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- Herausgeber: Leamington Books
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
Blockchain and Bitcoin have become household names. BLOCKCHAIN, BITCOIN AND YOU explains the technical concepts that make up the blockchain and what they mean for the future of personal finance, as well as their role in business-relevant applications. Scotcoin's CEO Temple Melville lifts the complex key principles of blockchain technology out of the preserve of academia and tech and delivers it to a new audience ― the people. Find out what the blockchain is; why it is needed and the problems it solves; why there is so much excitement about the blockchain and its potential; major components and their purpose; major application scenarios ― and what it means for you. "This book is a treasure trove of information for anyone with a curiosity about this new technology and what it means for them in their day to day lives, it helpfully explains the intricacies of blockchain technology in a refreshingly user-friendly and entertaining way." Stephen Ingledew, Chief Executive of Fintech Scotland
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Veröffentlichungsjahr: 2021
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Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.
CONTENTS
INTRODUCTION
When Satoshi Nakamoto produced his white paper Bitcoin: A Peer-to-Peer Electronic Cash System in 2009, he can have had no idea what he was unleashing on an unsuspecting world. I would have to say not only was the world unsuspecting, it was also largely uncaring!
With everything else moving at the speed of light in the world of technology, some may feel that the whole Bitcoin and Blockchain thing just suddenly arrived on the scene out of nowhere, but, as ever, the truth is somewhat different.
What we now think of as the blockchain in fact emerged from work that Linux programmers carried out in the late 1990’s and early 2000’s. What they were doing was producing robust and quickly developing coding by using thousands of programmers and coders all over the world. It’s true that English is the language of the internet, but some of these people didn’t speak English. What they did speak was code.
One problem that these coders solved concerned both the duplication of work and what we call 'version control'. How did Mr.A in Norway know that Mr. B in South 12America hadn’t already done that bit of work? The answer is that all the code had to be ranked by time. So if Mr. A did some work at 9:05:45 that fact was broadcast to everyone who was working on the problem. As a result they were able to tell what the very very latest version was, and so there was no duplication and work progressed in a linear fashion rather than disjointedly.
This was the basis of Satoshi’s thinking. If everyone had the information at the instant it was available, that meant that 'cheating' or changing any of that information, was almost impossible. If fifty people were told a thing, then to change that thing meant you had to get fifty people to change their minds, and you then had to change the information that was in the fifty people’s inbox.
This of course is an oversimplification, but I think you can see the point.
Satoshi’s next brilliant insight was to say: maybe you don’t need all fifty people to agree, maybe you only need twenty-six out of the fifty. As a result, the system Satoshi proposed showed that as long as more than 50% agreed a solution, that solution could be taken as true. In reality, if the solution goes to all fifty users at once it is extremely unlikely anyone is going to be a naysayer.
The next aspect which Satoshi Nakamoto's paper addressed related to was what was happening in the world of traditional finance at that time. Trust in banks, their ability to be the guardians of the ledgers, and trust in other financial institutions was at an all-time low. If ― Satohsi's paper suggested ― there could be an alternative payment mechanism that didn’t have any interference from traditional bankers, then the world might be a better 13place. What was needed, the paper suggested, was a system of decentralised confirmation, not one-point confirmation. But there was a problem ― and this problem which is called the Double Spend problem, is only related to money.
The thing is, we can re-create anything digitally. It’s why e-Books and downloads for music exist. You want them identical – that’s why we are buying them. You don’t want a different ending of the song you download to the one you just heard on the radio, and the quality must be, and is with digital, the same evey time. Being the same is no use for money though. The £1 in your pocket or bank account is inherently different from the one in mine. There’s a wonderful skit that Tony Hancock did when he deposited a £5 note into his bank then decided to take it out again. Of course, he got back a note that didn’t have his signature on it. So it wasn’t 'his'. And he was absolutely right – it wasn’t his. It had a different number on it.
And that, Ladies and Gentlemen, is the problem. Digitally they would be identical ― although for a system of money to work, we need them to be different.
Satoshi’s brilliance was to create conditions whereby each string of code WAS different. This meant that, having been created, the code was broadcast to all the computers that were on the system instantly. This meant that anyone looking at the current state of the code could be sure it was correct. At the same time, the bit of code that had been allocated to each individual was unique to them, and locked into place.
And this book will explain how that all happens.
A BRIEF HISTORY OF DIGITAL CURRENCY
Twenty years ago, the internet gave us the means to freely exchange information. Today blockchain technology allows us to freely exchange value.
Society is about to be utterly transformed again.
A bold statement, you may say. What we will see over the course of this book, however, is that if anything, this is an understatement. The truth is that the impact that this new technology will have and the actual outcomes may be even more radical than we or anyone can predict. This is truly disruptive technology.
Why do alternative currencies exist?
To a large extent, Altcoins are an expression of the times that spawned them. An Altcoin is an alternative digital currency to Bitcoin, and in practice, the term ultimately refers to all the cryptocurrencies other than Bitcoin.
At a time when trust in banks, regulatory authorities and capitalism was at an all-time low, the lure of being able to trade without using any of the foregoing as 16intermediaries was instantly attractive. Lehman Bros collapse precipitated a rash of mergers and rescues, not least of which in the UK was Royal Bank of Scotland. To this day (and perhaps forever) the money put into the bank by the British Government remains awaiting repayment.
So a system where neither banks nor governments could interfere with transfers, a system where the value of that transfer was entirely independent and could not be interfered with ― had people clamouring to know more. Remember that, in the previous financial crash, in some cases deposits were wiped out. In Ireland whole sectors of the economy disappeared. In Cyprus, the government simply wrote off deposits and debentures to make the banks whole again. People did not want to lose what they had.
In a sense, Satoshi Nakamoto was pushing at an open door when he published his white paper. Even although it took time to become widely considered as a realistic possibility, upon the release of Bitcoin: A Peer-to-Peer Electronic Cash System in 2009, people immediately realised they could make money out of their own coins. And so, because of this, the ICO (Initial Coin Offering) was born. The ICO offered entrepreneurs the chance to retain 100% of the upside while still funding their dream. What this meant in practice was that funds could be raised for any purpose, by the creation of cryptocurrencies.
The history of alternative currencies
The WIR Franc is an electronic currency issued by the WIR Bank, which is reflected in the bank's clients' trade 17accounts. Crucially, with this currency, there is no paper money. When the WIR Franc was first issued, it was intended that the currency would increase sales and reduce the costs of cash flow, and so result in increased profits for the qualified participants. At first, the WIR Bank created a credit system which issued credit, in WIR Francs, to its members. Then the credit lines were secured by members pledging assets which ensured that the currency was asset-backed. The result is that when two members enter into a transaction with both Swiss Francs and WIR Francs, this reduces the amount of cash needed by the buyer, and the seller does not discount its product or service.
WIR was founded in 1934 by businessmen Werner Zimmermann and Paul Enz and it was created as a result of currency shortages and global financial instability. A banking license was granted in 1936. Both Zimmermann and Enz had been influenced by German libertarian socialist economist Silvio Gesell; however, the WIR Bank renounced Gesell's 'free money' theory in 1952, opening the door to monetary interest.
'WIR' is both an abbreviation of Wirtschaftsring and the word for 'we' in German, reminding participants that the economic circle is also a community. According to the cooperative's statutes, "Its purpose is to encourage participating members to put their buying power at each other's disposal and keep it circulating within their ranks, thereby providing members with additional sales volume."
Although WIR started with only sixteen members, today it has grown to include 70,000. The total assets of the bank are approximately CHF 3.0 billion, and annual 18sales were in the range of CHF 6.5 billion, as long ago as 2005. As of 1998, assets held by the credit system were 885 million with at the same time, liabilities amounting to 844 million ― that means that the circulating WIR money, with equity in the system, was in the region of 44 million. These WIR Bank obligations, being interest free, have a cost of zero. Income from interest and credit clearing activities were 38 million francs.
The WIR Bank was a not-for-profit entity, although that status changed during the bank's expansion. The bank considers themselves as stable, and claim that they are fully operational during times of general economic crisis and that their activity may also dampen downturns in the business cycle, helping to stabilise the Swiss economy during difficult times.
Bitcoin history
In January 2009 a person or persons using the pseudonym Satoshi Nakamoto published a ground-breaking paper Bitcoin – A Peer-to-Peer Electronic Cash System ― and very few people noticed. The proposed project utilised a technology that has come to be known as blockchain, combining strong cryptography and linked lists. It drew on work by the Linux development team which had previously managed to develop a system which allowed people from all over the world to combine on the marvellous code that we know as Linux.
A few months after the Satoshi Nakamoto white paper the first release of the Bitcoin code took place ― but again very few people outside the tech world and early 19adopters took notice. Bitcoin was nothing more than a hobby at this stage, an experiment in new ways to transfer value.
Over the course of the next few years Bitcoin would slowly gain more attention from the general public. Shrouded in mystery, Bitcoin would often be referenced in hacking and cybercrime articles in the media. This perhaps undeserved infamy helped to draw more attention to Bitcoin and lead others to examine the source code.
One of the more interesting moments in Bitcoin’s early history took place on 22nd May, 2010. This was when the first known commercial transaction involving Bitcoin took place, in which a Florida man paid for two pizzas with the cryptocurrency. The day has become part of digital folklore, not just because of the transaction, but because the price: the man in question paid 10,000 Bitcoins for the two pizzas which today is worth over four million dollars. This is now known as Bitcoin Pizza Day ― and on that day Laszlo Hanyecz agreed to pay 10,000 Bitcoins for two delivered Papa John’s pizzas. Organised on a bitcoin forum, the Florida man reached out for help. “I’ll pay 10,000 bitcoins for a couple of pizzas so I have some left over for the next day,” Hanyecz wrote.
A British man took up Hanyecz’s offer and bought the two pizzas for him in exchange for the 10,000 Bitcoins. Since the inception of Bitcoin, Hanyeczs’ pizzas have become more and more expensive. Nine months after the purchase Bitcoin reached parity with the US dollar making the two pizzas worth $10,000 and in 2015, the fifth anniversary of Bitcoin Pizza Day, the two pizzas were valued at $2.4 million. 20
Thanks to the open source ethos, which makes significant amounts of code publically available, thousands across the globe came to realise the potential this technology had and quickly began to create their own versions of Bitcoin. These were called altcoins.
Many of these altcoins rose to prominence, with some created just for fun like Dogecoin, or others such as Litecoin which aimed for faster block times using a different cryptographic algorithms.
In Scotland, Scotcoin was launched at the tail end of 2013 and distributed in early 2014 by Derek Nisbet, an IT specialist operating in the financial sector. Many hard lessons were learnt regarding security and the need for a team approach. Scotcoin transferred to the CounterParty protocol (of which more later) in late 2014 and in 2015 control and ownership of the project passed to the present team. Scotcoin has flourished and looks forward to a bright future indeed.
Also in Scotland, during 2017, the first real estate sale conducted in cryptocurrency took place in Glasgow.
Some of the global enterprises that now accept Bitcoin as payment include Paypal, Microsoft, Mozilla the developers of the Firefox browser, Expedia, Greenpeace, and Dell.
Banks and financial institutions are now working hard to embrace and extend cryptocurrencies and blockchain technology in general. Again ― more of this later.
There is however in the meantime a certain lack of understanding and knowledge of this nascent technology with only a few thousand people estimated, able to truly comprehend it.
OVERVIEW OF TRADITIONAL BANKING
Traditional banking has served us well for centuries but is far from perfect. Transactions between banks can take days to clear and human eyes are needed on every transaction.
Costs are naturally high.
Cryptocurrencies on the other hand offer significantly faster transactions at a tiny fraction of the costs and opportunities for fraud are vastly reduced. Cryptocurrencies have no concept of borders and costs are the same whether sending currency to Stirling or Shenyang, Newton Mearns or New York
However, the Bitcoin blockchain is able to verify less than a dozen transactions per second, whereas credit card processors can verify up to 70,000 per second.
Obviously, the current implementation of the blockchain requires further work before it can challenge traditional methods. A fierce debate is taking place within the community of developers as to the best way forward ― and some innovative and promising proposals are being tested right now. 22
To understand why the Blockchain is different to traditional banking it’s important to understand how traditional fractional-reserve banking works. The system of fractional-reserve banking is the most common practised by commercial banks worldwide and originated many centuries ago, when bankers realised that not all their despositers would require their money at the same time. This means that when£100 invested by you or me into Bank 1 – they keep 10% and loan out 90% to Bank 2 to lend to its customers. Bank 2 then loans 90% to Bank 3, keeping back the 10% reserve they have to keep as collateral ―and so on down the chain.
This is all recorded manually, on different databases and each Bank has its own system. Notwithstanding faster payments, it can take up to three days of checking to clear the funds from one ledger to another ― and that delay increases the chances of fraud creeping in.
What, for example happens if the £100 initially put in to Bank 1 is made up fake £20 notes? Or what happens if Bank 2 lends to someone who can’t pay their loan back, and Bank 3 has already lent the cash out? What if one of the Banks collapses? This happened in 2008 and there is a continued likelihood of similar events in the future, despite the additional capital requirements and additional oversights that have been put in place since then.
The technology of the blockchain allows digital information to be distributed, but not copied. That means each individual piece of data can only have one owner.
One of the strongest points in favour of cryptocurrencies is that they are decentralised. Our present fiat system (banks, credit cards etc.) relies on a 23middleman. When you buy something in a shop the seller relies on the fact that when your card is cleared, they will get paid by a trusted third party ― the bank.
From the bank’s point of view, they have to do a massive amount of work to make sure that firstly, you are who you say you are and that secondly the money you want to pay with has not been fraudulently obtained. Further, this trusted third party, the bank, has to make sure that either you have the money in your account or at least the ability to repay the bank if necessary. All this costs billions, and is a single point of attack. It’s also why bank charges are so high. The banks have to cover the billions and billions that are stolen every year. If they didn’t, they would no longer be trusted third parties. Banks are entirely involved in every aspect of everyone's finance and also their identity, and they have to know everything about you to be able to track fraudulent borrowers or lenders. This is especially true because physical money (and banking protocols) can be counterfeited, credit cards can be cloned or stolen and wrongfully charged or reversed.
Imagine two entities, such as banks, that need to update their own user account balances when there is a request to transfer money from one customer to another. These entities need to spend a tremendous amount of time and effort coordinating, synchronising, messaging and checking to ensure that each transaction happens exactly as it should. Typically, to ensure the most amount of safety for all, the money being transferred is held by the originator until it can be confirmed that it was received by the recipient. With the blockchain, a single 24ledger of transaction entries that both parties have access to can simplify the coordination and validation efforts because there is always a single version of records, not two disparate databases.
