A Tipping Point for Block Chain

Bitcoin is a form of digital money that was created in 2009 by an unknown person. As a Tipping Point for Block Chain decentralized virtual currency, the system is peer-to-peer and transactions take place between users directly, without the need for banks or transaction fees.* These payments are verified by network nodes and recorded in a public distributed ledger called the “block chain”, which uses bitcoin as its unit of account. Although these records are public, the names of buyers and sellers are completely anonymous; only their wallet IDs are revealed. International payments are easy and cheap, since bitcoins are not tied to any specific country and are mostly unregulated.

New bitcoins are created as a reward for payment processing work in which users offer their computer processing power to verify and record payments into the public ledger. This activity is known as “mining” and miners are rewarded with transaction fees and newly created bitcoins. Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services. Bitcoin became the first cryptocurrency – and by far the most well-known – but various others were introduced in subsequent years. These were frequently referred to as altcoins; a blend of bitcoin alternative.

The underlying block chain technology of these virtual currencies grew in popularity. Money was just one of their many possible applications. They could be programmed to represent units of energy, shares in a company, election votes, digital certificates of ownership, or whatever properties its users wished to assign. The open, transparent and flexible nature of cryptocurrencies helped to reduce bureaucracy, made administrative processes faster and more efficient and enabled the automation of many systems.

This became especially useful as the Internet of Things began to take shape. Machines could be programmed to automatically perform transactions and order new items or services when required, using the block chain for verification, without the need for banks or middle men. For example, a fridge or vending machine would know when its supplies were running low and ensure that food was kept regularly stocked.

In 2015, the number of merchants accepting bitcoin for products and services passed 100,000. Block chain was described as “one of the most powerful innovations in finance in 500 years” by the Wall Street Journal, with many banks predicting it could revolutionise their operations.* A tipping point for government use of the technology occurs by 2023, with large-scale adoption by businesses and the public by 2027.* Around 10% of the world’s gross domestic product (GDP) is stored on a block chain by this time, compared to just 0.025% in 2015. The supply growth is 25 bitcoins per block in 2016 (approximately every ten minutes), then afterwards 12.5 bitcoins per block for four years until the next halving. This halving continues until 2110–40, when 21 million bitcoins have been issued.*