As bitcoin turns 10, banks more interested in technology behind it

Published 01.11.2018 21:53

The digital currency bitcoin is one of the greatest financial phenomena of our time. While its skyrocketing market value has fueled dreams of quick-fix fortunes, its falling value this year has stoked fears that an enormous speculation bubble could burst. The foundation for Bitcoin was laid 10 years ago when an anonymous cryptographer using the name "Satoshi Nakamoto" published a paper laying out the principles for autonomous digital money. The ideas it contained were revolutionary: No control by central banks, no national borders.

Instead, a mechanism called blockchain would provide trust and security in the system. In broad strokes, blockchain is a publicly viewable ledger of transactions; each saved one after the other. If anyone tries to compromise this chain, it becomes instantly apparent, as there are so many copies of the ledger available. This stops the virtual coins being spent more than once, for example. Bitcoins are generated - or "mined" - by computers using complex mathematical processes. There is a finite amount of Bitcoin and the closer miners come to this point, the harder the mining process becomes. The Satoshi manifesto was published in a mailing list in November 2008. Around two months later, the software was added. Satoshi Nakamoto is believed to own one million bitcoins - around $6.3 billion - a fortune that has remained untouched. The mystery of his or her true identity is a tantalizing puzzle many have tried to solve. Satoshi only communicated electronically with his or her fellow bitcoiners before completely withdrawing into seclusion a few years ago. It took a while for bitcoin to really take off. At the start, it was a playground for computer experts only.

Yet it's the technology behind bitcoin, namely blockchain, that has piqued the interest of banks and other institutions from the music to the automotive industry. It helps make transactions more secure."The technology is still in its teething years, it needs to mature so it can be developed for different purposes," Christoph Meinel, a professor of internet technology and systems expert at Germany's University of Potsdam, says. The finance industry takes the same view: "Blockchain has the potential to change the way we buy and sell, interact with government and verify the authenticity of everything from property titles to organic vegetables," wrote investment bank Goldman Sachs. Blockchain offers a simple and safe way to verify practically every type of transaction, reducing the need for "middle men" or centralized points of approval. It's a development that could disrupt a number of industries, calling into question long-standing business models from insurance to real estate.

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