The emergence of Bitcoin

One solution that’s been developed to address the complexities, vulnerabilities, inefciencies, and costs of current transaction systems is Bitcoin — the digital currency launched in 2009 by a mysterious person (or persons) known only by the pseudonym Satoshi Nakamoto.

Unlike traditional currencies issued by central banks, Bitcoins have no central monetary authority. No one controls it. Bitcoins aren’t printed like dollars or euros; they’re “mined” by people (and increasingly by businesses) running computers all around the world who use software to solve mathematical puzzles. Rather than relying on a central monetary authority to monitor, verify, and approve transactions and manage the money supply, Bitcoin is enabled by a peer-to-peer computer network made up of its users’ machines, akin to the networks that underpin BitTorrent and Skype.

Bitcoin has several advantages over other current transaction systems, including:

Cost-eﬀective: Bitcoin eliminates the need for intermediaries.
Efcient: Transaction information is recorded once and is available to all parties through the distributed network.

Safe and secure: The underlying ledger is tamper-evident. A transaction can’t be changed; it can only be reversed with another transaction, in which case both transactions are visible.

The birth of blockchain

Bitcoin is actually built on the foundation of blockchain, which serves as Bitcoin’s shared ledger. Think of blockchain as an operating system, such as Microsoft Windows or MacOS, and Bitcoin as only one of the many applications that can run on that operating system. Blockchain provides the means for recording Bitcoin transactions — the shared ledger — but this shared ledger can be used to record any transaction and track the movement of any asset whether tangible, intangible, or digital. For example, blockchain enables securities to be settled in minutes instead of days. It can also be used to help companies manage the ﬂow of goods and related payments, or enable manufacturers to share production logs with original equipment manufacturers (OEMs) and regulators to reduce product recalls.

The takeaway lesson: Bitcoin and blockchain are not the same. Blockchain provides the means to record and store Bitcoin transactions, but blockchain has many uses beyond Bitcoin. Bitcoin is only the frst use case for blockchain.

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