.com/en_us/article/ae3p7e/bitcoin-is-unsustainable
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