SGstocksandshares (SGSAS): WHAT'S BITCOIN AND THE BLOCKCHAIN?

06 October 2017

WHAT'S BITCOIN AND THE BLOCKCHAIN?

Bitcoin is the world's first completely decentralized digital currency, also known as a cryptocurrency. Bitcoin introduced a technology called a blockchain, which is a peer-to-peer distributed ledger of timestamped transactions.

Before the invention of Bitcoin, ledgers had to be maintained by central authorities like banks, which kept a single authoritative copy of the ledger. This meant that users that relied on a ledger had to trust the central authority.

Bitcoin's use of a blockchain eliminates the need for central authorities and the need to trust them. It does this by allowing each user of the system to maintain their own copy of the ledger and keeping all copies of the ledger verifiably synchronized through a consensus algorithm.

Bitcoin is designed to allow its users to hold, send, and receive money online, but distributed ledgers can be used to do much more, including clearing and settlement of digital asset trading, provisining of identity, and distributed computing—all without the need for central intermediaries. The 10-minute video that follows presents plain English explanation of these concepts and why they have the potential to change the world.

And this short plain-English backgrounder explains the basic concepts in simple to understand terms.

SOME ADVANCED CONCEPTS

Now that you have the basics, you can delve a bit more in-depth into how the technology works and what it can do. Below are links to short, plain-language explainers covering some of the key concepts you'll need to know before you can understand the policy implications. And BTW, we have many more plain-language explainers on host of related concepts.

If you want to take a deep dive on the technology and what it means for the world, we recommend a great book by two Wall Street Journal reporters, The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order by Paul Vigna & Michael J. Casey. And for an even deeper dive into the distinction between open and closed blockchain technologies and why open networks are essential for several exciting use cases, read our report, Open Matters.

HOW DOES POLICY AND REGULATION FIT IN?

Traditional ledgers have centralized ledger-keepers (like banks), so it's clear who are the responsible and regulated parties. But because open and decentralized blockchains like Bitcoin have no central operators (just like the internet itself), figuring out who is regulated, if anyone, requires deeper analysis. And because traditional concepts like "custody of funds" take on new meaning given technologies like multi-sig, what the technology allows us to do has outpaced what the law has anticipated, so new policy thinking is in order.
Here are two resources that we recommend to get you up to speed on the technology and the policy questions it raises:

Is Bitcoin Regulated?
This short backgrounder explains that while the technology itself can't really be regulated, its users are certainly subject to many different kinds of regulation.
Bitcoin: A Primer for Policymakers
This monograph by Jerry Brito & Andrea Castillo presents a high-level overview of the technology and the regulations its use implicates.