Another drop from co-founder and CEO, Jimmie Steinbeck, reminiscing to The Pen Team about the birth of the Blockchain technology. While the technology has been on everybody's lips, since everyone knew about bitcoin, no one really fully understood it. It's tried and trialed in various industries, failed for some succeeded for many. Here's a breakdown of what it is, how it works, and what it means for the future. Enjoy the read.
So, what if those slow and expensive middlemen with their multiple ledgers could be replaced with a giant database synchronized over the Internet? That's the big idea behind Bitcoin and more than 12.000 crypto assets out there today, and it's run by a decentralized global network of powerful mining computers and regular laptops.
The technology likely to have the greatest impact in 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. You'll be surprised to learn that it's the underlying technology of digital currencies like Bitcoin. It's called the blockchain.
Blockchain, Now it's not the most sonorous word in the world, but I believe that this is now the next generation of the internet and that it holds vast promise for every business, every society and for all of you, individually. You know, for the past few decades, we've had the internet of information. And when I send you an email or a PowerPoint file or something, I'm actually not sending you the original, I'm sending you a copy. And that's great.
This is democratized information. But when it comes to assets – things like money, financial assets like stocks and bonds, loyalty points, intellectual property, music, art, a vote, carbon credit and other assets sending you a copy is a really bad idea.
If I send you 100 dollars, it's really important that I don't still have the money and that I can't send it to you. This has been called the "double-spend" problem by cryptographers for a long time. So today, we rely entirely on big intermediaries and middlemen banks, the government, big social media companies, credit card companies and so on – to establish trust in our economy. And these intermediaries perform all the business and transaction logic of every kind of commerce, from authentication, and identification of people, to clearing, settling and record keeping. And overall, they do a pretty good job. But there are growing problems.
For starters, they're centralized. That means they can be hacked, and increasingly are – JP Morgan, the US Federal Government, LinkedIn, Home Depot and others found that out the hard way. They exclude billions of people from the global economy, for example, people who don't have enough money to have a bank account. They slow things down. It can take a second for an email to go around the world, but it can take days or weeks for money to move through the banking system across a city. And they take a big piece of the action 10 to 20 percent just to send money to another country.
So for the first time now in human history, people everywhere can trust each other and transact peer-to-peer. And trust is established, not by some big institution, but by collaboration, cryptography and by clever code. And because trust is native to the technology, I call this, "The Trust Protocol." Now, you're probably wondering: How does this thing work?
A NEW WAY TO PAY
Assets, digital assets like money to music and everything in between are not stored in a central place, but they're distributed across a global ledger, using the highest level of cryptography. And when a transaction is conducted, it's posted globally, across millions and millions of computers. And out there, around the world, is a group of people called "miners." These are not young people, they're Bitcoin miners. They have massive computing power at their fingertips, 10 to 100 times bigger than all of Google worldwide. These miners do a lot of work. And every 10 minutes, kind of like the heartbeat of a network, a block gets created that has all the transactions from the previous 10 minutes.
Then the miners get to work, trying to solve some tough problems. And they compete: the first miner to find out the truth and validate the block, is rewarded in digital currency, in the case of the Bitcoin blockchain, with Bitcoin. And then this is the key part, that block is linked to the previous block and the previous block to create a chain of blocks. And everyone is time-stamped, kind of like with a digital waxed seal. So if I wanted to go and hack a block and, say, pay you and you with the same money or change a settlement or any legal document stored as data, I'd have to hack that block, plus all the preceding blocks, the entire history of commerce on that blockchain, not just on one computer but across millions of computers, simultaneously, all using the highest levels of encryption, in the light of the most powerful computing resource in the world that's watching me. Tough to do. This is infinitely more secure than the computer systems that we have today.
Blockchain. That's how it works.
When I pay my friend in crypto assets such as Bitcoin, what's happening is that I use my key to open my wallet, and then instruct the network to send Bitcoins to his address. Most Bitcoin apps today use QR codes to identify an address. You scan it, then swipe to use your key, and approve the transaction. with biometric scanning software in smartphones today it’s easier than ever. This information is shared throughout the global network “The Blockchain” within seconds.
THE LEDGER STRUCTURE
Back in the day, there were no apps and QRcode or biometric scanning software, you had to take your laptop with you or use paper wallets and “remember” your 25+ digits private key.
Using Bitcoins blockchain it´s every 10 minutes or so, one miner using energy beats all the others in a contest to solve a very difficult math problem. That miner is authorized to arrange the most recent transactions into a structured block and is rewarded in Bitcoins for this work. The protocol is called POW - Proof of Work. Today there are no single miners, but mining farms and mining pools, where hundreds of thousands of single miners are working together to get the next block and rewards.
All the data contained inside each block is represented by a checksum. The miner now adds the new block to the previous one. That's why it's called the blockchain. Now the ledger will be updated globally. The checksums of the previous block match the beginning of the new one, which is baked together forever. It's impossible to tanker with the data inside the block without changing the checksums and breaking the chain. This immutability is the first rule of Bitcoin, It means one can never change what was once recorded in the blockchain, or spend the same coin twice. That's also called censorship resistance, and it's critical to Bitcoin being used as real money.
A blockchain is a digital ledger or database where encrypted blocks of digital asset data are stored and chained together, forming a chronological single source of truth for the data. Digital assets are distributed, not copied or transferred. The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is a foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. The basic application of the blockchain is to perform transactions in a secure network. That's why people use blockchain and ledger technology in different scenarios. There are 4 types of blockchain: Public Blockchain, Private Blockchain., Hybrid Blockchain and Consortium Blockchain, each one of these platforms has its benefits, drawbacks, and ideal uses.
To validate transactions you need a synchronized wallet and specially designed computers using ASIC chip or GPU power hardware. The difficulty level of the blockchain made it almost impossible to get a block on your own. In the next post we will dig deeper into this.
“Penning for the thoughts” is a series compiled by the CEO and Co-Founder of Penning, Jimmie Hansen Steinbeck. A compilation of his vast experience, knowledge, failures, successes, know-how & ideas. Jimmie has spent the last decade (almost since the birth of bitcoin), working in the crypto, blockchain (now known as Web3) space, as an investor, entrepreneur, and expert advisor to numerous crypto companies.