That was my question when we became curious about Bitcoin, which led me down the rabbit trail of a variety of different crypto-currencies (for simplicity I’ll refer to them as altcoins) which are powered by blockchain technology. Hopefully, by the time you finish this you’ll feel as though I’ve answered it, at least in part. I’m excited about the possibilities, and added a couple of them as payment options in here in the shop – all you have to do is select it when you checkout and use your favorite altcoin. I would like to see them get to a point where we can use them regularly for purchases, but that’s another discussion.
My geeky impulse for new technology aside, (and let’s face it – this is a geeky thing), altcoins and blockchain are hitting the mainstream, making more people curious. Blockchain will likely have a huge impact on our daily lives, but to understand the possible impact, you need to have a basic understanding of how it works. This understanding is something I am still working on, because it’s a big idea. If you have something to add to the conversation or questions about it, I want to hear from you – use the comments section below so we can all discuss it.
The idea behind blockchain is that it’s decentralized and publicly maintained, making the risk of hacking significantly lower. If this sounds crazy, don’t worry because I thought so too – but it’s crazy like a fox. All altcoin transactions are recorded in a public ledger, which is maintained by the network. The network is a group of computers (each is called a node) that all run the same software for a given altcoin, and keep a complete copy of the public ledger. When a new transaction happens, it needs to be added to that ledger, but first the network needs to verify it.
Here’s an example:
- Joe wants to send his friend Jane .5 Bitcoin because he’s feeling generous.
- He asks Jane for her Bitcoin address and she provides it either with the long alpha-numeric address or a QR code.
- Joe either scans the code (much easier) or enters the address, the amount and hits “Send.”
- That transaction gets added to the queue of pending transactions, and the network begins to process it.
- Each node on the network needs to verify it – there could be hundreds or even thousands of nodes.
- After 51% of the nodes have confirmed it as a good transaction, it’s added to the ledger as part of a block (a series of blocks forms the blockchain).
- Once a transaction gets added, it is permanent and unchangeable.
The real security is the fact that it’s public and open source – any tampering would be really obvious and require a conspiracy so big it couldn’t stay hidden. A hacker would have to simultaneously hack into 51% of the nodes – that’s a lot of hacking and a lot of computer power. It is completely contrary to the way we have always done security: Centralized with limited access. The reason it’s more secure than centralized security methods, is because in order to tamper with say, a bank’s ledger – you only need to hack into the central repository. The central repository then propagates the information to subsidiaries.
Like I said, it’s crazy like a fox.
Here’s the thing – the transfer of “money” in the form of an altcoin is really just a transfer of control of that area of data. It’s vastly different from how banks “create” and transfer money, which you can learn about in Bitcoin: The End of Money As We Know It, a documentary I found on Amazon. It has a few mistakes, and they skip over the role of the Knights Templar in modern paper money, but there’s a lot of very good information and I’ll never look at money quite the same again.
Next page: Blockchain is the future