The meteoric growth of Bitcoin last year saw cryptocurrency break into the mainstream. Bitcoin’s value skyrocketed to $1,000 per coin in early January of 2017, and peaked at around $20,000 in mid-December. Those who bought into Bitcoin early were rewarded with dividends beyond the most optimistic stockbroker’s wildest fantasies. Mortgages were paid off, Bugattis were bought, and fortunes were made overnight, giving rise to the phenom of the “Bitcoin millionaire.”
In the aftermath of Bitcoin’s mainstreaming, economic analysts who once mocked cryptocurrencies’ potential were forced to reevaluate their stance. Although some remain wary–perhaps rightfully so–it’s clear that, for many investors and alternative currency enthusiasts, digitized money holds an undeniable allure. Much of the appeal stems from cryptocurrencies’ use of blockchain technology–a method of digital bookkeeping in which anonymous transactions are conducted and verified without the involvement of a third party.
In contrast to crypto’s newfound spotlight, the origins of blockchain are somewhat shadowy. Bitcoin–and the blockchain tech used to trade it–was invented in 2009, by a person or group known only by the pseudonym “Satoshi Nakamoto.” Nakamoto characterized blockchain as a safe, efficient, and cost effective way to exchange Bitcoin and other cryptocurrencies.
Blockchain functions as a highly encrypted, decentralized ledger. When an anonymous user requests a transaction, the exchange is broadcast to all computers, or nodes, in the network, and validity is confirmed via the completion of consensus algorithms. Each transaction is then recorded in a page-like database, or “block,” and shared across a peer-to-peer network, creating a “chained” together series of entries. Once a block is verified and added to the chain, its data is locked in place.
The result is a public record of all transactions; completely decentralized, yet accessible to all. Blockchain’s system of registers is equally distributed and connected, so it doesn’t suffer from traditional human and machine errors. No exchange can take place without the consent of involved parties. Blockchain’s lack of a centralized weak point also dramatically reduces the likelihood of data corruption and hacking.
Cryptocurrencies like Bitcoin have proven what blockchain can accomplish so far. Bitcoin’s success is evidenced by its widespread adoption, not to mention the fact that crypto’s daily trading volumes have managed to rival the New York Stock Exchange. But Bitcoin’s original foray into blockchain was only the start; now, the technology has been refined and redistributed in the form of cryptocurrencies like ethereum. Generated by an open-source, blockchain based platform, ethereum offers a public source code that can be adapted to conduct transactions involving any digital asset. Many of today’s digital tokens are ethereum-based.