Cryptocurrency is not about the ups and downs of the digital currency market: it’s not even about a new unit of exchange to replace the dollar or euro or the yen. It’s about freeing people from the tyranny of centralized trust. It speaks to the tantalizing prospect that we can take power away from the center – away from banks, governments, lawyers, and the tribal leaders of Afghanistan – and transfer it to the periphery, to We, the People
It allows peer-to-peer transactions without revealing any personal or vulnerable information about the other. In the digital age we live in, such secure exchange is highly appealing. Current payment transactions are touched by a few different institutions, take a look at this example below:
In every touch point, information (such as account number, expiration date, billing address’ zip code and CVV) about the cardholder is shared, and a fee charged to the merchant for the service of validating the credit transaction.
When using a cryptocurrency, which is simply a medium of exchange using cryptography to secure a transaction, the transaction is recorded in a blockchain ledger. In the example below, A wants to send money to B. This transaction is an alpha numeric combination represented as a ‘block’. It is broadcasted to the network who validates it to be legitimate (that indeed person A does have the funds assigned to this block, and that it is part of the public ledger within this particular cryptocurrency). This block is then added to the chain making an updated public ledger, which is now the most current one, transferring funds from A to B. When another transaction happens, a new block will be added to this recently updated public ledger once it also goes through the validation process.
I’ll be covering blockchain in more detail in future posts, the intention here is to show that no personal information is shared in a blockchain ledger, differently than current credit card or digital payment transactions.
As we look into the future, blockchain technology has a multitude of applications as a way to securely validate transactions between two people, two devices, two institutions, and so on. One such application is for smart devices in the ioT space, where IBM is betting that blockchain technology will offer security based on transparency, where participants verify the smart devices’ interactions, and not a central entity.