Blockchain 101| A brief EasyCrypto overview of the Blockchain

What is Blockchain?

A blockchain, in simple terms, is a protocol for a list of growing records that are linked together using cryptography. These records are bound together to form 'blocks', which link up into a string of encrypted data. The guts of these blockchains can be millions of blocks long are scattered between every computer on these networks in a decentralized fashion. This results in an ultra-safe grid of information, providing the user with a level of trust and permanence that has never been seen before. The blockchain is a foundational technology that promises to bring significant efficiencies to global supply chains, financial transactions, asset ledgers, decentralized social networking and much more. But how is this different from what we already have?

 

The first blockchain created was for the digital currency bitcoin, and from this digital currency, we effectively solved the double spending problem without the need for a trusted authority or central server. These transactions are not authenticated by a bank or government, but by mass collaboration powered by collective self-interests. Essentially, blockchain is an open, decentralized ledger that records its transactions in a permanent way without needing third-party authentication. This process removes the need for intermediaries such as banks or central servers, placing an unprecedented amount of efficiency in the hands of the user. For this reason, the blockchain can dramatically reduce the cost of peer-to-peer transactions, as well as massively speed them up. But apart from payments, how else will the blockchain change the way we do money?

 

How will the blockchain impact the worlds financial theater?

The way we send money has not changed in decades, and these outdated methods are starting to bite us hard in the butt. When you send your money, it is likely it will go through about five different intermediaries to process and authenticate your transaction. This turtle race can take between four days to two weeks if you're trying to transfer money across international borders. With blockchain technology now in our hands, we can send large payments within seconds, anywhere in the world, with extremely low fees and zero intermediaries putting their hands in our pockets. Blockchain has the utility to completely reform the infrastructure for cross-border payments, but this revolution is still in its infancy.

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Our current most popular payment system when it comes to volume is the SWIFT system, a Belgium based organization who processes around 5 trillion dollars per day, or over 1.25 quadrillion dollars per year. These are mighty numbers in comparison to bitcoin, who has only moved 3.5 billion dollars in metric volume within the last 24hrs on the day this article was written. To add to this, central governments can print and destroy money as they like, but in turn, most 'true coins' have a pre-set supply, such as bitcoins 21 million. Some people like to pass this technology off as a fad, or a scheme of getting rich quick, but the reality of it is that these coins are the closest thing we have to a universal currency, and they are not going away any time soon.

 

Currently, in the world, there are a whopping 1.7 billion adults who still don't have access to a bank account. This means they are either already dealing in total mobile payments, or they only have government-issued fiat cash to store their hard worked value in. This strikes up multiple issues such as security, convenience, government-induced volatility and control over who owns your money. Now with the number of cellphones accessible to the masses shooting through the roof, electricity accessibility and costs better then it ever has been, and internet access expanding every day, providing accounts and control of finance to this gigantic invisible population is actually on the cards. Think of the benefits to these people and the world economy!

In India, the number of people without access to banking stands at 191 million while in Pakistan, it's 99 million. By comparison, the total number of people with no account in the U.S. stands at a still pretty sizeable 18 million.

Cryptocurrency like bitcoin has also done something that we have never been able to do before; add real, intrinsic value to the bits and bytes in a computer. Before bitcoin, 'digital' was not synonymous with scarcity. Anything digital could be copied with the click of a button. A quick look at the music industry and album sales tells this story convincingly. Now that we can genuinely distribute information between computers, we have created a whole new genre of assets; digital assets, who is nowhere at all paramount in metric value to any of the other major asset classes, yet. Clearly, from the infographics from the last hyperlink, you can see that the blockchains metric value has plenty of space to grow. Good thing there is only a finite supply of cryptos! ;)

Another under-rated application of the blockchain to the worlds financial theatre is how accurate the records of transactions can be, and what this can do for book-keeping and accounting.  Because the blockchain is a fully contained record keeping system in itself, the ability to automate this data is expected to make a profound impact on the quality and ease of the modern accounting system. This is just the tip of the iceberg for blockchains application, but what else can we do with the blockchain?

What can we do better with the 'blockchain'?

Over 100 years ago, supply chains were relatively simple. This is because commerce was local, but jumping to 2018, supply chains have grown to be incredibly complex. Supply chains can have over hundreds of stages, multiple hundred geographical locations, and a multitude of payment systems and several entities and individuals involved. This has made it incredibly difficult for customers or buyers to truly know the value of products due to a significant lack of transparency. It is also extremely difficult to investigate these complex systems for suspicion of illegal or unethical practices, but this will not be the same for long. Blockchain infrastructure has the ability to bring all transactions and operations into one transparent system, where products like bacon can be tracked from the shelf at your supermarket all the way back to the location that the pig was born. This technology is expected to make a significant impact on all logistics systems all over the world to improve efficiency, speed, transparency, and control.

 

Digital identity is a critical component of service delivery, but relying on physical identity in this digital age has become not only inefficient but more importantly unsafe. Physical identity has become a breeding ground for identity theft, fraud, and hacking, and the blockchain can provide a better way to let a system know that you are really you. You probably have about a billion different usernames and passwords for about a billion different accounts on websites or services, and this can be extremely inefficient, unsafe and downright annoying. You also don't own your identity on these services, and revoking permission to hold your information from these organizations can be a massive pain. Blockchain backed digital identity can not only provide you with full control over who has your information, but also manage ownership rights to various forms of assets that are currently scattered around various organizations in your name.

Digital Identity is like a digital watermark that can solve this data ownership problem, but identity ownership is just the beginning. As we progress further into the digital ID realm, we will have the ability to link up ownership of other assets to our digital identity, such as the ownership of our cars and the rights to our houses. Consequently, this will also mean we can track the history of the vehicles or real estate down the day they were built, the year they were serviced and the inherent value of these assets. Blockchain backed digital ID can also be linked to other forms ownership such as intellectual property, debt, equity, voting, communications, and of course, money.

If you are looking to get involved and invest in this revolutionary technology, head straight to our Bitcoin page!

 


What's so special about Bitcoin?

There are a lot of ways in which Bitcoin is different from any traditional currency, and which make the Bitcoin technology so interesting.

  • Fully digital – Bitcoin has no physical appearance, it’s recorded electronically but doesn’t exist in any tangible form.
  • Decentralised - Bitcoin is not owned by a bank or government, or by anyone! While individual people can buy and hold Bitcoins (or parts of a Bitcoin), the network that runs the currency is controlled by the community that use it, and not by any individual or organisation.
  • Private – instead of using a bank account of credit card that has your name on it, if you want to buy something with bitcoin you don’t need to disclose any personal details. It’s not completely anonymous though, as all transactions are recorded and can be traced. However, you don’t have to link your name to your transaction.
  • Global – it’s as easy to send Bitcoin to your neighbour as it is to send it across the world. And there’s no extra cost for going across borders.
  • Trustworthy – you cannot make a fake bitcoin, put through a false transaction, or steal a bitcoin that is stored securely. The Bitcoin network has built in checks that make it impossible to cheat. Of course, there are always vulnerabilities through things like social engineering (e.g. if someone persuades you to tell them your private key) or if an exchange gets hacked, but the Bitcoin system itself is faultless.

As well as these great features, Bitcoin also has its downsides, which other currencies seek to address.

Stay tuned for our series explaining Ripple, IOTA, Ethereum and more!

To start buying bitcoin and other crypto, head here.


What are the downsides of Bitcoin?

While Bitcoin has some amazing features, it also has its limitations. Some of the key drawbacks of bitcoin are:

  • No helpdesk - while being decentralised (i.e. not controlled by any bank or organisation) is a great strength of Bitcoin, it can also have its downsides. If you forget your password there’s no call centre to help you reset it, and if someone steals your wallet, you can’t just ask the bank to put a hold on your account.
  • Slow – the Bitcoin network can only process around 4 transactions a second, compared to Visa which can theoretically process more than 50,000 transactions per second!
  • Energy intensive – the power used by the Bitcoin network is estimated to be equivalent to 70% of the total power consumption of New Zealand, and this is growing. If Bitcoin were a country, it would be the 58th biggest energy consumer in the world.
  • Expensive to transact with – because Bitcoin uses so much energy, it is expensive to send transactions on the network. At the moment, a transaction costs around NZD$40 – which is pretty pricey!
  • Volatile – the price of Bitcoin can fluctuate massively, which makes it difficult to use for buying goods and services. If you bought a $4 coffee a year ago with Bitcoin, that payment would now be worth $100! And of course, the price can go down as well as up, making Bitcoin a risky investment option.

Not all cryptocurrencies have these same limitations though. While Bitcoin was truly ground-breaking as the first ever cryptocurrency, newer coins have since come along that seek to address some or all of these limitations.

Stay tuned for our upcoming series on other cryptocurrencies and what they offer.


What is Bitcoin?

Bitcoin is a digital currency. In many ways, it operates just like any other currency. You can use it to buy goods and services, and you can use it to store value, just like you would money in your bank account.

But Bitcoin doesn’t have any real value, right?

That’s right - the only value Bitcoin has is what people are willing to pay for it. If this sounds a bit crazy, think about the money in your pocket. A $20 note itself is worth nothing (it's not even backed by gold). That note only has value because shops, banks, and other people all agree that that note can be exchanged for $20 of goods and services.

It’s exactly the same with Bitcoin. Bitcoin has no value in itself, but it is valuable because a community of people agree that it holds worth, just like with that $20 note. And for many people, Bitcoin is a better and more useful currency than the New Zealand dollar.

If it’s all digital, can’t you just create more Bitcoin?

The Bitcoin network sets a limit on how many Bitcoins can ever be created. That limit is 21 million, and currently around 80% of those have been created.

How are Bitcoins created?

The process to create Bitcoin is called “mining”. Miners process transactions on the Bitcoin network, otherwise known as the "blockchain". If I want to pay you 1 Bitcoin, I ask a miner to record that transaction on the blockchain. As a reward for processing my transaction the miner also receives some brand new Bitcoin, which is how Bitcoins are created.

Can I just buy part of a Bitcoin?

Absolutely. The smallest unit of a bitcoin is 0.00000001 and is called a “Satoshi" after the creator of Bitcoin. Currently 5000 Satoshis are equal to 1 New Zealand dollar.

You can purchase Bitcoin in any amount that you want. However, when you purchase Bitcoin you also need to pay a fee for your transaction to be recorded in the blockchain. At the moment, the fee is around NZD$40, so a transaction of lower value than that wouldn’t be able to be processed. This is one of the downsides to Bitcoin as a currency.

How do I buy Bitcoin?

To buy Bitcoin you need to find someone who wants to sell their Bitcoin, and you need to provide an address where they can send that Bitcoin to. An address is like a bank account number, where funds can be sent to and from. You can create your own address at bitaddress.org , or you can purchase through Easy Crypto where we manage the whole process for you. Easy!

Want to know more?

Read more about what makes bitcoin unique, or read about alt-coins like Dash, Stellar and IOTA.