How I Finally Came to Understand Bitcoin
Confession time: Before today, I didn’t fully understand what Blockchain was. I’ve read articles about its influence, and I’ve been tracking the skyrocketing price of BitCoin for the last year, but not until BlockChain Unchained: Set Up Your Digital Wallet Today, did it finally make sense.
Artonia Bogo, Senior Technology Consultant at SAP, Ricarda Schüler, Blockchain Developer at SAP, and Lucía Pasarin described the origin and structure of Blockchain at the 2017 Grace Hopper Celebration of Women in Computing.
In 2008, Satoshi Nakamoto published Bitcoin: A Peer to Peer Electronic Cash System, which is believed to be the first description of the bitcoin digital currency. In 2009, he released the first units of the bitcoin cryptocurrency, called bitcoins.
Why was bitcoin invented?
- Conventional financial systems are unreliable
- Huge overseas transaction fees
- 2007 financial crisis
- Traditional banks are a single point of failure
- Hackers are able to target centralized servers of banking institutions
How do blockchain and bitcoin work?
A blockchain is a piece of software that has nodes with the same information on each node. The first node of a blockchain is called the “genesis block” and doesn’t contain any information outside of the initial fixed amount of bitcoin. All subsequent blocks contain not only the information about their specific transaction, but a hash of the previous transactions as well.
If Alice needs to send money to Bob, the transaction is recorded in a block. Now, what’s stopping Alice from sending money to Bob that she doesn’t actually have, or from sending the exact same monetary transaction to both Bob and Diana, a phenomenon known as the double-spend problem? Miners are paid a small percentage of the transferred amount to ensure that the transaction is valid in the form of a transaction fee.
For hackers to insert transactions into a block, they need to do a history check of all the previous transactions’ hashes, which is incredibly difficult to do, but very easy to verify.
To demonstrate this, we tried to shake 6 die in a box in an attempt to get at least 4 with the six side facing up. Everyone in the workshop that was able to accomplish this in 30 seconds stood in a line to represent the blockchain of previous transactions. Everyone in the line was aware of their position. Similarly, the history of bitcoin transactions are stored in the blockchain. If information gets injected (if a person cut the line), all of the other nodes will recognize that the information is changing. Miners will notice this and prevent these fraudulent transactions from occuring.
Creating our Digital Wallets
We made an account using Coinbase, one of many digital platforms for buying, selling, transferring, and storing digital currency. Our speakers came around the room and transferred 1€ to each of our accounts through a QR code. Once the block was confirmed (about 15 minutes) we were able to see a pending transfer in our accounts. About 20 minutes later the block was included, and we were able to see a balance of $1.16 (including the Euro to USD exchange rate) in our accounts.
Real Life Applications of bitcoin
Moving to bitcoin is much more of a transformative process that requires a cultural change in business processes. SAP and RippleNetwork are using blockchain and cryptocurrencies to bring innovation to banking.
- By using bitcoin, SAP engineers were able to connect to a payment engine and transfer money from the United States to Germany in 20 seconds instead of 3 days.
- At the end of disaster relief missions, NGOs are able to pull together a list of resources that they share to provide a common system of record. Blockchain made more sense because it provides immutability and data transparency without having one party be more powerful than another.
Bitcoin is already starting to become more and more prominent in everyday retail situations, from pharmacies to delis, and in the next few years, I’m sure it will continue to gain traction as a viable form of currency. I’m interested to see if it will surpass more traditional payment methods as we push forward in our tech-driven societies. I’m grateful for the opportunity at #GHC17 to learn more about Blockchain, and for the intelligent women at SAP for taking the time to explain the payment method of the future.