Last updated on April 6th, 2015 at 09:26 pm
What if there was a technological advancement so powerful that it transforms the basic pillars of our society – a technology that fundamentally changes the way our economy, government and business systems function, and could change our conceptual understanding of trade, ownership and trust? This technology already exists. It is cryptocurrency.
People often think of bitcoin as only virtual money or a transaction system, but if you look closer you will see that the monetary aspect is just the tip of the iceberg. That’s because bitcoin is a groundbreaking internet technology for which money is just one of the many possible applications.
Money exists to facilitate trade. Through the centuries, trade has become incredibly complex. Everyone trades with everyone worldwide. Trade is recorded in bookkeeping, and this information is often isolated and closed to the public. For this reason, we use third parties and middlemen we trust to facilitate and improve our transactions.
Think of governments, banks, accountants, notaries, and the paper money in your wallet. We call these trusted third parties. This brings us to the essence of bitcoin.
Bitcoin software enables a network of computers to maintain collective bookkeeping, via the internet. This bookkeeping is neither closed nor in control of one party. Rather it is public, and available in one digital ledger which is fully distributed across the network. We call this the blockchain.
In the blockchain, all transactions are logged, including information on the time, date, participants and amount of every single transaction. Each node in the network owns a full copy of the blockchain. On the basis of mathematical principles, the transactions are verified by the so-called miners who maintain the ledger.
The mathematical principles also ensure that these nodes automatically and continuously agree about the current state of the ledger and every transaction in it. If anyone attempts to corrupt a transaction, the nodes will not arrive at a consensus, and hence will refuse to incorporate the transaction in the blockchain.
So every transaction is public, and thousands of nodes anonymously agree that a transactions has occurred on date X, time and why. It’s almost like there is a notary present at every transaction.
This way, everyone has a shared single access to a source of truth. This is why we can always trust the blockchain.
The ledger doesn’t care whether a bitcoin resembles a certain amount of euros, dollars, or anything else of value. Users can decide for themselves what a unit of bitcoin represents.
A bitcoin is divisible in 100 million units, and each unit is individually identifiable and programmable. This means that users can assign properties to each unit. Users can program a unit to represent a euro cent, a share in a company, a kilowatt hour of energy, or a digital certificate of ownership. Because of this, bitcoin is much more than simply money and payments.
A bitcoin can represent many types of property, a thousand barrels of oil, reward credits or a vote during elections for example. Moreover, bitcoin allows us to make our currency smarter, and to automate our cash and money flows.
Imagine a health care allowance in dollars or euros that can only be used to pay for health care and certified parties. In this case, whether someone or not actually follows the rules is never verified in the bureaucratic process afterwards. You simply program these rules into the money.
The unit can even be programmed in such a way that it will automatically return to the provider if the receivers doesn’t user it after a certain amount of time. This way the provider can assure that allowances are not hoarded.
A company can control its spending in the same way by programming budgets for salaries, machinery, materials and maintenance so that the respective money is specified and cannot be spent on other things.
Automating such matters leads to a considerable decrease in bureaucracy which saves accountants, controller, and organizations an incredible amount of time. The programmable, open nature of bitcoin allows us to completely rebuild and innovate our financial sector and our administrative processes, make them more efficient and transparent, and significantly decrease bureaucracy.
But there’s more. In an internet of things, our economy will be dealing with machines that actively participate in the economic traffic. Think of a vending machine, or drones delivering packages; these technologies are unfamiliar with the concept of trust but Bitcoin is not. Because of Bitcoin, the drone can be one hundred percent certain that it will deliver the package to the right recipient and know for sure that it’s been paid for. And we can program the vending machine in such a way that it will automatically keep track of its supplies, order new supplies from the supplier and pay for them automatically.
This is only the beginning. Internet technology is the future.