The Blockchain and How It Works!
The worldwide blockchain technology market is forecast to reach $7.74 billion by 2024, with the financial services sector accounting for the majority of the future market growth, predicts a new report (Research, 2017). The global blockchain technology market size was valued at USD 509.1 billion in 2015 and is predicted to gain momentum over the forecast period. Pundits, dare to say that it is like watching the birth of the Internet all over again. Of course, just as the TCP/IP-based internet led to a revolution, the blockchain protocol is going to ride the same wave.
This reminds me of a TED talk I was watching when the co-founder at WIRED, Kevin Kelly, stated, if my memory serves me right, that a technological shift/epoch ensues every decade or so. The mystique of the 5000 Days, I romantically refer to that period of time. However, I should state that Bitcoin has been sharply criticized as a form of currency or investment. The real opportunity, the critics say, is in the tech. That means just viewing Bitcoin as a technology whose underlying infrastructure is powered by a distributed network called the blockchain, which is ludicrous to me since each is the other and the other is each, I strongly felt that that tautology was necessary. We note that most of the new investment pouring into the Bitcoin industry is focused on this aspect of the technology.
Granted, what is the blockchain, anyway? The blockchain is where a network of computers unbeknownst to each other are distributed and synchronously harbour a copy of all Bitcoin transactions confirmed in the network. We see that this is well the first iteration of decentralized computing infrastructure that proves not all members in the network have to be known, as long as they subscribe to the same rules. So serving as an aide de camp to human nature, the rules, in this regard, are managed by a consensus algorithm, which ensures cooperation across the network and operates like a checks and balance system. In the end, math tames the wild beast that is the human; beauty and the beast. Additionally, copies of the blockchain are either in consensus or not, and those that are can proceed to maintain a copy of the ledger.
So how does this all work? A Bitcoin network is a decentralized network. Hence, every time a transaction occurs between the members of this network, it needs to be verified and validated so as to ensure that every transaction occurring within the network is between two individual accounts. That there is no risk of double spending. This process of verification is carried out by some members of the network called miners. The miners use specialized and easily available software along with the processing power of their computers to verify the transactions. This sounds simple enough, but the processing power required to do so would be Nephilimian at best. And since the miners are using their bandwidth and electricity to do the verification process, they need to receive a consideration.
Now, we have arrived at the crux of the matter. Every few minutes a ‘block’ of all the transactions occurring over the Bitcoin network is created by a miner. Essentially the miner has created a verified transaction file which holds a copied record of all the transactions that have taken place in the network over the past 10 minutes. The word to highlight here is verified. Assuredly, the miner uses the computational power of their computer to give confidence to all members of the network that each transaction is between 2 parties only and that no double spending has arisen.
For their efforts, the miners are compensated in bitcoins. The total amount of bitcoins that can ever exist is fixed at 21 million. As the quantity of money is fixed, the payment made to the miner is much like mining currency out of a reservoir. As each transaction in every block is made at a specific time, a block is linked to the previous block of transactions. The grouping these blocks become, yes folks, the blockchain. The grouping is dictated by the consensus algorithm that is the Blockchain protocol. I should state that since Satoshi’s White paper surfaced online, other crypto-currencies have been given form, such as Ethereum. With that said, irrespective of the currency and the frequently debated deflation issues, the underlying blockchain protocol and the distributed computing architecture used to achieve its value remain unchanged.
It cannot be denied that the open communications protocol “the Internet” has laid the foundation for the creation of profitable business services by skyrocketing innovation, the Bitcoin blockchain protocol offers a similar foundation on which businesses can create value-added chains. Utilizing the integrity fretwork of the transactions, a whole suite of value trading innovations are making their entrée into the market.
The question is who will they benefit?
Research, G.V. (2017) Blockchain technology market size, share | industry report, 2015-2024. Available at: http://www.grandviewresearch.com/industry-analysis/blockchain-technology-market (Accessed: 28 January 2017).