A person named Satoshi Nakamoto, whose true identity remains unclear, wanted to revolutionize online commerce. That’s why I created Bitcoin in 2007. With digital currency, online payments should also work without banks and middlemen. Sending money should be as fast and easy as sending a message to a friend. What Nakamoto created was a system for processing payments and their guides where power is not found in many banks and the central bank, but is distributed evenly among all currency holders. They are supposed to control each other. A technology called “Blockchain” should guarantee this.
Fourteen years later, there are about 10,000 different cryptocurrencies, almost all of them based on this technology. For some, this is actually a revolution, for others it is guesswork crazy. Anyone with in-depth IT knowledge can program a virtual currency. On the other hand, investors who buy virtual assets often have no idea how the technology behind their digital money works. For the sake of simplicity, blockchain is explained using the example of a cash book or chain of ships.
Each of the chain links is a data segment in which information about the transactions is written. At the top of the chain are the transfers today, and the further down the chain you move, the older the transfers. It is vital that all transactions on the chain made in the history of the cryptocurrency are displayed at any time. This blockchain gives private security: It’s like an open, transparent payment history that’s always visible to everyone. The idea was to create a transparent superbank without a center. If someone tries to tamper with a transaction, the incident quickly becomes apparent to everyone in the network. It should make this cheat useless.
Even artworks can be saved
So how is Bitcoin created? You can also imagine it like a ship chain – but in the form of a computer file. If someone transfers to a friend, the transaction appears not only on the screen of the respective parties, but on everyone who owns Bitcoin. This is where the Bitcoin money is created: the ‘mining’. Principle: Those who specifically scrutinize the chain of transactions and create them are rewarded. In some kind of lottery, an algorithm withdraws roughly 6.25 Bitcoins every ten minutes for one of the miners that verify transactions. In total, Bitcoin is limited to 21 million. The more computing power a miner or group of miners invests, the more likely they are to receive Bitcoin as a reward. As its value rose steadily, this system led to an arms race. Bitcoin farms around the world have grown from large quantities of special devices that consume huge amounts of electricity.
The potential of blockchain technology goes beyond payment transactions and storing funds. Any digital information – and thus also artwork, securities, or contracts – can be stored on chain links.