Last updated on October 13th, 2017 at 06:18 pm
“What makes Bitcoin valuable?” Often times, conversation about Bitcoin with one who isn’t of the Bitcoin evangelist type leads to this practical question. It could be argued that the benefits of Bitcoins’ function as a currency alone, frictionless transactions, near-total anonymity and fraud prevention, merit its use.
Yet what makes Bitcoin so disruptive is not its payment processing ability. As Coinbrief editor Dustin O’Bryant notes, “The Bitcoin blockchain is where the real breakthrough lies”.
Bitcoin’s Language Spurring Innovation
Put simply, the Bitcoin blockchain is the decentralized network that supports the verification and storing of all Bitcoin transactions. Bitcoin begins its journey through the blockchain by shuttling through a network of Bitcoin miners distributed around the world.
Incentivized by the opportunity to earn Bitcoin, Miners verify transactions by solving complex mathematical proofs– This is key, the integrity of the blockchain as a data structure is dependent on the incentives given to miners to verify the data- Each verified transaction is then recorded in the Bitcoin blockchain (similar to a general ledger). The Bitcoin transaction itself is nearly instantaneous, and then, within minutes, the transaction from party A to party B is confirmed to be valid.
Transactions involving other cryptocurrencies, or Altcoins, are likewise authenticated and recorded in a blockchain, either independent from, or merged with, that of Bitcoin (more on the distinction between the Bitcoin blockchain and independent blockchains later).
In both cases, a common language (the blockchain system) facilitates a transaction between two parties. This is the language of the next realm of Bitcoin innovation. What we can do with the application of the blockchain language is limited only by our own imagination.
This is reinforced in a recent article published by the Institute for Ethics & Emerging Technologies,
Paradigm 5 (the next disruptive computing paradigm) of functionality could be the experience of a continuously-connected seamless physical-world multi-device computing layer, with a blockchain technology overlay for payments, and not just payments, but micropayments, decentralized exchange, token earning and spending, digital asset invocation and transfer, and smart contract issuance and execution; all as the economic layer the web never had.
Brute Force of the Bitcoin Blockchain
Wasting no time, many dev teams have already brought forth new functions of blockchain application into reality. The most noteworthy so far is Counterparty, a decentralized financial platform built on top of the Bitcoin blockchain. While peer-to-peer interactions (self-executing smart contracts, financial derivatives, asset exchanges, tokens that can issue dividends and voting rights) are initiated with the use of Counterparty native XCP token (the value of which is pegged to Bitcoin), its foundation lies upon the reliable mining power of the Bitcoin blockchain.
Counterparty works by storing extra data in regular Bitcoin transactions, which makes every Counterparty transaction a Bitcoin transaction, albeit a very small one. When Counterparty transactions are broadcast to the Bitcoin network they are verified by Bitcoin miners and saved in the Bitcoin blockchain to make a secure, verifiable record.
Counterparty places its confidence squarely on the shoulders of the blockchain that miners are most incentivized to mine, and subsequently where the most mining power exists, the Bitcoin blockchain. Independent blockchain-ist platform Ethereum has still yet to be pushed out, waiting on the sidelines as Counterparty’s platform is live and has already seen over 100,000 transactions since January.
Independent Blockchains Hold Promise
Ethereum is a platform that offers virtually the same peer-to-peer interactions as Counterparty currently offers (exactly the same), on the foundation of decentralized consensus independent from that of the Bitcoin blockchain. Where Ethereum’s blockchain holds promise is in the way its blocks are formulated.
From Ethereum’s white paper,
Additionally, because all of the state information is part of the last block, there is no need to store the entire blockchain history – a strategy which, if it could be applied to Bitcoin, can be calculated to provide 10-20x savings in space.
Hereby solving the problems of slow confirmation time and high fees afflicting the Bitcoin blockchain.
In addressing the issue of the risk of concentrated mining attacks, or 51% attack- where a specific mining pool wields the majority of network power, enabling the ability to prevent transaction confirmations and other malevolent acts- Ethereum aims to support the use of side chains upon release of its platform.
Blockchains are vulnerable to 51% attacks, and smaller blockchains are vulnerable to smaller 51% attacks. Ideally, if we want security, we would like for multiple chains to be able to piggyback on each other’s security, so that no chain can be attacked unless every chain is attacked at the same time.
Future of Blockchain Applications
As fellow CoinBrief writer Ali Amin rightly states, “More freedom and self determination than ever imagined to be possible is being achieved, not at the hands of suited politicians, but at the hands of keyboards and proxy services.” We move forward with a greater sense of autonomy regardless of whether it is with the Bitcoin blockchain, independent blockchain, and/or sidechain.
The effects of disintermediation reach far beyond the confines of our financial infrastructure. We stand at the edge of the precipice of major change in the shape of our societal systems.
How do you see blockchain technology being implemented? Leave a comment below, and let us hear your ideas.