Most of the time, sending money is risky. If you want to pay your rent or invest in the stock market or even send somebody $10 for pizza in a phone app, there isn’t a lot to stop a hacker from taking that money for himself. Every transaction must run through a central institution, and all it takes is a weak link in that institution’s security to leave your finances and personal information up for grabs. But with the advent of blockchain technology, financial transactions are becoming fast, secure, and difficult to hack.
What The Bitcoin Is Blockchain?
Part of the reason blockchain works is because it’s democratic: anyone can pitch in to ensure the network’s security — and get some money for the effort. If you don’t believe us, check out the video below about a Bitcoin mine in China. At that mine’s peak, it was generating 100 Bitcoins a day. The mining operation has six sites. At today’s valuation, that’s a combined output of more than $2.5 million every day. And business is booming.
The difference between traditional finance transactions and blockchain exchanges is sort of like the difference between a Microsoft Excel spreadsheet and a Google Sheets spreadsheet. You can send an Excel spreadsheet to a friend to make changes, but you have to wait until they save their work and send it back before you can make any more changes yourself. That’s how banks move money right now: one bank locks access to the balance being transferred until the recipient bank confirms they’ve received it. All that coordination and synchronization takes a lot of time and effort.
On the contrary, if you want to edit a shared Google Sheets spreadsheet, both people have access at the same time and can always see the changes being made. Now just multiply that to many thousands of home computers, and you start to get a sense of what’s known as the blockchain ledger. It’s an open, distributed network of individual computers, or “nodes,” that each hold bundles of records known as “blocks.” Those blocks are visible everywhere on the network, but they’re kept safe using a kind of math called cryptography. When someone requests a transaction, it’s sent over the network where it’s visible to all of the computers, which run a series of algorithms to “vote” on the authenticity of the transaction. Once it’s confirmed, that transaction is combined with other transactions to create a new block for the ledger, making it permanent and unalterable. The fact that it’s visible to every node makes it virtually impossible to cheat, too.
Bitcoin Miner’s Daughter
There’s one more important part to the blockchain: mining. It takes a lot of computing power to verify a transaction, so nodes in the network have to have an incentive to help out. Verifying a transaction involves shuffling through many blocks in the chain, which requires racing with other nodes to solve difficult computing problems. When one node beats the others to the solution, it’s rewarded with digital coins. The owners of those nodes can use those coins in their own transactions, thereby putting more digital currency into circulation. As the value of Bitcoin and other cryptocurrencies continues to skyrocket, more and more entrepreneurs are opening “mines” like the one in the video below.
You can even “mine” the currency yourself. If you wanted to start collecting the currency called Ethereum, you could even build a rig and leave it in your garage to go to work. (Instructions in the video below.)
The Future Is Distributed
Blockchain is especially a boon to people in less developed areas, where big banks are hard to come by. But the distributed network model isn’t just good for passing money around. It can also be used to secure contracts, patents, file storage, Internet of Things devices, and even elections. With trust baked into the transaction instead of coming from a middleman, virtually everything could be fairer and more secure. The technology is still new, but proponents say that its widespread adoption is all but inevitable.
“Blockchain is essentially a technology promise, but like any promise, it needs time to materialize, and it requires us to understand it, in simple, yet compelling terms,” writes William Mougayar, author of “The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology.” “Today, no one forces you to use the Web, but can you afford not to? The blockchain will face a similar fate on its journey to becoming the best new tool of this decade.”
Life Inside a Secret Chinese Bitcoin Mine