The cryptocurrency bitcoin has grasped the media’s attention for many months. As the most well-known example of blockchain technology, interest is at its peak and prices skyrocketed – even hitting $17,000 in December. But what actually is bitcoin, and how is it associated with blockchain technology?
Simply put, bitcoin is a decentralised, public ledger. This peer-to-peer digital transaction system allows for the movement of online payment without the need for a more traditional financial institution – think, commercial and central banks or financial regulators. These transactions can happen at scale without fear of fraudulent activity. Miners verify the legitimacy of each transaction, ultimately safeguarding its integrity. In return, they are rewarded with bitcoins and the ledger resets every ten minutes.
Essentially, each bitcoin is an encrypted digital key. Each ‘key’ evidences how much bitcoin you own. When you spend your bitcoin, this ‘key’ tells the entire bitcoin network that the ownership of the bitcoin has been transferred to someone else as payment. A history of all transactions made and who owns how much of each bitcoin is recorded using the blockchain technology.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value,” Don and Alex Tapscott, Blockchain Revolution (2016).
The first distributed blockchain was conceptualised in 2008 by pseudonym Satoshi Nakamoto – an anonymous person or group – and then implemented in 2009 as a core component of Bitcoin. It is a continuously growing list of transactions, which are labelled as blocks before being linked and secured using cryptography. Blockchain technology allows digital information to be distributed but not copied, providing a common digital history ledger. For this to work, lots of different parties need access to up-to-date copies of the ledger.
Originally used as the basis for bitcoin, the wider technology industry is now exploring other uses for the emerging technology.
Blockchain, the Google Docs example
If you’re still not sure what this all means then let us share the most popular explanation making the rounds in GingerMay’s global offices. Introducing the Google Docs example (thank you, William Mougayar).
When you work with Word documents you will often find yourself saving and resaving… V2, V5, even V8. You’re left with many different versions of the same file, most likely with many different authors inputting new data and amending the existing content. Plus, only one person can update the doc at any one time.
When it comes to Google Docs, all parties have access to the same document. Which can be updated by multiple people at the same time and anyone with access can view this in real-time. You have a single version of the document (think, ledger) that is visible to everyone (think, distributed), with a history of all the updates easily accessible (think, the blockchain).
Keep an eye out for my 10 unexpected blockchain facts, which will be live on the blog this month!