Bitcoins biggest innovation wasn’t the currency
Decentralising a government controlled object such as currency is so much bigger than you know.
Bitcoin made its debut in 2011, but the most important thing about it was the concept. The idea of taking something as tangible and government controlled as currency and turning it into a decentralised, anonymous object. This was a strong conceptual idea that manifested itself into what we know and love as Bitcoin. If we can decentralise something so fiat and ingrained as currency, what stops us from decentralising other seemingly government controlled objects?
Bitcoin makes use of something called Blockchain, a public ledger system. The Blockchain is a peer to peer decentralised network which validates all actions made on the network using complex maths. In a normal bank, only the bank would validate. But here multiple anonymous sources validate the Blockchain.
From an economics standpoint if Blockchain (technology behind bitcoin) was to catch on it may destabilise the current UK economy because organisations and the government simply aren’t ready to accept an anti 1984-esque stance. With the recent introduction of the Digital Economy Bill and the Investigatory Powers Act of 2016, it is clear that anything as anonymous and secure as Blockchain may be seen as a threat to not only the economy but to the country itself.
Despite this, there are multiple advantages to Blockchain technology.. In the next section I will be discussing advantages as if coming from a currency standpoint.
Why was Blockchain born?
The idea of using an escrow bank with fiat money dates back to not so long ago. Before, users could double spend their money. They could send a copy of their money and keep the original. Within our current escrow system a user asks a bank to buy something, stopping the duplication of money. This is partly why our current currency — dollars and Sterling are considered centralised.
Escrow is bad within our current system because in order to purchase something with a card you need to first check it with your bank (done automatically). Your bank can monitor, watch, report, and decline any transactions you make as well as having the ability to sell your purchasing habits on.
All Blockchain transactions are faster than a normal banks transaction speed. In order to verify a normal banks transaction it has to be done at one of four time slots within a day but is usually completed at midnight. With Blockchain, the transaction can be completely cleared in 8–14 seconds.
Without the need for a centralised system, Bitcoin is also cheaper to run in a typical peer to peer network since each peer is calculating and verifying instead of a central, computer-powerful body.
This decentralisation using Blockchain changed the way currency works.
What is decentralisation?
Decentralisation is typically lowering power on a hierarchical structure so the power which used to reside at the top is now distrusted amongst the lower levels of the hierarchical triangle.
Most organisations use a hierarchical structure where the top of the triangle has the most power over everything. A decentralisation is where you distribute the top-most power amongst the lower levels of the triangle.
This is a good question and for each use case it changes, but typically the best advantages are that its:
- Cheaper — Decentralisation is often cheaper, giving authority and power lower down the ladder of command often allows lower-paying employees to make decisions
- Accessible by everyone — The goal of a truly decentralised Blockchain system is to allow everyone to be able to access it.
- Fair — everyone is treated the same in Blockchain.
What can we expect from Blockchain?
Some of the biggest Blockchain innovations happening right are distributed, eco-friendly electricity and Etherum. We can be sure that Blockchain will and is changing the world with the UK government running trials of implementation of Blockchain and other countries exploring the endless possibilities this could have.
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References / further reading
Evry, (2016). [online] Available at: https://www.evry.com/globalassets/insight/bank2020/bank-2020—blockchain-powering-the-internet-of-value—whitepaper.pdf [Accessed 21 Dec. 2016].
Nakamoto, S. (2011). Bitcoin. [online] bitcoin.org. Available at: https://bitcoin.org/bitcoin.pdf [Accessed 21 Dec. 2016].