Blockchain: the answer to life, the universe and everything?

  • The answer to that question, first proposed by bitcoin’s pseudonymous creator, Satoshi Nakamoto, was to create a decentralised digital ledger, keeping track of every transaction made, and with its accuracy guaranteed through the combined honesty of the entire network.
  • Bitcoin was the first technology to use the blockchain, but the currency is now starting to look a bit like the steam pumping engines invented in the 17th century.
  • A permissionless, distributed, trust-free network has the power to revolutionise not just financial technology, stock markets and banking, but also the music industry, digital access in some of the world’s poorest nations, and could even ensure your Italian extra-virgin olive oil really is from Italy.
  • For a long time, the ability to use the blockchain in this way was treated as an interesting side-effect of bitcoin’s role as a currency, but the tenfold collapse in the currency during 2014 prompted many who had invested in the bitcoin ecosystem – whether financially or intellectually – to seek other uses for the underlying technology.
  • Instead, there are many blockchains, as companies are born with different needs from a distributed ledger than those of Bitcoin.

Bitcoin hasn’t lived up to the salvation rhetoric, but the digital engine behind the currency may be about to change the world
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Breakingviews: Goldman fintech revolution can’t come fast enough

  • The $90 billion Wall Street firm’s young online retail-banking unit is growing and could, once big enough, crank out far higher returns than the investment bank.
  • Goldman could do with some of that extra juice At 11.4 percent, Goldman’s annualized return on equity for the quarter places it in the upper echelons of the industry, along with the likes of JPMorgan and Wells Fargo.
  • Without that benefit, Goldman’s return for the quarter would have been just 8.9 percent – below the rule-of-thumb 10 percent needed to cover the cost of capital.
  • Disappointing fixed-income, currency and commodities trading was a big part of the The division’s revenue was effectively flat relative to a poor first quarter for the industry last year.
  • They also managed a slight boost in equities-trading revenue while Goldman’s fell 6 percent.

Only a tax break spared the $90 billion Wall Street firm a dreary first quarter. Its young online banking unit is growing fast, though.
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The Economist explains: How bitcoin mining works

How does bitcoin mining work?

  • Instead the necessary record-keeping is decentralised into a “blockchain”, an ever-expanding ledger that holds the transaction history of all bitcoins in circulation, and lives on the thousands of machines on the bitcoin network.
  • Every ten minutes or so mining computers collect a few hundred pending bitcoin transactions (a “block”) and turn them into a mathematical puzzle.
  • The miner who found the solution gets 25 bitcoins as a reward, but only after another 99 blocks have been added to the ledger.
  • Forcing miners to solve puzzles in order to add to the ledger provides protection: to double-spend a bitcoin, digital bank-robbers would need to rewrite the blockchain, and to do that they would have to control more than half of the network’s puzzle-solving capacity.
  • As the bitcoin price continues to fall, consolidation could become more of a problem: some miners are giving up because the rewards of mining no longer cover the costs.

AS THE bitcoin price continues to fall, sceptics have started to wonder what will happen to the industry underpinning this digital “crypto-currency”. Around the world, hundreds of thousands of specialised computers have been built to create (or “mine”) bitcoins and, in the process, validate transactions and protect the system.
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Now I Get It: Bitcoin [Video]

  • This arrangement has some stunning advantages over traditional currency or credit cards:

    There’s a whole lot of really cool, really complicated math involved in Bitcoin, designed to keep it secure and to prevent Bitcoin inflation.

  • There’s no government to decide when to print new money in this case, so new bitcoins are “mined”—created—through a complex scheme you can read about here.
  • When you get a Bitcoin address—something like an email address—you also get a complex password known as a private key, which you need to access your stash.
  • At that point, you can transfer money to other people by sending it to their Bitcoin addresses.
  • Or if your Bitcoin exchange goes out of business, which has happened plenty; in fact, 18 of the first 40 exchanges had gone under as of 2013, taking all their clients’ money with them.

Man, if anything needs the “now I get it” treatment, it’s Bitcoin. You hear about it all the time in financial and technical circles—but most people really don’t grasp it.
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