Bitcoin's monetary concept reshapes human trust awareness

The Economist pointed out in an article that Bitcoin was born from a liberal monetary ideal, and its connotation has far exceeded the innovative currency itself. Its real potential lies in the blockchain technology behind it - in simple terms, it is a machine that builds trust among people, allowing strangers to cooperate without going through a neutral central management agency. This article has certain reference value.

The technology behind Bitcoin could change the way the economy works

Bitcoin has a bad rap. The decentralized digital cryptocurrency, backed by a vast network of computers, has gained notoriety for many reasons: its surging prices, its fanatical supporters and its depraved uses, such as blackmail, buying drugs and hiring hitmen on online bazaars on the “dark web.”

That’s unfair. For much of this year, bitcoin’s price has been relatively stable, at about $ 250 a bitcoin . Among regulators and financial institutions, skepticism has been replaced by enthusiasm (the European Union recently recognized it as a currency). But the biggest injustice is that bitcoin’s murky image has led people to overlook the extraordinary potential of the blockchain technology that underpins it. The impact of this innovation goes far beyond cryptocurrency. Blockchain allows people who don’t particularly trust each other to cooperate without going through a neutral central authority. In short, it’s a trust-building machine. Chain food chain

To understand the capabilities and uses of blockchain systems, it’s important to distinguish between three commonly confused concepts: Bitcoin, the specific blockchain that powers it, and blockchain in general. An analogy might help: Napster , the first illegal P2P file-sharing service that launched in 1999 and offered millions of songs for free. Napster was quickly shut down, but it inspired a host of other P2P services, many of which were also used to pirate music and movies. Despite its questionable origins, P2P technology has found legitimate uses , powering Internet startups like Skype (phone calls) and Spotify (music streaming) and, coincidentally, Bitcoin.

Blockchain technology is even more powerful. It is essentially a shared, trusted public ledger that is viewable by everyone, but not controlled by a single user. The participants in a blockchain system jointly maintain an updated ledger: the ledger can only be modified according to strict rules and with universal consent. Bitcoin's blockchain ledger avoids duplicate payments and keeps track of transactions. This makes it possible to have a currency without a central bank.

Blockchain is also the latest example of an unexpected outcome from cryptography

Blockchain is also the latest example of an unexpected achievement in cryptography. Mathematical scrambling is used to compress a raw message into a code, called a hash . Any attempt to tamper with any part of the blockchain would be immediately detected because the new hash would not match the old one. Thus, somewhat paradoxically, a technology that keeps information private—critical for encryption, online shopping and banking —is also a tool for public transactions.

Bitcoin itself may never be more than a curiosity, but blockchains have many other uses because they satisfy the need for a trusted record that is essential to any transaction. Dozens of startups are now looking to capitalize on the technology, doing clever things with the bitcoin blockchain or creating their own.

For example, one idea is to create cheap, tamper-proof public databases for things like land registries (Honduras and Greece are interested) or registers of ownership of luxury goods or works of art. By embedding the relevant information into a public blockchain to notarize a document, you no longer need a notary’s certificate. Financial services companies are mulling using blockchain to replace a series of internal ledgers to record who owns what. A trusted private ledger eliminates the need to verify every transaction with a counterparty, which is faster and minimizes errors. Santander estimates that the technology could save the banking industry as much as $ 20 billion a year by 2022. Twenty-five banks have teamed up with a blockchain startup called R3 CEV to develop common standards, and Nasdaq is also planning to start using the technology to record securities transactions in private companies.

These new blockchains don’t have to work in exactly the same way as Bitcoin. Many of them could tweak the model, for example by finding alternatives to the energy-intensive “mining” process, in which miners are rewarded with newly minted bitcoins for providing the computing power needed to maintain the ledger. Or, a group of vetted players in an industry might agree to join a private blockchain because it requires less security. Blockchains could also be used to enforce business rules, such as a transaction that can only take place if two or more parties endorse it, or if another transaction is completed first. As with Napster and P2P technology, a good idea is being modified and improved. In the process, it’s quickly shedding its bad reputation.

The spread of blockchain is bad news for anyone in the “trust business” — those central organizations and bureaucracies, such as banks, clearing firms, and government agencies, that are deemed trustworthy enough to process transactions. And even if some banks and governments explore using this new technology, others will undoubtedly oppose it. But given how trust in governments and banks has eroded in recent years, having a way to generate more oversight and greater transparency isn’t a bad thing.

It would be a mistake to impose regulations on blockchain at this early stage: the history of P2P technology suggests that it may take years for the full potential of the technology to become clear. In the meantime, regulators should wait and see, or find ways to fit new approaches into existing frameworks, rather than risk stifling this rapidly evolving innovation with overly prescriptive regulations.

The idea of ​​a shared public ledger may not sound revolutionary or sexy. The same is true of double-entry bookkeeping or the joint-stock company. But like them, the blockchain, a seemingly ordinary process, has the potential to transform the way people and businesses work together. Bitcoin’s enthusiasts are enamored with the libertarian ideal of a currency that is pure, digital, and free from the interference of any central bank. But the real innovation is not the digital currency itself but the trusted machine that mints it, and that machine holds promise for much more.