Davis’ students uncover “mystery” behind Bitcoin, other cryptocurrencies
Artificial intelligence, robotics, automation and nanotechnology are a few of many innovations that have paved the way for the technological future within the past decade. Another technology that came into the public eye in 2009 was cryptocurrency. These cryptocurrencies use blockchain technology to keep the currency as well as the technology safe. On first look, the process of understanding the purpose and technology of cryptocurrencies may seem daunting. However, because it could be a leading technology in the future, it may be beneficial to understand what cryptocurrencies and blockchain are and how they can be implemented to solve societal problems.
Cyrus Goh, a third-year cognitive science major and the lead frontend developer of Trust Wallet, explained how cryptocurrencies may be explained to a fifth grader.
“Let’s say I’m sitting next to a fifth grader and I have candy,” Goh said. “I pass the candy to a fifth grader and the fifth grader receives the candy. There is no middleman or parents involved in the process […] I don’t need to store the candy with the parents or the ‘bank,’ but rather a straightforward one to one transaction of candy in this case.”
In essence, these cryptocurrencies are a way to pay for things electronically without having to use a middleman such as a banker. Goh explains how cryptocurrencies are maintained by numerous coders and run on an open and decentralized network rather than allowing government institutions or banks to handle money.
“Cryptocurrencies work the same way as trading” Goh said. “Buying and selling cryptocurrencies is very much like trading stocks.”
Essentially, these cryptocurrencies or contracts are embedded in a digital code and stored in a transparent, shared database and are protected from deletion, tampering and revision due to the various levels of encryption. Every process, task or payment has a digital signature that can be identified or verified in some way. The trust for this technology is established by mass collaboration and a complex code, which ensures integrity between strangers and makes it nearly impossible to cheat.
Daniel Lundberg, a fourth-year biochemistry major, detailed how cryptocurrencies can be compared to the current use of the U.S. dollar or any other form of fiat money.
“You can use a computer algorithm to make transactions to and from a person but on a computer screen, not using something issued by the government,” Lundberg said. “I think that blockchain and cryptocurrencies will be something that has a higher demand in the future and that’s why I am interested in cryptocurrencies because it’s like a different type of currency that you can use and people are starting to gain trust in it.”
Right now, the leading cryptocurrencies include Bitcoin, Ethereum, Ripple and Litecoin. But how exactly do these cryptocurrencies work in terms of investment and how are they created?
“Bitcoin, Ethereum and etcetera are decentralized currencies and basically there are thousands of them in the market today and anyone can create these decentralized currencies,” Lundberg said. “If it is legitimate enough and if the market recognizes it as a legitimate thing to invest in, more and more people will go into it and start mining their own coin.”
Cryptocurrency’s intended purpose is to transact directly and exchange funds peer-to-peer without the involvement of a middleman. However, the technology supporting these cryptocurrencies, namley blockchain, is far more promising, explained Andreas Godderis, a second-year economics major with a minor in computer science.
“The way that blockchain works is that you have a series of equations that are nearly impossible for humans to do, meaning that they are lengthy and complex and so you need a computer to solve all those equations,” Godderis said. “When a computer can solve these equations it essentially opens up a new piece of paper or new ‘ledger’ that could record transactions and that’s called mining, when you dedicate computers and processing power to creating new ledgers to keep track of, like, debts.”
So in theory, anyone could take their laptop or computer and start mining for a cryptocurrency, and these miners would get a small fee. These ledgers are public and the identities of the coin owners or the people involved in the transaction are encrypted by a system that uses cryptographic techniques. The ledger is open to anyone and the database that runs on millions of devices contains information ranging from money, deeds, music, art, intellectual property, votes and more.
The name “blockchain” comes from the system of linked blocks. When one of these ledgers are completed it forms a block which is dependent on the time period it is created in. This block forms a link with another block in the future which has its own separate list of transactions. Once the so called “block” is completed it allows for another block to be added, hence, blockchain.
“You can always go back and look at those [ledgers] but there is no way for you to ever manipulate them simply because once they are on the blockchain they are essentially stored on every other computer in the network,” Godderis said. “Every other computer in the network can check and make sure that data is the same that it was five minutes ago or ten minutes ago or an hour ago or last year which eliminates any possibility of fraud.”
Safety is a another primary concern among many people who are beginning to familiarize themselves with blockchain or cryptocurrencies in general because the process is completely digital.
“There is this notion of ‘okay it’s on a computer there will be hackers,’ but the general consensus in the computer science world is that this technology is way safer than anything we use right now,” Godderis said. “Right now, if you wanted to engage in voter fraud in the U.S. elections, all you would need is someone’s driver’s license number, [so] fraud is possible in the current system we have, and that risk is way lower on a blockchain.”
Cryptocurrencies such as Bitcoin and Ethereum have been broadcasted on news platforms since 2009. Blockchain, the technology behind these cryptocurrencies can also be used for more innovative ways in any field.
“I totally see digital voting moving to a lot of third world countries in the next five or 10 years,” Godderis said. “If you want to monitor any sort of election and make sure that’s transparent and accurate this is the perfect way to do it. You can see every person who has voted and you can keep track of that data anonymously. In a lot of third world countries, citizens are left to kind of trust the incumbent in the election [which] gives one candidate a 98% vote, [this] probably isn’t accurate.”
Estonia is one of the only countries that relies on internet voting in national elections. The process of online voting has proven to be a huge success for the country and a security interest to people in the technology industry.
“One of my favorite applications of blockchain is in voting,” Godderis said. “Estonia actually has one of the most innovative governments and they run their government like a start-up. In the last election I think they had two-thirds of people voted online so the people could sit in bed and using their laptop, they could log into a voting system run by the government.”
Godderis expanded on how digital voting could potentially be integrated in the U.S. elections. Voting online could make it more feasible for people to vote because the process would be more accessible. Rather than the current voting turnout of 60 percent, you could get voting up to 80 or 90 percent. In doing so, politicians running for office would be accountable to meet the needs of the general public rather than focusing on special interest groups that usually guarantee them the majority of their votes.
Blockchain technology serves as a platform for bookkeeping that is incorruptible, transparent and avoids censorship. Using this technology in other industries can possibly resolve issues regarding institutional, financial or political corruptions, which could potentially protect the rights of individuals and push toward social changes.
“I want to make a distinction between currencies and blockchain applications and often times they are lumped into the same group which is fine,” Godderis said. “Personally I am not a fan of Bitcoin at all. Bitcoin is old, it’s slow, useless and not scalable, it will never be adopted as a mainstream currency, and I don’t want to give investment advice, but buying Bitcoin now is not a bright idea.”
It’s entirely possible that through the decades, blockchain will continue to help technologists solve societal problems and cryptocurrencies may be something left in the past. In other words, the general public universally adopting an online currency may be less plausible compared to people using the technology for other projects.
“People in the 80s and 90s thought that fax machines would send things faster and that was like their scope of what the internet could do and look at what it has turned into today, it’s gone way beyond fax machines,” Godderis said. “I hate the word cryptocurrency because that puts all these [blockchain] projects in such an inaccurate and bad light almost and it labels these really innovative things that are totally unrelated to currencies as something that is just a bubble in speculation.”
On first glance, fully comprehending what blockchain is and how it can be utilized in various fields may seem time-consuming. Godderis explained how because the technical aspect of blockchain is so complex there is no “easy” way to learn about cryptocurrencies.
“I think the best way to do it and the way that I have done it is by looking at all of these different projects and going to their websites and reading what the companies or projects want to accomplish or what problems in society they want to solve, and then you start understanding how all these blockchain networks work and why they can be incredibly beneficial to society,” Godderis said. “You just need a little bit of curiosity […] anyone regardless of major or age or interests or what they want to do in their career, learning about blockchain will open your mind to innovate in your industry in anyway possible, there are blockchain applications for everything and the world is going to adopt it at some point it is just a matter of when.”
Written by: Sneha Ramachandran — firstname.lastname@example.org