Blockchain Technology Explained: Powering Bitcoin
Microsoft recently became the latest big name to officially associate with Bitcoin, the decentralized virtual currency. However, the Redmond company did not go all out, and will only support bitcoin payments on certain content platforms, making up a tiny fraction of its business.
What’s The Big Deal With Bitcoin?
Like most good stories, the bitcoin saga begins with a creation myth. The open-source cryptocurrency protocol was published in 2009 by Satoshi Nakamoto, an anonymous developer (or group of bitcoin developers) hiding behind this alias. The true identity of Satoshi Nakamoto has not been revealed yet, although the concept traces its roots back to the cypher-punk movement; and there’s no shortage of speculative theories across the web regarding Satoshi’s identity.
Bitcoin spent the next few years languishing, viewed as nothing more than another internet curiosity reserved for geeks and crypto-enthusiasts. Bitcoin eventually gained traction within several crowds. The different groups had little to nothing in common — ranging from the gathering fans, to black hat hackers, anarchists, libertarians, and darknet drug dealers; and eventually became accepted by legitimate entrepreneurs and major brands like Dell, Microsoft, and Newegg.
While it is usually described as a “cryptocurrency,” “digital currency,” or “virtual currency” with no intrinsic value, Bitcoin is a little more than that.
Bitcoin is a technology, and therein lies its potential value.
This is why we won’t waste much time on the basics — the bitcoin protocol, proof-of-work, the economics of bitcoin “mining,” or the way the bitcoin network functions. Plenty of resources are available online, and implementing support for bitcoin payments is easily within the realm of the smallest app developer, let alone heavyweights like Microsoft.
Looking Beyond The Hype — Into The Blockchain
So what is blockchain? Bitcoin blockchain is the technology backbone of the network and provides a tamper-proof data structure, providing a shared public ledger open to all. The mathematics involved are impressive, and the use of specialized hardware to construct this vast chain of cryptographic data renders it practically impossible to replicate.
All confirmed transactions are embedded in the bitcoin blockchain. Use of SHA-256 cryptography ensures the integrity of the blockchain applications — all transactions must be signed using a private key or seed, which prevents third parties from tampering with it. Transactions are confirmed by the network within 10 minutes or so and this process is handled by bitcoin miners. Mining is used to confirm transactions through a shared consensus system, and usually requires several independent confirmations for the transaction to go through. This process guarantees random distribution and makes tampering very difficult.
While it is theoretically possible to compromise or hijack the network through a so-called 51% attack the sheer size of the network and resources needed to pull off such an attack make it practically infeasible. Unlike many bitcoin-based businesses, the blockchain network has proven very resilient. This is the result of a number of factors, mainly including a large investment in the bitcoin mining industry.
Blockchain technology works, plainly and simply, even in its bitcoin incarnation. A cryptographic blockchain could be used to digitally sign sensitive information, and decentralize trust; along with being used to develop smart contracts and escrow services, tokenization, authentication, and much more. Blockchain technology has countless potential applications, but that’s the problem — the potential has yet to be realized. Accepting bitcoin payments for Xbox in-game content or a notebook battery doesn’t even come close.
So what about that potential? Is anyone taking blockchain technology seriously?
Originally published at DreamiFly.