What You Need To Know About Bitcoin 2.0
Bitcoin has grown immensely since the release of Satoshi Nakamoto White Paper back in 2009. It was designed to be a decentralized peer-to-peer digital currency and electronic payment system with no central authority to regulate it. Many groups such as, computer geeks and cryptographers, anarchists, to venture capitalists and big enterprises on Wall Street have all shown a strong interest in this new cryptocurrency.
Bitcoin 2.0 Explained
Bitcoin is a zero trust consensus network that enables a new payment system and completely digital currency. It was introduced as open-source software that uses cryptography to control the creation and transfer of money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority, Institution or middlemen. This decentralized Network uses its own protocol based on a new technology called the Blockchain.
Bitcoin is pretty much a currency, like the USD, EUR or CNY; only it is digital, supported by a network of scattered computers making it completely decentralized. Bitcoins are produced by millions of computers solving mathematical problems ensuring only a pre-determined number of coins come into circulation every day. These coins are rewarded to “miners” who compete to solve the latest mathematical puzzle and win the reward.
While the value of Bitcoin as a virtual currency and payment system is highly volatile, new applications using the Blockchain are promising to be much more valuable than Bitcoin itself.
The Blockchain – Solving The Double Spend Problem
The notion of digital money has been around since The 80’s, however, Bitcoin was the first digital currency to solve the major problem that faced its predecessors: the double spending problem: “How does one prevent a money form that exists in purely digital form from being copied and spent more than once at the same time?”
That’s where the Blockchain comes in. The Blockchain is basically a public ledger where all network participants are registering all transactions in the Bitcoin network.
The Blockchain is a transaction record base which is shared by all nodes in the Bitcoin system. All transactions since the creation of Bitcoin are documented on the Blockchain. The Blockchain behaves almost like a database; it’s a “place” where the network participants store data semi-publicly in a linear container space called the Block. Each block is verified by the network participants before being put into the Blockchain.
The network is secured by millions of Miners who validate and verify the internal transactions.
The Blockchain is a new organizing concept; a new class of Internet with its own protocol with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets, such as physical property; and intangible assets such as votes, ideas, reputation, intention, health data, information, etc… In fact the Blockchain can be applied to practically everything.
While the mining work done to secure and validate internal Bitcoin-to-Bitcoin transactions is valuable, recent enhancements to the core Bitcoin source code now allow for the mining network to secure and validate external non-Bitcoin transactions. These new applications could perhaps be even more valuable than Bitcoin in and of itself. Anywhere that validation of trust, proof of ownership, or a record of an event are required, the blockchain can provide an ultra-secure, cost-effective, decentralized solution that can persist even if one or more nodes go down due to outage or hacking attempts.
This relatively new concept involves the development of programs that can be entrusted with money. With this new level of application for the Bitcoin Protocol the Blockchain 2.0 concept is born.
Digital assets are assets whose ownership is recorded digitally. Bitcoins are of digital assets, but since the Block Chain is a decentralized asset registry, it can also be used to register ownership and transfer of any digital asset besides bitcoins. In this way, a digital bond could pay coupons and redeem the principal to the address holding the digital bond, without the need of custodians. Smart contracts are programs that encode certain conditions and outcomes.
What is Bitcoin 2.0
Although much of that investment has been deployed to augment the traditional Bitcoin ecosystem, a growing amount is being directed at Bitcoin 2.0 companies.
Retail banking can be largely influenced and disrupted by this new Bitcoin 2.0 technology. Depositors could use the public ledger to maintain a record of bank account balances, record money transfers, and confirm transactions worldwide, all without the banking customer having to deal with Bitcoin directly or worry about its market price.
Proof of ownership via title can be transferred with the click of a button, without any chance that the title is fraudulent. A blockchain-based solution could be used to unlock that value without risk of corruption. Title registry records and deed transfers for land ownership or for high value items, such as automobiles, boats and motorcycles, can be recorded and transferred to new owners without the need for title search, departments of motor vehicles, or other government entities to ensure the trust and validity of the transaction.
Digital certificates of authenticity and proof of ownership embedded in the blockchain can be a powerful anti-counterfeiting tool. Whether it is, luxury goods, or electronics devices, or any other item, using the Blockchain to validate their authenticity, has an enormous value.
Intellectual property can be time stamped and recorded, replacing traditional copyrights and patents. A person taking a digital photograph to sell to a blog may find their material copied and duplicated without credit or proof that they were the original owner of the photo.
Contracts can also be implemented, confirmed and verified through the blockchain, including employment contracts, leases, and purchase agreements with the “signatures” embedded in the Blockchain.
This may disrupt the legal system, where expensive courts and lawyers are required to confirm, verify, and validate contracts.
Bitcoin 2.0 and The Future
Bitcoin has evolved to allow its powerful mining network, which is essentially a gigantic validation engine, to validate and record external non-Bitcoin transactions.
The value of these services — a system of ‘trustless trust’ — can prove much more valuable that Bitcoin itself as a digital currency. The entire financial, legal, and record-keeping industries can be disrupted using this decentralized, secure, and inexpensive method.
Even if only a securities exchange application is brought online, the real-world value could be on the order of billions of dollars each and every year. Bitcoin 2.0 leveraging blockchain applications will prove to be a powerful technology.
If this system is to supplant investment banks and asset exchanges, it will have a profound disruptive effect in the way financial markets operate.