“Blockchain is the tech. Bitcoin is merely the first mainstream manifestation of its potential.” — Marc Kenigsberg
If you have seen the news at all in the last year, then you have definitely heard about Bitcoin. This is largely due to the fact that it was the first cryptocurrency to market back in 2009 and started the whole ‘craze’.
It would have been tough for you to get through a day in 2017 without hearing the word Bitcoin, and for good reason. At the beginning of 2017, Bitcoin cracked the $1,000 USD threshold for the first time. Within the year it saw an unfathomable rise to nearly $20,000 USD. Since January of 2018, the hype has been settling down, and as of January 2019, one Bitcoin hovers around $4,000 USD.
Bitcoin and cryptocurrency are complex topics, and we could go into the nuances of each, but we’ll leave that to specialized blogs like Cointelegraph or CoinDesk. What we want to provide you with is an overview of cryptocurrency and the technology that makes it possible. That way you can have a basic understanding and, if you so choose, do more detailed research with minimal confusion.
But before we get more into Bitcoin, you need to know more about cryptocurrency and the technology behind it.
Cryptocurrency Crash Course
Although Bitcoin is currently the most popular cryptocurrency, the two terms are not interchangeable. A cryptocurrency is very much as it sounds; a digital currency, with security promised through high-level cryptography (i.e. coding protocols) which make them virtually impossible to hack.
Cryptographically secured currency is something relatively new to the finance world. Since we’ve never seen anything like it, it’s logical that everyone is so engaged and curious about the topic. But preventing fraud and human interest isn’t the main reason cryptocurrency is so useful.
Perhaps one of the strongest points in favor of cryptocurrency is the capacity for it to be decentralized. Unlike fiat money (our current monetary system), which relies on a middleman to manage it, a cryptocurrency belongs to everyone who owns it in a peer-to-peer system. Thus, they are immune to government interference and manipulation.
Maybe most importantly, cryptocurrency diminishes the human element of greed that can lead to mistakes. For example, crashes like that of 2008, could have potentially been avoided if mortgage transactions were made peer-to-peer, free from the meddling of the brokers involved.
You might be thinking, “if nobody is managing my money, who tracks how much I have?” That’s where Blockchain, the technology behind cryptocurrency, comes in.
Although cryptocurrency and Bitcoin have been in the spotlight over the last several months, it is really Blockchain technology that is the star of the show. It’s fair for some people to disagree with Bitcoin and see cryptocurrency as a fad, but it’s tough to discredit the ingenuity that is Blockchain.
So what is Blockchain technology?
Blockchain refers to the network of ledgers or logs, of recorded transactions that make the decentralization of all cryptocurrencies possible. We repeat, it makes ALL cryptocurrencies possible.
Here’s how it works in a nutshell.
Every computer on the Blockchain network holds a ledger. This means every computer on the network has a copy of ALL the transactions that have taken place over the Blockchain.
Once a transaction is made, it is verified by other network ledgers to verify that it is legitimate. If, for example, someone were to make a fraudulent transaction or alter their ledger, all other ledgers would “disagree” and the transaction would not be processed.
On the other hand, if a legitimate transaction were completed, then all ledgers on the network would be automatically updated.
Because of Blockchain technology, there never has to be a central authority that needs to process transactions and charge fees to cover its operating expenses (and make a profit). All updates in the network are made possible for free by a collective of users, and transactions are processed automatically. This creates a more streamlined and cost-effective system that is just beginning to be explored in finance.
The security that comes with decentralization is also something that current financial institutions need to start looking into. Since cryptocurrency data is stored across a Blockchain network, the risk that comes with holding data at a single server is eliminated.
We want to emphasize that there is no single point of vulnerability for a hacker to target. If someone did want to hack the network of ledgers, they would need to have the processing power to hack every single computer over the network – that’s $2.5 bn in energy.
Is Bitcoin the New Bank?
Bitcoin was the first to rely on a peer to peer system and show the world that there is no need for banks or similar institutions.
It is easy to misinterpret digital transactions as being less secure than traditional options because of the misconception that comes with online security. But as we explained earlier, Blockchain technology means that Bitcoin transactions are actually more secure, on top of being more efficient.
Banks on the other hand, are much more insecure than Bitcoin because they need so much of our personal information. This makes it easier for them to verify our identities if (or when) things go wrong. At the same time, having all our information in a centralized database also makes us more vulnerable to identity theft.
Furthermore, in the current state of centralized peer to peer transaction, banks must be entirely involved and know everything about you so that they can track corrupt borrowers and lenders. This is especially true because physical currency can be counterfeited, and credit cards can be wrongfully charged or reversed.
With Bitcoin, there is no need to report to a central authority or bank. Bitcoin transactions are made between “crypto-wallets”, which are similar to transfers between bank accounts. The difference is that there is no need to know any other information about the parties involved besides their “key” or wallet-address. When a transaction for Bitcoin is requested, a pre-coded protocol checks previous transactions and confirms that the sender can provide the necessary Bitcoin and has the authority to send them as well.
If we did not have to be concerned about lost money or fraudulent accounts, institutions would not have to be so heavily involved in our transaction processes, and we wouldn’t have to provide all of our sensitive personal information.
Should you close your bank account and buy Bitcoin instead?
We don’t necessarily believe that Bitcoin will replace traditional currencies, so you’ll still need to hold on to your bank account for a while. What we do believe, is that any push for forward change in finance is valuable and should be treated as such.
There must be a reason Bitcoin made it to the forefront of pop culture over the last year. Although most of its popularity is through speculation, we have become believers of the Blockchain technology behind it.
We see the potential for Blockchain to be adopted by businesses across the world. Commercial banks are just one of many who are already looking to improve their services through the integration of Blockchain.
The idea behind Bitcoin is a strong step in the right direction for finance, but it is not the last step. We are confident that, like Emperor, cryptocurrency is a spark for the industry to move in the right direction.
As with any of our projects and blogs, we encourage you to engage with us via email or Twitter and share your thoughts with us to take into consideration. Ideally, this blog can be like our own ledger – because we can continually update it, and it’ll always be available for you to come back to.
Thanks for reading,
The Emperor Team