Welcome, Bitcoin

"Exchange: An act of giving one thing and receiving another (especially of the same kind) in return."

After giving the due thanks to the Online Oxford Dictionary for providing us with such a brief-but-exhaustive definition, it is now time to explore how the common concept of exchange, and in particular exchange of assests of value, is dramatically changing because of the revolution brought by the Blockchain.

Going from banter to financial systems as we know them today, human beings have always faced with the same problem when it comes to exchanging assets: trusting each other, or even coming up with a way to do so. Since the creation of the first European Banks with the Medici family, we have been relying on independent third parties to ensure trust in financial transactions. The problem with these institutions is that the market value that they capture is too high compared with the actual value of the services that they offer.

But now, the world stands on the brink of financial disruption as cryptocurrencies aim to foster a financial system characterized mainly by decentralized, third party-free transactions. The first glaring example of such an attempt was seen in 2008 with the Bitcoin Protocol, published by Satoshi Nakamoto, alter ego of the person (or group of people) who created the Bitcoin cryptocurrency. Bitcoin offers users the possibility to send money anywhere, immediately and maintaining one’s own private information secret. However, cryptocurrencies alone cannot solve the problem of trust, as they have long been famous for the so-called double-spending problem: in other words, people can spend the same digital currency twice without anyone being able to notice or prove it, which in turn makes cryptocurrencies such as Bitcoin virtually useless.

And here's where the Blockchain comes into play

As mentioned in my first article - “So, What is the Blockchain?" - the Blockchain was initially conceived to solve Bitcoin's “double-spending” issue. By providing a distributed ledger where all information about each transaction is made available to all, it is possible to confirm one's own rights to call on the funds in the account, thereby ensuring reliability and authenticity of all exchanges of value ever occurred. So, in the case of Bitcoin, TRACEABILITY is the major deliverable offered by the Blockchain. Of course, this is just but one of the many potential uses we can make of this technology, but at least now we know how it came into being.