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The blockchain technology is part of a recent technological revolution, started in 2008 with the alternative currency bitcoin. In the aftermath of the appearance of p2p programs (such as BitTorrent, Napster, KaZaA), an architecture which, speaking non-technically, allowed the quick sharing and spreading of files over the internet, the use of their technology became obvious in a financial context.
Bitcoin was invented by Satoshi Nakamoto, perhaps the most mysterious creator of software currently. Very few details are known about him, apparently he was born in 1975 and lives in Japan. His identity was the object of conspiracies in the internet circles, with many people claiming to be Nakamoto, without producing 100% conclusive proof over the years.
Nakamoto's creation, more specifically the blockchain technology, is nowadays present not just in Bitcoin, but in hundreds of alternatives, where not all of them represent virtual currencies, but technical concepts developed based on a virtual catalog of public data. The coinmarketcap.com website shows a market of 23 billion dollars for Bitcoin, with the approximately 200 alternatives that push the entire market past 40 billion. These amounts also include the market capitalization, on markets that are not always legal and for the most part governed by the national legislation. In Romania, the Bitcoin currency is defined as a fungible asset.
We are talking here not just about virtual currencies, but about solutions for trading information, just like when torrenting movies. The primary difference in the case of blockchain technologies is the fact that the information that travels between users is guaranteed, in terms of its accuracy. This intrinsic data insurance is provided precisely by the functioning of the blockchain.
More than an alternative, decentralized currency, Bitcoin is also a proof the success of a system that is an alternative to banking, without central or centralized authorities. The network transmits payments, similarly to Paypal, for instance, but the way that Bitcoin works is profoundly decentralized, precisely through what the blockchain represents. It also has interesting geostrategic implications.
• The Bitcoin cycle in nature
Just like the circuit of water in nature, in order for the blockchain system to work, three things are necessary. We cannot describe this system without breaking this cycle, starting from somewhere, not forgetting the fact that we will be back where we started. For instance, the amounts used in the examples hereinafter are completely fictitious. The network is made up of a number of severs, computers and terminals, essentially the sum of all users. They all work together, across the internet, through a specialized software. A user sends 1 bitcoin to another, let's say BURSA accepts subscriptions paid through Bitcoin and you want to pay using it. You have access to the software, it is a virtual wallet that gets downloaded from the internet, with an automatically generated address which is absolutely unique.
You make the transaction, basically you send from your virtual wallet to that of BURSA, let's say 1 Bitcoin. We're talking about some data whose value, on the specialized exchanges, represents 1483 USD, at the time of the writing of this article. Once sent into the network, the payment is distributed to all the other computers, every computer in the world gets a copy of that transfer, and at the "molecular", software level, it is verified and encrypted.
BURSA receives the payment, as well as its confirmation, from all the computers in the network in just a few minutes. The transaction cannot be faked nor is there a chance of getting scammed once it entered the network. This is a behavior similar to that of transfers between bank accounts, but without any authority that issues the service or the good, just two computers connected to the internet. If you delete the virtual wallet software, the money also disappears, along with that unique address.
In order for the payment to be registered in the network, however, it needs to be recorded somewhere, to exist in a database, maybe public, in order for BURSA and you to both have access to its proof. That is the blockchain, essentially the sum of all the transactions. In order for some data to enter a blockchain, in the virtual catalogue of transactions, the data is sent to a "miner".
The notion of "mining" is a somewhat inaccurate way to describe the insertion of the information into the catalogue. It is rather about writing, encrypting information, inserting it. In over 50% of cases, the transaction ends up in China, in Bitcoin "mining" farms, most frequently placed near cheap electricity sources (hydroelectric plants, for instance). We are talking about entire buildings with extremely specialized processors that encrypt, based on an algorithm, the information in the virtual catalogue. Several transactions create a so-called "block", and several connected blocks create the blockchain. The moment our transaction reaches one of the processors, it validates it, encrypts it and places it into the catalog.
The Bitcoin cycle "in nature" does not end here, however, because we have not determined how the currencies will be issued. There will be 21 million Bitcoin in circulation, at a uncertain time in the future. Nakamoto chose that number in relation to the quantity of gold expected to ever be mined in the world, hence the term "mining", used earlier. Without a central issuing authority (the state), the "mining" process ensures the veracity of the information received. For a number of mined blocks, the owner of a processing farm receives a reward,. Once every four years, that reward is halved.
Nowadays a miner (or rather the company that controls the hundreds or thousands of mini-processors that encrypt the Bitcoin transactions and checks them) earns 12.5 Bitcoin for each block in the blockchain. Assuming the horizontal growth in of processors and in the number of farms remains the same, once every four years (with 2020 as the following date), the complexity of encryption algorithms doubles and it takes twice as much for the information to be mined. With over 75% of the Bitcoins already in circulation, analysts expect it to take 100 years until all the Bitcoins are distributed.
Essentially, an individual who uses their computer to encrypt some information in a public catalog is the issuer of a virtual currency that they can also use themselves. But in order for that currency to gain value, it has to be used, especially when it comes to a non-statal issuing authority. Every Bitcoin miner is their own Mugur Isărescu, signs the virtual currencies that they receive for the transactions that they themselves make.
• The use of Bitcoin, from pizza to a global sign of confidence
One final aspect of using an alternative currency is its adoption. In the same manner that the American currency is used as a standard of exchange or sign of economic health, Bitcoin has become a rather well-known method of trading assets. Bitcoin can be used anywhere from American giant Amazon to payments through ZebraPay terminals in Romania.
In China, the virtual currency has become a depository of trust in the national economy, with its price being having a direct positive correlation to that of the Yuan. In general, the price of Bitcoin rose as a result of global events which would have caused a drop in confidence in the global economy. Aside from the technical factor, of the doubling in mining difficulty, Bitcoin is relatively immune to inflation, deflation or other financial risks. You can lose your virtual wallet, but other than that, the value of the technology in question has increased, although not constantly, from zero to higher than the price of an ounce of gold.
Another part of the value of Bitcoin also comes mostly from the transactions on the American and Chinese markets. It is a transnational consumerism effort, and the value of the currency is rising as an alternative depository. In 2010, the first pizza was acquired in the US for 10,000 Bitcoin, which at the current unit value, would make that one very expensive pizza after just seven years: 14.7 million dollars.
• From one blockchain to several
Several technical issues pertaining to Bitcoin, as well as the using of the blockchain technology in applications as diverse as possible have led to the creation of alternatives that would transport more than financial transactions across the blockchain. It is a normal line of thinking, as once digitized, any volume of information can be transmitted, as long as it is registered. Bitcoin, through the afferent program, has limitations on the number of transactions per second, between users, on their own blockchain. At peak times, a transaction can take as much as 24 hours. These problems are in the process of being resolved, but not without the drama and complexities that come with finding a solution in a decentralized universe, with millions of users, an American Bitcoin foundation and over half of the mining power as well as the making of the processors used for it in China.
Nevertheless, speaking about blockchain in general, perhaps the most important aspect of this technology is that in a period of globalization and hyperinformation, of post truth or alternatives to it, any information input into the blockchain cannot be removed anymore. It is public, for eternity, to the extent where the internet exists and the computers are connected through the software to the blockchain. This grants the technology a certain attribute of absolute truth, which can be applied both to financial transactions, as well as in the logistic organization, in human resources, in insurance and reinsurance, practically in the aspects of connected and global life; even in organizing pizza deliveries.
All of these changes are happening under our very eyes, with giants such as Microsoft, IBM, British Petroleum and even state players such as Russia involved in the global game. They will be presented comprehensively in a future article which will describe the alternatives to Bitcoin and the main competitors on the crypto-currency market of virtual currencies.
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