Bitcoin, cryptowallets and blockchain
Updated: Jul 5, 2020
In November 2017 PwC, one of the worlds largest accountancy firms, accepted its first ever bitcoin payment for its advisory services, only the second such firm to do so. Less than a month later, the news headlines were awash with stories on a bitcoin buying frenzy and a price approaching $20,000 (a staggering 20 times higher than at the start of 2017).
Many respected financiers and commentators were forecasting a bubble with comparisons to some of the most famous financial bubbles in history. Less than a month later the volatile price is much closer to $14,000 and moving haphazardly.
At Furasta we are not in the business of giving financial advice but we are interested in how technology works and how it could affect both our business and that of our clients’ so we started to investigate and picked up “four essential facts about bitcoin” from “The Conversation” which we wanted to share below:-
What is bitcoin? It’s one of many cryptocurrencies – but the only one that has grabbed the headlines. It is a type of digital currency, created and regulated by a network of thousands of computers (known as peers) using encryption techniques. Because of this, its production is independent from any authority, such as banks and sovereign states – and trust in the bitcoin is produced by the technology itself. How does this happen?
Meet the blockchain: Simply put, the blockchain is a very restricted database, whose entries are the bitcoin transactions. The blockchain operates as a digital ledger of transactions. Just like regular businesses that keep a record of money coming in and going out, users of the cryptocurrency need to record all bitcoin-based transactions. The difference is that the blockchain is a decentralised and distributed, open-access ledger whose records are permanent and verifiable by the network of peers. So everybody can view past transactions, but nobody can alter them without having the consent of the majority. This means that the blockchain doesn’t exhibit weaknesses associated with traditional ledgers. The blockchain technology is secure by design.
How are bitcoins produced? Through mining, which is undertaken by the peers of the network. The miners are people and organisations that connect their computers in the network to offer processing power, using special software to solve very difficult algorithms, while leveraging the power of advanced computers and graphic cards. In return for their services (creating new bitcoins, authenticating transactions, maintaining the blockchain), they get rewarded with new bitcoins.
Where are bitcoins stored? A cryptowallet – which is a software application that stores private keys (code that looks like a very long PIN) – is where all bitcoins are stored. These private keys are connected to public keys (code again, but the equivalent would be a bank account). The best way to understand how a cryptowallet works is to think of it, in similar terms, as a secure connection between a person’s PIN to their bank account, which then allows them to check balances and make payments.
Bitcoin is not the world’s only cryptocurrency, there are estimates of over 700, with example names such as Litecoin, Ethereum, Zcash, Dash, Ripple and Monero.
An example project announced in 2017 that has the potential to use the proven application of blockchain arising from cryptocurrencies such as bitcoin, is the tracking and recording of property data by HM Land Registry and we await details with interest. Whatever happens to bitcoin the underlying technology lessons learned look set to challenge and alter the way we do business in the future.
If you would like more details, or to discuss any aspect of the above, please get in touch.