What is bitcoin? Is it the same as blockchain?
The quick answer is that bitcoin is not the same as blockchain.
“Bitcoin” is a form of cryptocurrency and “blockchain” is the concept technology that underlies it.
The concept of a blockchain was first conceived in 2008 by someone names Satoshi Nakamoto, which may be pseudonym for someone or a group of people, who introduced a white paper[1] describing the open-source block chain technology that underlies the basis for the cryptocurrency known as “Bitcoin.”
Blockchain is a totally disruptive technology and is now being used in many industries to create a shared, immutable (this is a term I just learned and is important to the concept of blockchain) record of any asset to create a tamper proof record of the asset or record. This avoids the necessity of relying on an old-fashioned record or database. It makes the record virtually impossible to tamper with. For example, hospitals are now using it to store patient records in a highly protected system that allows sharing between hospitals, providers, and insurance companies. A block in a blockchain is a collection of data in peer-to-peer networks that will make the concept of the cloud obsolete. The data is added to the block in a blockchain by connecting it with other blocks in chronological others creating a chain of blocks linked together. Data can only be added in the blockchain with time-sequential order, which makes it very difficult to modify and thereby making it very secure. The data is not located in one location, but rather is located in aggregates (or “blocks”) that are time-stamped and form a immutable chain of sequenced data – which is where the name “blockchain” is derived.
Blockchain is the underlying technology that forms the basis of digital currencies like Bitcoin, Litecoin, Ethereum, and others. The technology underlying blockchain creates a type of digital ledger that is stored in a wide-ranging network. The data is stored on multiple computers at the same time. When data is added to the chain, it adds to the existing block of data and creates a chain of data.
In the traditional exchange of money, the money is transferred thru a third party – usually a bank – which takes a commission on the transaction. On the other hand, in bitcoin technology the intermediary is a blockchain which is a collective group of systems that verify the transaction. It is faster, more secure and easily more traceable than a bank transaction.
Most attorneys know absolutely nothing about blockchain. However, over the next several years lawyers can expect to be dealing with blockchain issues with increasing frequency. Blockchain will be an issue in divorces, business acquisitions, estate planning real estate, employment, personal injury …. and in fact every aspect of business. This technology will create new opportunities for business owners and lawyers. For example, it will allow metadata to be secure and allow the coding to be embedded into documents. This will allow for a continuing source of income and establish an absolute protective proof of ownership and authenticity.
Some states have already adopted legislation that promotes the development and use of blockchain. Illinois continues to be a leader in technology-related legislation. Under the Blockchain Technology Act “blockchain” is defined as “an electronic record created by the use of a decentralized method by multiple parties to verify and store a digital record of transactions which is secured by the use of a cryptographic hash of previous transaction information.” Among other things, the Act specifies permitted uses of blockchain technology in transactions and proceedings, such as in smart contracts, electronic records and signatures, and provides several limitations, including a provision stipulating that if a law requires a contract or record to be in writing, the legal enforceability may be denied if the blockchain transaction cannot later be accurately reproduced for all parties. The Illinois Blockchain Technogy Act takes effect in January 2020.
Interestingly, local governments cannot tax or charge fees for the use of blockchain technology, and cannot require a person or entity to obtain a certificate, license, or permit in order to use a blockchain or smart contract.
Business owners and lawyers will have to learn how the technology can be applied to their business and how it will be used in a court of law.
[1] Nakamoto, Satoshi (31 October 2008). “Bitcoin: A Peer-to-Peer Electronic Cash System” (PDF), which detailed methods of using a peer-to-peer network to generate what was described as “a system for electronic transactions without relying on trust”