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It’s important that we understand the core technology behind cryptocurrencies if we want to appreciate the ingenuity of Satoshi Nakamoto’s bitcoin and blockchain creation.
Although blockchain technology was created to support digital currencies like bitcoin, recent developments in blockchain are paving the way for a new type of Internet. At the same time, the concept of a shared database appears to have many uses in devices of the future.
A close analogy for blockchain
The most popular analogy that has been used to describe blockchain technology is the technology behind Google Docs. Google’s Docs service allows multiple users to make changes to the contents of a document at the same time, eliminating the need to send documents back and forth after every edit.
Everyone having access to a document will be able to monitor any changes, and a copy is accessible to all of them, allowing them to monitor changes in real time. If the document is saved on everyone’s computer rather than on a Google (GOOGL) server, the data is considered to have been saved in a decentralized manner.
For readers who followed HBO’s sitcom Silicon Valley, the concept of new Internet users in the series is synonymous with what a decentralized ledger can do in the future. (Watching that series would be an entertaining way to understand some aspects and possibilities of blockchains.)
Possible applications of blockchain technologies
IoT (Internet of Things) technology, of course, has been managing electronic devices on the Internet and through smart contracts. In the same way, the next phase of innovation in manufacturing (XLI) or any other industry could be driven by tech based on blockchain technology. The way even stock markets (SPY) (QQQ) function could be overhauled by blockchain technology, eliminating central control and any chance of abuse.
There are many other possibilities that would validate blockchain technology in the future as well, but the key question today is still this: Will blockchain-based bitcoin and other cryptocurrencies replace the need for normal currencies like the US dollar (UUP)?
In the next part, we’ll return to our bitcoin and cryptocurrency discussion and examine the key characteristics of bitcoin.