In 2013, a Norwegian called Kristoffer Koch nearly became a millionaire by accident.
Four years earlier, Koch had invested 27 dollars in the new bitcoin virtual currency. He promptly forgot the whole investment until the media started spreading the big news about bitcoin. By then, Koch’s 5000 bitcoins had increased in value to 886 000 dollars. The astronomical growth of the value of bitcoin had started.
Bitcoin is the very first distributed digital money that you can trade without intermediaries such as banks or credit card companies. Instead, the technology behind bitcoin, blockchain, ensures that the system cannot be limited or tampered with. Instead of banks, countless copies in different computers around the world take care of the accounts and payments.
What is blockchain?
Blockchain is a technology that enables the world’s first distributed and transparent database. Anyone willing can maintain this database anonymously and reliably. In bitcoin’s case, the administrator should only have the bitcoin server application installed in his computer.
Blockchain technology consists of different blocks that include data. Each block has a reference to an earlier block, hence creating a chain of blocks. The block contains also the hash of the previous block and this hash can be used for detecting possible tampering attempts: any change made afterwards in the blocks will alternate the hash of the whole chain.
In bitcoin’s case every transaction ever made can be found in the blocks’ data. Every transaction is public for everyone interested seeing it. However, the transactions are anonymous because the virtual wallets are not linked to any personal information.
The possibilities and the future
In the bitcoin system, the accounting of the transactions are stored in blocks. Yet the blockchain technology allows to store information in various other forms, too. Blocks may contain for example files, text, photos or code. This technology offers completely new opportunities to build services and to store data.
Getting rid of the intermediaries could fasten and clarify the action of several fields of business. The clearing processes always take some time when the intermediaries are involved. For example, a company named Ujo Music currently exploits the blockchain technology. The company focuses on making the music copyright processes faster and more transparent.
At the moment, there is only a limited amount of companies using blockchain technology. Most of them are focusing on the virtual currency. The development of blockchain technology is rapidly going forward. Even the biggest global tech companies, such as Google, Microsoft and IBM, have started their own blockchain research programs.
Text: Anna Pihlajamäki