Everyone by now has heard of Bitcoin and may even have heard of crypto-currencies. They would also have heard rumours that it is illegal, was started by a mysterious Japanese computer genius, or have heard that he is billionaire computer genius intent on “overthrowing” the existing world order with a disruptive technology known as “block chain?” So let’s start; the basic idea of block chain started as far back as 1991 when a group of computer scientists developed the technology of “digital timestamps,” the idea was to digitally timestamp original documents sent over the internet so it could not be tampered with as if having a watchful online, ever vigilant online notary on your side? But unfortunately, the idea never gained much traction and few people took notice of it so it disappeared from public view.
Like with some ideas, they are either too early or too late. In this instance, the idea was indeed too early because we had not developed the computing power just yet to drive that type of technology. In 2009, a brilliant Japanese computer genius, one Satoshi Nakamoto, created the world’s first digital cryptocurrency, called Bitcoin using block chain technology that he had by then developed and near perfected. So what exactly is block chain and how does it work.
A “block” is a package or block that contains information like the date the block was created, the time, the senders information, the amount of money transacted and the receiver’s information, but it also contains other information like when the block was created, its unique hash (which is its digital identification or fingerprint), the hash of the previous block (so its previous transaction can be traced) and this sequence of blocks is known today as a “blockchain” because of its interconnectivity to each other in a sequence called, “bock chain.” So let’s look at the genius behind Nakamoto’s safeguards he built into Bitcoin to make it “opensource” or shall we say “permissionless.” This means that every single user on the blockchain can access every single transaction that occurs.
So let’s say that I send money to my sister who is a first time user of Bitcoin. The system creates what is called a “genesis” block, which is the first block in the sequence with its own unique hash, it records the time and dates the block was created, my details, the amount I sent to her and the hash of my block that I’m transacted from. Once this is done, the P2P system, (peer-to-peer system), this means that all the users computers on the network, together with 6000 other computers worldwide attempt to verify my transaction. It does this in what is called an “open ledger,” like having a transparent auditor within the system that acts in the interest of the system only. Once more than 50% of the computers agree that the transaction is legitimate, it is verified by all the other computers as a transaction, and my sister can then transact as she wishes, let’s say making a withdrawal of a purchase of goods and services using the Bitcoin. This type of transparency is known as a “distributed ledger” that is open to scrutiny by everyone that transacts in Bitcoin.
So you may argue that some computer geek with access to a superfast computer can hack the system, create new hashes (the unique fingerprint type identification) and make himself a fortune in the process? Well, there are two additional safeguards that the creator of Bitcoin built into the system. One of the criteria for a block to be verified is a mechanism called. “Proof of work,” an ingenious attribute that deliberately slows down the creation of new blocks (10 minutes), in a “slow and steady” fashion before the block is verified. This design feature is meant to thwart the possibility of using high-speed computers to change the hashes of a chain of the block (basically it will take too long if there were 1000, 10 000 or 100 000 blocks in a chain.
An additional safeguard is to have the transactions distributed instead of having a central entity to manage the chain-like previously explained, it uses a P2P network, this means that when you join, you the user gets access to and a full copy of the blockchain like every other user of Bitcoin or the other crypto-currencies on the system. A further security feature of the system is the use of 6000 co-located computers worldwide that is the backbone of the system.
