Every week it seems that we hear about another technology that will change our lives and transform the world. Transformative technologies, from artificial intelligence and deep learning to the internet of things to big data, bombard us with promise and, in some cases, fear. News outlets tell us that AI and robotics will combine to wipe out 50% of today's jobs within the next 20 years. Others warn that jobs considered beyond the reach of machines such as attorney or doctor may be more at risk than previously imagined. Whether these scenarios play out is up for debate and will depend on technology improving at an even greater rate than now as well as how society well accepts these changes. For example, blockchain is emerging today, and it certainly has a good chance to fundamentally change how we do business and the nature of banking and currency itself. In fact, blockchain is already making waves through bitcoin.
Bitcoin uses blockchain technology to protect all its transactions from thieves and hackers. Bitcoin is a digital or crypto-currency that lives entirely online. There are no metal bitcoins that you can stash in your mattress or bury in the back yard; it is completely a digital currency. More importantly, there is no centralized bank or country that controls bitcoin value. Blockchain essentially functions as an electronic ledger system distributed across millions of computers worldwide all connected together by the internet. So instead of a single bank like JP Morgan maintaining a record of what’s in your bank account and guaranteeing that the money you spend from your account is transferred properly and in a timely manner, blockchain keeps an identical ledger of your account on millions of computers in the bitcoin network, which makes the ledger nearly impossible to change or erase. A thief who would want to erase some old transactions to refill his bitcoin wallet would have to change all the ledgers on all the computers around the world.
Here’s how the blockchain works: If you decide to pay for your movie ticket with a bitcoin, the transaction is noted in a digital leger. The transaction has to be verified by the bitcoin system of computers to make sure you have the funds for your purchase. To verify the transaction against the ledger and make certain that only one transaction occurs, the bitcoin system packages the your movie ticket purchase in a “block.” The block contains the transaction but it is encrypted (written in a secret code). The block must be decoded, verified and then the block with the new transaction is added to the global ledger or “chain”.
The transaction occurs and the encrypted block is broadcast to all the bitcoin miners in the world, and the miners all compete as fast as they can to solve the block. The decoding process is known as mining. This is the essence of the system. The first computer to solve the block not only opens up the block but the miner gets paid 12.5 bitcoins per block solved. Once the block has been solved or validated it is added to the chain of previously solved blocks, or, in other words, the ledger is updated. As more and more miners compete to solve the blocks the system makes the problems to unlock the block more difficult to solve. In a way, as more miners compete for bitcoins the harder they become to get, just like real gold mining today. On the other hand, just like today, anyone with a pan can still mine for gold, and anyone with a computer can become bitcoin miner.
Currently bitcoins are valued at $1,249 per bitcoin so if you were to solve one block you would get 12.5 bitcoins, a $15,612 payday. This sounds exciting, and you too can get into the bitcoin mining game using the computing power of your home computer. There are many helpful tutorials online to help you set up a bitcoin mining operation. Basically, you need to set up a bitcoin wallet which is where you can safely store your bitcoins and then install the bitcoin mining software on your computers and start mining. Now, the competition in mining is fierce. Your chance of solving a block increases with faster computing power. In essence the more tries you make the better your chance of solving the block. After the early days of bitcoin when a solo miner could realistically solve blocks, miners realized that if they pooled their computing power and shared the bitcoins among the pool that they would have a better chance of success. Once you have installed the bitcoin mining software on your computer you have the option of joining one of the many free bitcoin mining pools out there. Remember that mining takes electricity and the competition is intense. So, it is hard to make a profit as bitcoin miner, but if you like taking a chance and want to be a part of the bitcoin network it can be a fun hobby.
Apart from the fun and potential profit from bitcoin mining, bitcoin miners can also take small fee for facilitating blockchain transfers. There is a potential for a little profit. Moreover, here is where bitcoin and blockchain display real competition for banks. Bitcoin moves freely across international boundaries and there is no extra fee for transferring bitcoins around the world as compared to down the street. In contrast, banks charge hefty fees for transferring cash to foreign banks and instead of waiting minutes, a new block is made every 10 minutes, banks take days to complete the transactions. Bitcoin appears to challenge the basic foundation of how banking works today. If lower fees, better security and faster service is the future that sounds like a good thing.