What is The Blockchain | Terence Zimwara
In the last instalment of this series, we briefly discussed the Bitcoin and why it can be a real alternative to national (or fiat) currencies issued by governments. We gave examples where this digital currency has been successful and how this has encouraged others to create their own. Indeed many more coins or tokens have sprouted as a result.
Just recently a Zimbabwean crypto start-up, Zimbocash successfully listed its cryptocurrency on an international exchange. According to statements attributed to Zimbocash executives, holders of their version of a cryptocurrency known as Zash can now cash out on the Bithumb exchange.
It is even suggested that this cryptocurrency or token can now be used to make payments for groceries and utilities. If Zash can achieve this feat so quickly it will be a major milestone for Zimbocash and indeed all those pushing for the adoption of cryptocurrencies.
Besides this new kid on the block, there are many other alternatives to Bitcoin that have been around much longer. These include Ethereum, XRP, Litecoin, Dash etc.
So perhaps the next obvious question to ask would be this; what exactly makes a cryptocurrency better than government-issued money and why is there a growing number of people seeing this as a better alternative?
Blockchain is the key
Well, as one may appreciate, all of the above cryptocurrencies or tokens share one thing in common and that is the blockchain. The blockchain is the common denominator here. It is the rail or foundation on which cryptocurrencies are anchored on.
In the simplest terms, Blockchain can be described as a data structure that holds transactional records and while ensuring security, transparency, and decentralization.
You can also think of it as a chain or records stored in the form of blocks which are controlled by no single authority. Cryptography is used to ensure that such data is not compromised or manipulated by any one party.
Any changes or addition of data can only be made through consensus and this is a task that is performed by miners (or computers). The idea of using computers to perform this task stems from the fact that humans are fallible and cannot be trusted to do the right thing all the time. Besides, only nodes are adept at validating transactions and blocks fast enough.
With this understanding, it is quite easy then to appreciate why some people now trust technology to manage a monetary policy better than humans. Fiat currencies fail because those charged with the task of managing these have reneged on their sworn oath many times.
Such an oath is broken when a central bank prints or creates more money that is not commensurate with the level of economic activity. When that happens it dilutes the value of a currency or it causes inflation which ultimately leads to a collapse of a currency. Inflation is often associated with many socials ills and even civil strife.
Blockchain a trustless option
That the blockchain eliminates such risk is a fact that is now appreciated by many including central banks. Central banks are currently exploring the possibility of launching digital currencies as they hope to regain lost confidence.
In the case of Bitcoin, only 21 million coins will ever be minted and the last one will be rolled out in the year 2140 and everyone within the Bitcoin ecosystem is certain about this. There are potentially hundreds of thousands of nodes (if not millions) that are working to make sure new coins are issued in an orderly fashion and at predetermined periods.
It is this transparency and certainty that confers confidence to Bitcoin. Global currencies have continued to be weighed down by inflationary monetary policies yet Bitcoin—which has been around for 11 years now—has gone the complete opposite direction.
For instance, sometime in 2010 Bitcoin—which is not backed by anything— had a value of between $0.008 and $0.08, yet it currently trades at $9000 for each coin. This kind of growth shows phenomenal confidence and belief in the Bitcoin ecosystem.
Now perhaps to help readers get a further perspective of just how Bitcoin has grown, we reference the famous Bitcoin pizza story. It is said that on May 18th 2010, Laszlo Hanyecz made known he was willing to buy 2 pizzas for a price of 10,000 Bitcoins. At the time this was worth $41 and indeed four days later, May 22nd, the transaction took place. This date has become known as Bitcoin Pizza Day.
At today’s Bitcoin value it means Hanyecz paid a whopping $90 million just to get two pizzas! The price or value of pizza has not increased by that much but we can say with a high degree of certainty that confidence in Bitcoin has.
Bitcoin is the only currency or commodity to have grown its value in real terms, a feat that has been achieved by gold for centuries. Others now liken Bitcoin to digital gold and its all thanks to the blockchain network.
In the next article, we look at how you can acquire an03d store Bitcoin.
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