Innovation

Five big myths about the Bitcoin blockchain

The blockchain is the underlying technology for cryptocurrency and could potentially revolutionize how financial transactions are made in the future.

The blockchain is eternal. Every transaction logged to the encrypted and open public ledger technology is cryptographically locked, frozen in an inalterable public record. The code is the foundation of much-hyped cryptocurrency Bitcoin, as well a number of fascinating, if speculative, startups. The business and cultural potential of the blockchain excited business and developer communities, but technological reality of the code is often misunderstood.

The blockchain is a long string of code that acts as an ever-growing list, or database, of every Bitcoin transaction. The code is unique because it's inalterable, but publicly accessible through a web interface, through iOS and Android apps, downloadable using BitTorrent (a similarly named, yet unrelated technology), or using the remote procedure call (RPC) getblock.

Each transaction in the chain contains metadata about when and how the transaction was made. Superficially this transaction list appears as benign as a personal bank statement, but because the blockchain is both decentralized and difficult or impossible to alter, the metadata within each transaction record can be used as a platform for developing innovative technologies. Transaction metadata is public record and used to verify everything from personal identity to enforceable smart contracts.

READ: Cybersecurity spotlight: The ransomware battle (Tech Pro Research report)

"The blockchain is fascinating because the metadata is foundational," said developer and entrepreneur Marcus Estes in an interview with TechRepublic. Estes' company, Chroma.Fund, uses the blockchain to verify crowdfunding micro-transactions. "You don't have to care about Bitcoin to get excited about the potential of [the blockchain]." For example, Estes said, "we could associate an action like the sale of a share of stock with the chain and verify its authenticity."

The innovative and disruptive potential of cryptocurrency and the blockchain, developed by the mysterious Satoshi Nakamoto, has excited developers, financial speculators, and the media for nearly a decade. The code, however, is often overhyped and its potential overvalued. Here are five big myths about the blockchain.

The blockchain can be used for anything and everything.

Though the code is powerful, it's not magical. Bitcoin and blockchain developers can be evangelical, and it's easy to understand why. For many, the blockchain is an authority tied to mathematics, not the government or lawyers. In the minds of some developers the blockchain and smart contracts will one day replace money, lawyers, and other arbitration bodies. Yet the code is limited to the number of cryptocurrency transactions in the chain itself, and cryptocurrency is still far from mainstream.

The blockchain can be the backbone of a global economy.

No national, extra-national, or corporate entity owns or controls the blockchain. For this reason, evangelists hope the Bitcoin and private blockchains can provide foundational support for dozens of encrypted and trusted cryptocurrencies. Superficially, the Bitcoin blockchain appears massive. Yet a Gartner report recently claimed the size of the blockchain is similar in scale to the NASDAQ network. If cryptocurrency takes off, and records are generated larger, this may change. For now, though, the blockchain network is roughly analogous to contemporary financial networks.

The blockchain is decentralized.

Mining the blockchain requires computational resources. The chain itself locks the nodes—sectors of activity—at 1 MB, and nodes are generated approximately every 10 minutes. This means that while more transactions help the chain become more diverse, as the chain grows in size it requires more horsepower to aggregate data from nodes. The greater the resources required, the fewer the participants.

The blockchain and Bitcoin are distinct and separateable.

In technology, trends come and go. In 2012 and 2013, Bitcoin rode a wave of hype into the mainstream lexicon. Due to Bitcoin's association with the Dark Web and other unscrupulous actors, the currency's brand lost some of its sex appeal. Innovative startups like Chroma.Fund, Ethereum, and Early Temple decoupled their brand from Bitcoin and moved on to blockchain technology. While private blockchains do exist, the value of the blockchain comes from records generated by Bitcoin transactions. This means that the two technologies, though distinct, are linked.

The blockchain ledger is locked and irrevocable.

Analogous large-scale transaction databases like bank records are, by their nature, private and tied to specific financial institutions. The power of blockchain, of course, is that the code is public, transactions are verifiable, and the network is cryptographically secure. Fraudulent transactions— double spends, in industry parlance—are rejected by the network, preventing fraud. Because mining the chain provides financial incentive in the form of Bitcoin, it is largely believed that rewriting historic transactions is not in the financial interest of participants. For now. However, as computational resources improve with time, so too does the potential for chicanery. The impact of future processing power on the integrity of the contemporary blockchain remains ambiguous.

READ: Judge: Bitcoin not same as money in criminal case (CBS News)

Brooklyn blockchain developer Charles Hope agrees that the blockchain provides the building blocks for future innovation. "It's a platform and could help build countless new companies," Hope said, "but let's wait for the market to catch up before we get too excited."


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About Dan Patterson

Dan is a Senior Writer for TechRepublic. He covers cybersecurity and the intersection of technology, politics and government.

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