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Why the tech industry is excited about blockchain

Supporters of blockchain technology promise that it will bring with it an economic revolution. A revolution the size of the internet they say. We have investigated what gives it such huge potential and will try not to get lost in the technical details.

Bitcoin will be a global currency without a national bank. Mærsk and IBM will save billions of dollars in the shipping industry using blockchain technology. And the European banks in the R3 consortium are developing their own blockchain to save money on bank transfers.

Cryptocurrencies and blockchains are everywhere.

“I think blockchain is much bigger than people realise”, says entrepreneur Gary Vaynerchuk in a video clip. “People are playing around at Bitcoin-level, and are a bit smarter at Ethereum-level. But once you understand what blockchain is you realise that it can literally control the USA and China. That’s how powerful it is.”

The promises of technology’s capabilities are enormous, to put it mildly. So let’s try to figure out why the technology is so hyped, without talking about ‘hashrates’, ‘blocksize’, or ‘cryptographic keys’.

An internet that can handle values

Before we throw ourselves into the blockchain revolution, we have to go back to the digital revolution. It made it easy to copy and share information. With a single copy/paste, you had a copy of a picture, a film, or that ticket to a Roskilde Festival you needed to print.

But if that festival ticket ends up in the wrong hands, it can be printed and used before you have had the opportunity to enjoy it yourself. Or if the festival doesn’t have a reliable ticket system, two people can use the same ticket and the festival loses out. Blockchain will solve that problem.

“For the first time in world history, we have a piece of data that only one person can own, and everyone can send to each other without an intermediary”, explains Danish finance pirate, bitcoin millionaire and founder of Bitcoin Suisse, Niklas Nikolajsen to Danish TV2. “That’s what is so incredible about Bitcoins”.

Blockchain technology can handle digital values in a way that has not previously been possible. Technology keeps track of who the owner of a value is, whether it is a Bitcoin or a festival ticket that is registered in the blockchain.

If the ticket to the festival is on the block, it is possible to see who owns that ticket. It would only exist in one place. If you buy it on Craigslist and the seller transfer ownership to you, then rest assured that the seller won’t be able use it.

Mining: Computer activities to validate the network

The blockchain is a database. A database that can keep track of Bitcoins, festival tickets, or something else entirely. The unique thing about blockchain technology is that, as a database, it can ensure that values can exist in only one place, not in many places at the same time.

“Owning Bitcoins means that there is a giant, public list of all accounts and transactions ever made with Bitcoin”, explains Alex Goldman, host of the podcast Reply All. “When you buy Bitcoin, all they do is add you to that list.”

If you’ve heard about Bitcoin and blockchain, you’ve probably also heard of miners. A miner’s task is to add computer power to the blockchain, used to maintain the large list of all transfers and accounts. In return for the service, miners are rewarded with Bitcoins.

And if the image of miners confuses you, you might relate to this explanation a little better:

“I see miners more like ‘validators’. They do not dig in mines, but validate the entire underlying blockchain network.”

These words belong to Michael Jackson, taken from the Danish radio program, Elektronista. He is former chief operating officer at Skype and board member of blockchain.com.

The network of miners is distributed throughout the globe and benefits from a decentralised network. They help each other keep track of the large database so there is not one company that carries the overall responsibility for security, unlike online banks or ordinary web servers.

Instead, the miners keep an eye on each other, so there is always a consensus with regard to how the large database should be. And the transparency of the system means they can all see all the data ever written on the list within the blockchain.

This means that if a miner ever tries to change data already written on the list, all others will notice. Therefore, a single miner cannot transfer 1000 Bitcoins to themselves, as one might imagine could happen in an online banking system with a central database.

It provides a built-in confidence in technology, so you don’t need to worry about tampering with numbers, or copying Bitcoins or Roskilde tickets. The technology’s basic principle is that it cannot be done.

Built-in trust removes the middleman

Now, you might think that it’s been a long time since we started to be able to transfer money digitally via online banking or Paypal, but even to be able to transfer money with the old technologies, there must be an intermediary who makes sure that things go the way they should.

It may be Visa that helps the supermarket check if there is money on my credit card before the pixels on the machine write ‘approved’, and I’m allowed to take my frozen chicken home.

When we look at the bigger picture, the smart thing about blockchain technology is that the technology comes with the trust built-in. If I pay with Bitcoins, the supermarket doesn’t need to ask Visa to check the transaction. I send the money directly to the supermarket, just like I did with cash. The technology ensures that the transfer can only happen if I have the money in my account.

Therefore, the great potential of the blockchain is not only that it allows for transferring values beyond national borders, quickly and with minimal fees, but that it completely eliminates the need for a middleman. Instead of trusting Visa (or Paypal, Western Union or Swift) to move the money safely from A to B for a fee, we can trust that blockchain technology makes it safe.

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