Since its inception in 1983 by American cryptographer David Chaum, Cryptocurrency has been a major consideration in the world of technology and financial solutions as the world began to make a move into a more digital existence. However it wasn’t until 2009 following the invention of the first decentralised Cryptocurrency- Bitcoin by Japanese developer Satoshi Nakamoto that society really began to understand the true power of the currency transfer that exists within Blockchain and its ability to take back financial power from the central systems and place it into the hands of the people. The issue remains, that even though it has long existed there is much confusion as to the relationship between Cryptocurrency such as Bitcoin and the Blockchain system and the understanding of exactly what it means for not just the financial markets, but the world as well. By Matthew Meehan
Since its major explosion over the last decade as its utilisation drove up its value, Cryptocurrency has been long debated as to what its total function consists of. Despite this, it is best understood as a value of exchange just like any modern paper based currency such as the pound, yet instead of relying on a physical manifestation it instead exists digitally through the benefits of being protected by secure, online encryption techniques that determine the control over the actual creation of it and to also serve as verification of the fund transfers than can take place between accounts.
Bitcoin is the main example of such and serves as the only current form of cryptocurrency to actually be transferrable in the modern markets, with some businesses both domestically and in Europe allowing for it to be used as a general payment method that mirrors the traditional bank card.
Blockchain was created primarily to facilitate the use and existence of Bitcoin as the technology behind it is responsible for the movement and transfer of payment. In essence, Blockchain is a decentralised ledger of all of the transactions across a network that is classified as peer to peer and through this ability, all participants in the transactions can confirm it without the need for a ‘middleman’ or central authority to clear the activity such as is the role of the modern banking system. Processes available through the use of blockchain include fund transfer, settling trades, the process of secure voting and many other issues that simply require the utilisation of a discreet pathway to complete some form of exchange.
The relationship between them is clear: Cryptocurrency is simply the first form
of Blockchain in the worlds existence, as Blockchain underpins the currency through its technological ability to become its own banking system or more specifically distributed ledger system which due to its digital advantages can also allow for the creation of alternative offshoots to its traditional form, as the users also referred to as ‘miners’ can actually design an individual blockchain with one set of agreed parameters, whilst other users can change these rules in order to better the nature of their transactions or the interests of all involved parties.
In order to use Blockchain for currency transfer all users must possess their own individual ‘cryptographic key’, which is much like a standard password although it utilises a personal string of data in order to allow account holders access to their wallets of value within the defined system. Once a transaction is agreed, it must also be approved/authorised before it becomes a block in the chain and this when occurring in a more common ‘public’ chain will mean that the decision to approve will need to be decided by that specific chains other users also known as nodes who will then be incentivised through rewards in order to encourage the validation of the original transaction. This process is known as ‘ proof of work’ and often will involve the need for every expensive computing equipment as they must solve an algorithm in order to obtain the financial prize, and so this mining process can be very difficult to achieve and often take a single computer a number of years to complete.
Despite its conceptual purpose as a corridor for the utilisation of Cryptocurrency, there is a much wider and diverse future for the blockchain technology. In terms of business it is considered to be a next generation software with many applications into business management improvement, with large conglomerates and many different industries all looking at it to improve areas such as voting, security, advertising, secret documents, journalism and much more. The blank canvas it represents due to its transversality means that the scope to implement blockchain processes relies heavily on its distributed and far reaching nature that could be a crucial key into the advancement of society, with this giving players in different parts of the same process a single network within which to connect and therefore securing the integrity and immutability of the operations that are circulated. The existence of such a workstream is the equivalent of a common operating system and allows for the creation of digital assets, therefore with all involved utilising an encrypted bank of verified information the chance of mistakes being made are severely limited with the need intermediary parties becoming almost insignificant. This kind of improved efficiency is transferrable into just about any environment where their currently exists a need for secure and privately accessible information with the reduction in security risk.
Drawbacks do exist however in the adoption of Blockchain with such intricate and expansive architecture of individual branches of chain becoming difficult due to the regulatory challenges that are presented by being able to legally validate transactions. To effectively do this, you are faced with the responsibility of universalising a decentralised structure that thrives on its expansive nature and so without a clear pathway for legal standards to exist, the question of protection both physically and by the law of possible hacking attempts is posed, which furthermore brings some doubt as to the legitimacy of the global application of the Blockchain concept In its current form. With this in mind, while the relationship with Cryptocurrency is apparent and clearly Bitcoin could not exist without it, time will tell whether there is longevity in this method or whether Satoshi Nakamoto’s vision of decentralised power will be lost due to the need for some kind legitimising standards in the name of financial and data protections and the protection of the technologies ever growing user base.