26 Mar 2018 Science Stories
Let’s go a bit deeper with Bitcoin
Who hasn’t heard of Bitcoin? The first and most prominent of a new type of virtual money called the cryptocurrencies, Bitcoin has made the headlines because of the way it has turned early investors into millionaires (and sometimes billionaires) overnight. Yet how Bitcoin works is usually poorly understood. In his one-north Festival 2017 talk , security researcher Dr. Su Le from I2R delved into the workings of Bitcoin and explained the encryption technology behind it– the blockchain.
Here, we’ve asked Dr Su Le a few burning questions we had after listening to his talk. We recommend watching his talk if you haven’t already done so!
1. If the blockchain is just a ledger of transactions, then who creates the Bitcoins? And who determines the value of Bitcoins?
The Bitcoins are created– or as the common term used in the community, “mined”– by the participants of a peer-to- peer network*. (In comparison, the currency we use daily currency is issued by a central bank of the country). There is a set of rules that defines how to successfully mine the bitcoins, how to reward the participants, and also what the rate for the creation of the currency is. As there is no central entity that controls the bitcoin, its value is purely determined by the market.
2. What advantages does a cryptocurrency like bitcoin have over “normal” currency?
Anonymity is one of the advantages of bitcoin. As the “wallet” for holding the bitcoins are randomly generated cryptographic values, unless a user purposely links their true identity with the wallet address, it would be extremely difficult to trace the true identity behind the wallets and link up the transactions. Further, other than the wallet owners, no one will know how many bitcoins one owns.
However, many consider this anonymity a double-edged sword, as it makes transactions for illegal activities difficult to trace and regulate as well. Also, unlike the traditional international bank transfer of money that usually takes a few days, the cryptocurrency transfer is almost instantaneous, with a very low cost.
3. Are all transactions in bitcoin stored in the same blockchain, or are there multiple blockchains in the ecosystem?
All the transactions are stored in the same blockchain. There is only one blockchain for the bitcoin system.
4. Putting on your fortune teller hat for a moment, in the future, do you think that cryptocurrencies will be the primary use for blockchain technology, or will there be other uses such as the manufacturing & distribution example you gave in your talk?
Bitcoin, or cryptocurrency at large, is just one of the many application scenarios backed by blockchain technology. The blockchain concept now has been widely studied and is in the process of deployment across various industrial applications, such as supply chains, agriculture, aerospace and advanced manufacturing, etc. I foresee a flourish of adaptation of the technology in the entire ecosystem.
*A peer-to- peer network is a network where participants connect to one another directly to share resources and data. A popular example of an application that makes use of a peer-to- peer networks is BitTorrent.