The anonymous bitcoin creator alias Satoshi Nakamoto built a peer-to-peer payment system without any banks or other inevitably trusted entities involved.
How bitcoin works
Bitcoin is an open-source computer code, which means that there are no limitations regarding who can participate in its blockchain. This computer code, also referred to as bitcoin protocol, takes different technologies into account. One of these is the distributed ledger, which addresses the distribution of this computer code. A distributed ledger is a kind of cash book that is stored decentrally across many participants. The technology is the basis of many cryptocurrencies, such as bitcoin, and helps to document the transactions of the respective currency. The distributed-ledger technology which bitcoin uses is the blockchain. You can imagine a blockchain like an infinitely long pearl necklace: Just like new pearls are gradually added to the necklace, new blocks are gradually added to the blockchain. Unlike a string of pearls, the blockchain can be continued indefinitely and new blocks can be continuously added to the end. The individual blocks are chained together using a cryptographic procedure. This is usually done, for example, using a cryptographically secure hash value: in addition to the actual transaction, each block also contains the hash value of its predecessor – the unique sequence is thus defined. In addition, a kind of history of previous transactions is created in this way, which in turn increases data integrity.
On top of this comes a consensus mechanism. It is the on top layer which decides, within the code that is placed in different computers, how entries are made and that there must be a consensus about the majority of all the computers of the network about whether they write an entry into the bitcoin blockchain, or not. Sven Hildebrandt, CEO at Distributed Ledger Consulting:
“The bitcoin creator combined different technologies in order to create something very exciting that has already and will change the world for the better.”
Why is bitcoin a revolution?
The old monetary systems we are used to always rely on the state. If there are problems to be solved that can remedy with money, the state prints more money. Therefore, because of artificially created and politically motivated decisions of authorities, people lose the value of their savings. Furthermore, it is known that fiat money -e.g. Pound Sterling, Euro, US Dollar- fails after about 100 years. Bitcoin helps us to get out of the chains of the government which has the power to decide what we can use as a currency and what not. Even though bitcoin is not considered to be a currency yet, it is a store of value that many people use as a digital asset. Matthias von Hauff, CEO at TEN31 and WEG Bank refers to this current situation as “The age of financial enlightenment”.
Will bitcoin be forbidden?
Due to bitcoin’s advantages compared to FIAT currencies, it could be seen as a threat to the current monetary system. Thus, it appears that the illegalisation of bitcoin can be a concern. In our live show on bitcoin, Sven Hildbrandt stays optimistic in this matter. In his opinion, from a technical point, it is impossible to shut bitcoin down. Moreover, in the means of getting it exchanged, the whole EU, Russia, America, China, Switzerland etc. would have to decide on not using bitcoin anymore at the same time and then keep on that decision from that time onwards, which will not happen for, inter alia, political reasons. Matthias von Hauff shares the same optimism for different reasons:
“I don’t see cryptocurrencies at all as a threat to the existing system. I see it much more as a complement to the existing system because freedom of choice has, whenever I have observed it, always brought improvement, and never brought a problem. ‘…’ Unless you are living in a dictatorship, I don’t think that governments will crack down on cryptocurrencies as such. Let’s make sure we help them regulate it wisely.”
Up to a certain point, regulation can be helpful for mankind. When regulating this circumstance, a lot of knowledge is required. To ensure the best outcome for our future, striking the right balance between cooperation with the authorities and standing the pressure of overregulation might gain importance.
A future glimpse of bitcoin
At the beginning of 2018, there was the first public noted crash of the bitcoin price. At that time, bitcoin was referred to as a hype that had come to an end. Nowadays we know that it was just a little depth on bitcoin’s way to moon-shot to the price level it currently has. The limited supply of 21 million bitcoins in combination with its harving process, increasing use cases and adoption balance could be clues for a great future with bitcoin. Moreover, well-known people such as Elon Musk and Michael Saylor have officially proven their faith in bitcoin with their investment decisions. Nevertheless, 2018 showed us how little we are capable of predicting bitcoin’s future.
Is bitcoin a hype?
Learn more about the major role that bitcoin plays nowadays and in our future and gain deeper insights into the topics mentioned in this article. Watch the full BLOCKCHANCE Online LIVE show here, where Matthias von Hauff and Sven Hildebrandt give an introduction to bitcoin. BLOCKCHANCE Online LIVE is a regular hosted live show on YouTube and LinkedIn, where you can ask renowned experts in their field your questions and gain glimpses of our future.
Sven Hildebrandt and Matthias von Hauff will also be speakers at the upcoming BLOCKCHANCE Europe 2021 conference! Get your ticket here and take a deep dive into the universe of future technologies.