Bitcoins. This is one of the hottest topics, not only in the high tech world, but in the financial services world as well. From binary options and Forex to payment systems, Bitcoins are everywhere and creating unprecedented inroads. In 2013, the value of Bitcoins increased fiftyfold and while everyone focuses on legitimacy and volatility. Everyone is overlooking the one innovation that makes this cryptocurrency unique. We are talking the “block chain.”
What is this “block chain?” It is the public ledger of all Bitcoin transactions. These transactions are verified on a peer to peer network when computers, that run Bitcoin software, reach a consensus which prevents forgery, double spending and other illicit acts. This block chain, supposedly, is the key to keeping this virtual currency transparent and secure. Not to mention it keeps it decentralized. This ledger makes sure that everyone that holds Bitcoins has an exact copy of all the transactions taking place to ensure everything is being recognized and is on the up and up.
History has shown us that institutions that are supposed to be trustworthy, like commercial banks and governments, can, at times, use deception. They do this when they have their own interests to protect or can fall victim to an attack, like cyber terrorism. This means this block chain can achieve success where other institutions and approaches have failed.
Communication is Secure in the Bitcoin Network
While Bitcoins offer an appealing notion of cutting out the third party and reduced fees, the block chain has other more fascinating features to offer. Bitmessage, have we seen the coining of a new word? This is a unique feature that allows users to send secured messages over the network. This uses peer to peer communications protocols very similar to the currencies transactions network. These messages are encrypted and blocks the sender’s identity so they cannot be hacked or emulated. This offers users of Bitcoin a better and more secure method of sending messages that can protect against spying. Makes the job of the National Security Agency (NSA) a bit tougher.
Another interesting feature of the block chain is the concept of “smart property.” The development of giving Bitcoins a secondary value is being developed. We are seeing colored “coins” being researched for this very purpose.
A company called ChromaWallet is working on this very notion now. This would allow, through smart technology, the current owner of the Bitcoin to be identified in the block chain. The benefit of this would be the elimination of paperwork used by third parties who need contracts in various situations.
Many Hurdles Remain in Bitcoins Path
Many outsiders, like you and I, are trying to become confident in this cryptocurrency called Bitcoins. Widespread adaptation which use the block chain is unlikely to happen. Until it does developers must create better user experiences and better documentation practices. We are seeing more and more people making apps that give users bad experiences. They are doing this because they do not know how to make better apps. This needs to change.
There also needs a better method to verify transactions regardless of size. This could be something that proves to be inefficient. For example, someone buying a sandwich or cup of coffee does not need a decentralized network to accomplish this task. A way needs to be developed to let small transactions be processed without providing an undue burden on the decentralized network currently in place.
There are many concerns regarding the block chain as it grows. Can it remain a reasonable task for them mining community to continue to operate efficiently as the block chain increases in length? The block chain grew from 10 GB to 15 GB in just six months. As it splits and multiplies, the data miners will have a tougher job. All of these risks add up to whether or not Bitcoins are here to stay or how they will change the world as we know it.