Bloomberg, The Financial Times and The Economist are writing about the blockchain technology and how it can transform our lives: I am going to explain in a very easy way what is behind this technology and how it can affect your life.
- Bloomberg: Cryptocurrency: Bitcoin Triples the Since Start of Year to Flirt With $3,000
- Blockchain Technology to store information: Land Grab - TEch firms are selling crypto tools to governments
- Insurance: AIG sets up blockchain policy for Standard Chartered
The blockchain technology and bitcoins were the buzzwords since 2015, especially in the startup and finance world.
Bitcoins have even entered the commercial newspapers, because its price been on the rise.
Even though no matter who I talked to, everybody told me that it will become the next big thing but nobody could give me a satisfying explanation about the why. Here is my understanding and explanation of the bitcoins and the blockchain technology.
What is a blockchain or bitcoin?
The blockchain is a new technology comparable to the Internet and bitcoins are the incentives/the money to make transactions, keep the blockchain safe and alive and reward people for doing work and keeping the network alive.
As you can see the value of Bitcoins has been on the rise. The value has doubled since I bought my first bitcoins but be cautious, many people say that bitcoins are overvalued and the price will fall again so it might not be the best time to buy Bitcoins right now but who knows.
What is behind the Blockchain Technology?
Open and decentralized Database
Peer-to-peer network, that can’t be controlled by one person, government or company
It is the most secure network and way to store information, contracts, values, money etc.
You are out with your friends and forgot your money. Luckily you have your smartphone with you and own bitcoins. Instead of paying in cash, you could do an easy bitcoin transaction. You would type into your phone or scan an QR-Code: “0,0032 bitcoins to Joe’s bar” and within seconds Joe would receive the payment.
Bitcoins or blockchain transactions are way faster than anything else because you don’t need intermediaries like Visa or Master. Joe does not need to ask Visa to pay your bill, then pay a high fee for getting his money and Visa does not need to collect the payment from you. Without Visa, the process would be a lot cheaper and faster.
Every transaction gets coded automatically and is stored on the blockchain forever. Additionally there are copies of the transactions so even if one transactions would get hacked, the copies would still reveal the truth. Every transaction gets a checksum, so nobody can manipulate the information later.
The next transaction that happens anywhere goes on top of the old transaction and locks the old block. The second transaction gets its own checksum but the checksum is based on the old one.
They interlock with each other like a chain. All checksums are based on the previous one. Therefore you would need to hack every blog (part of the chain) one by one until the first one, to manipulate or change an information. That is the reason why it is the safest network.
Furthermore, the blockchain is based on a peer to peer approach. If people are realizing that someone tries to hack the blockchain, they would be able to stop him and the hacker would get punished. Additionally, neither one person nor government or company could change something or ban the blockchain because it gets distributed through hundreds of computers and servers and you would need 51% of the entire blockchain community to change something.
Why should I care about Blockchain?
Bill Gates once said that nobody will make money with the Internet but Marc Zuckerburg is one of the eight richest people on this earth. Our world is constantly changing and I am sure (and hoping) that Facebook and Snapchat are not the biggest inventions of the last years. It might be the development of the blockchain and bitcoins. The earlier one recognizes a new technology as a new opportunity the faster he or she will be able to adapt it and use it to his or her advantage.
Imagine you could not send your friends self-destroying pictures of your drinks or be able to google everything. The Internet made our world faster, more innovative and more comfortable, maybe the blockchain can be the exaggeration.
How can blockchain make my life better?
Millions of people are sending money to their home countries to help their families. This procedure is very expensive and time-consuming, instead of walking to Western Union, paying a high fee and waiting days or even weeks for the money to arrive. You could make a bitcoin transaction while taking the bus to work in New York and your relatives in South America, receive the payment a couple of minutes later and the fee is less than 1 % instead of 10%.
"I heard that these bitcoins are dangerous and only used to sell drugs on the Internet?"
One big advantage of the blockchain technology is that you can keep your identity. You have a personal blockchain avatar that belongs completely to you. You can decide what to do with your information. Why is Facebook allowed to store my information and sell them? Why do I need to tell ITunes where I live, when I just want to buy a song online? Using the blockchain technology you can sell your data to marketing companies to earn money and you need to release only the information that are necessary for a certain transaction.
Yes, there has been a drug website, where you could buy drugs with bitcoins but how many people are buying drugs with traditional Dollars or Euros every day?
Furthermore the money could go directly to people that produce or create something, whether it is a small store producing handmade jewellery that doesn't have to pay 20% fees to Amazon or an artist producing music. We won't need intermediaries that charge high fees. Traceability is another advantage of blockchain. Medicine or luxury goods could get a code and one could verify using that code if this is the original and correct medicine.
Yes, the system has been hacked once but never again. How many banks have been robbed during the last two years? The Internet is being used for distributing illegal content. JP Morgan and many other banks or shops got hacked and thousands of credit card numbers were stolen! Should we ban computers, money or the Internet? Of course not, we only need to use it carefully.
Especially the blockchain is not as developed as the Internet. The more we will work with it and develop it, the more comfortable we are getting with the blockchain and the safer it gets. One day we will benefit tremendously from it like we do from the Internet. We need to implement it because blockchain is the safest database and can lead to a world where your electronic identity is as valid and important as your real life ID, you could vote electronically and store any contracts or document on the blockchain. Verification would be a lot safer. It will make life easier and more flexible. Estonia, a small country in Eastern Europe has already realized the e-residency. They have implemented the blockchain technology as a government strategy, use an electronic identity and can vote online from anywhere in the world and the voting system is working better safer than the current American voting system.
Another big advantage would be smart contracts. Contracts that could excecute themselves. We conclude a contract that you design my website and I pay 100 Euros for it. The smart contract would make sure that you would get your money, after you have designed my website.
This technology can reduce uncertainty, therefore it will be easier and safer to do business with people we don't know, which could make the disruptive players of our time obsolete. Uber doesn't own cars and Airbnb doesn't own beds. They are acting as intermediaries. The blockchain technology can play that role and execute contracts or match people, cars or places to sleep.
Blockchain is definitely still in its infants shoes but if you become an early adapter and start to play around with the blockchain technology or bitcoins you will not be blindsided and able to benefit tremendously.
How to buy, sell and store Bitcoins?
If you are familiar with the Bitcoin scene you could get Bitcoins offline. There are meetings where people get together to exchange money and bitcoins.
I bought my Bitcoins online at. www.anycoindirect.eu. That was very easy. I could verify myself within 15 minutes, transferred the money via my bank account and two days later I was the proud owner of Bitcoins.
Another way to earn bitcoins would be to mine them. Bitcoins are the reward for work in this case computer work and electricity. You have to solve a mathematical riddle and the first person finding the solution gets the bitcoin. To find the solution you need a lot of computer power. It is pretty much a modern version of mining gold, except that you are buying computer power from a server farm in china instead of digging for gold. Mining bitcoins need so much energy that it is not profitable to mine bitcoins anymore.
I tried bitcoin.de and plus500 and it didn't work.
I downloaded Breadwallet from the iTunes store to store my Bitcoins. With the use of the QR Code you can send bitcoins easily from one wallet to the other.
If you use this QR Code you would able to sent Bitcoins directly to my wallet, because you really liked this article ;) or want to test Bitcoins.
Written by: Philine Paschen