Blockchain: Blueprint for a New Economy

blockchain technology, the protocol and

client through which transactions are

effected, and the actual cryptocurrency

(money); or also more broadly to refer

to the whole concept of

cryptocurrencies. It is as if PayPal had

called the Internet “PayPal,” upon which

the PayPal protocol was run, to transfer

the PayPal currency. The blockchain

industry is using these terms

interchangeably sometimes because it is

still in the process of shaping itself into

what could likely become established

layers in a technology stack.

Bitcoin was created in 2009 (released

on January 9, 20096) by an unknown

person or entity using the name Satoshi

Nakamoto. The concept and operational

details are described in a concise and

readable white paper, “Bitcoin: A Peer-

to-Peer Electronic Cash System.” 7

Payments using the decentralized virtual

currency are recorded in a public ledger

that is stored on many—potentially all—

Bitcoin users’ computers, and

continuously viewable on the Internet.

Bitcoin is the first and largest

decentralized cryptocurrency. There are

hundreds of other “altcoin” (alternative

coin) cryptocurrencies, like Litecoin and

Dogecoin, but Bitcoin comprises 90

percent of the market capitalization of

all cryptocurrencies and is the de facto

standard. Bitcoin is pseudonymous (not

anonymous) in the sense that public key

addresses (27–32 alphanumeric

character strings; similar in function to

an email address) are used to send and

receive Bitcoins and record

transactions, as opposed to personally

identifying information.

Bitcoins are created as a reward for

computational processing work, known

as mining, in which users offer their

computing power to verify and record

payments into the public ledger.

Individuals or companies engage in

mining in exchange for transaction fees

and newly created Bitcoins. Besides

mining, Bitcoins can, like any currency,

be obtained in exchange for fiat money,

products, and services. Users can send

and receive Bitcoins electronically for

an optional transaction fee using wallet

software on a personal computer, mobile

device, or web application.

What Is the Blockchain?

The blockchain is the public ledger of

all Bitcoin transactions that have ever

been executed. It is constantly growing

as miners add new blocks to it (every 10

minutes) to record the most recent

transactions. The blocks are added to the

blockchain in a linear, chronological

order. Each full node (i.e., every

computer connected to the Bitcoin

network using a client that performs the

task of validating and relaying

transactions) has a copy of the

blockchain, which is downloaded

automatically when the miner joins the

Bitcoin network. The blockchain has

complete information about addresses

and balances from the genesis block (the

very first transactions ever executed) to

the most recently completed block. The

blockchain as a public ledger means that

it is easy to query any block explorer

(such as https://blockchain.info/) for

transactions associated with a particular

Bitcoin address—for example, you can

look up your own wallet address to see

the transaction in which you received

your first Bitcoin.

The blockchain is seen as the main

technological innovation of Bitcoin

because it stands as a “trustless” proof

mechanism of all the transactions on the

network. Users can trust the system of

the public ledger stored worldwide on

many different decentralized nodes

maintained by “miner-accountants,” as

opposed to having to establish and

maintain trust with the transaction

counterparty (another person) or a third-

party intermediary (like a bank). The

blockchain as the architecture for a new

system of decentralized trustless

transactions is the key innovation. The

blockchain allows the disintermediation

and decentralization of all transactions

of any type between all parties on a

global basis.

The blockchain is like another

application layer to run on the existing

stack of Internet protocols, adding an

entire new tier to the Internet to enable

economic transactions, both immediate

digital currency payments (in a

universally usable cryptocurrency) and

longer-term, more complicated financial

contracts. Any currency, financial

contract, or hard or soft asset may be

transacted with a system like a

blockchain. Further, the blockchain may

be used not just for transactions, but also

as a registry and inventory system for the

recording, tracking, monitoring, and

transacting of all assets. A blockchain is

quite literally like a giant spreadsheet

for registering all assets, and an

accounting system for transacting them

on a global scale that can include all

forms of assets held by all parties

worldwide. Thus, the blockchain can be

used for any form of asset registry,

inventory, and exchange, including every

area of finance, economics, and money;

hard assets (physical property); and

intangible assets (votes, ideas,

reputation, intention, health data, etc.).

The Connected World and

Blockchain: The Fifth

Disruptive Computing Paradigm

One model of understanding the modern