Transacting money usually relies heavily on intermediaries ("middle-men") like banks, accountants, governments, etc., to ensure trust and successful transactional process like authentication or record keeping. Transacting in crypto currencies (Internet money), such as bitcoin, has relied on the blockchain (BT) technology, which is one of the hottest topics in technology today.
This is what Don Tapscott says about the blockchain technology: "The technology likely to have the greatest impact on the next few decades has arrived. And it's not social media. It's not big data. It's not robotics. It's not even AI (Artificial Intelligence). You'll be surprised to learn that it's the underlying technology of digital currencies like Bitcoin. It's called the blockchain."
Although the blockchain technology, whose basic idea is to get rid of the "middle-man," is commonly associated with bitcoin, it has many other applications. In fact, it is believed that the blockchain operating system will profoundly disrupt hundreds of industries that rely on intermediaries, including banking, finance, academia, real estate, insurance, legal, healthcare and the public sector.
Collin Thompson says that "perhaps, most profoundly, blockchain promises to democratize and expand the global financial system; giving people who have limited exposure to the global economy better access to financial and payment systems and stronger protection against corruption and exploitation."
Technically speaking, the BT technology allows connected computers to reach an agreement over the data that they share. The computers in the blocktrain are connected in a peer-to-peer network, meaning that a particular computer in the network can directly talk to any of the other computers in the network. In this fashion, there is no central server owned by some entity that is controlling access. The agreement between the computers in a BT network involves using a consensus mechanism wherein the rules are implemented in software that all the computers run.
The rules ensure that all the computers in the network are synchronized. For the case of bitcoin, one of the rules require that nobody can send bitcoins that they have not first received from someone else or from mining (that is, from a coinbase transaction). One implication of this rule is that the "leading" computer (see below) cannot include transactions that arbitrarily give it hundreds of fake bitcoins. Also, as part of the rules, every 10 minutes, one of the connected computers is randomly selected to state the authoritative order of valid transactions for that period of time. In computer science lingo, this arrangement is sometimes called a repeated leader selection. Note that the chosen "leader" is given the privilege to mine bitcoin - which is the only way that bitcoin is minted - provided it (the leader) is able to solve a very complicated math problem, as described in a previous article in this column in Daily Trust (1 May 2017). Another way to say this is that the randomly-selected computer can write itself a coinbase transaction - provided it can solve the math problem.
The data that is shared in the BT technology is what is actually called the blocktrain, which is basically data in a specific format that facilitates the maintenance (by all computers) of the consistency of the data. The 1 May 2017 article in this column discusses this aspect to some detail for the case of bitcoin, and is included here for your convenience. Bitcoin dealers are sending bitcoins to each other over the bitcoin network all the time, but someone needs to keep track of who had paid or sent what. The bitcoin network has the responsibility of collecting the transactions made by all bitcoin dealers (during a given interval of time) into a list, called a block. Miners (leaders) compete to authenticate the transaction in the most recent block and write them into a general ledger, which is a long list of blocks (or individual transactions). The general ledger is also called the "blockchain," or the chain of the blocks, if you may.
Of course, the general ledger has to have integrity, which is where the miners come in. When a block of transactions is created, miners authenticate it. They do this by applying some mathematical formula to the data and turn it into something else - that is shorter; perhaps a random combination of characters (letters) and numbers. This end result, which is called a "hash," is stored along with the block, which at the time is the most recent one (block) in the blockchain. The mathematical manipulation required to obtain a hash (for the current block) is conceptually similar to encrypting the information in a block. With this analogy, the miner takes the information in a block, assumed arranged in a one-dimensional array, and pre-multiplies this array by a two-dimensional (2D) array. To make the mathematics more difficult, the pre-multiplier is made to depend recursively on the various pre-multipliers for all the previous blocks in the entire blockchain - that is, from the inception of bitcoin in 2009.
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