How is a cryptocurrency safeguareded what technology is used

To ensure that any two nodes could communicate, telecom service providers and equipment manufacturers had invested billions in building dedicated lines. The new protocol transmitted information by digitizing it and breaking it up into very small packets, each including address information.

Once released into the network, the packets could take any route to the recipient. There was no need for dedicated private lines or massive infrastructure. Few imagined that robust data, messaging, voice, and video connections could be established on the new architecture or that the associated system could be secure and scale up. To do so, they developed building blocks and tools that broadened its use beyond e-mail, gradually replacing more-traditional local network technologies and standards.

As organizations adopted these building blocks and tools, they saw dramatic gains in productivity. Netscape commercialized browsers, web servers, and other tools and components that aided the development and adoption of internet services and applications. Sun drove the development of Java, the application-programming language.

As information on the web grew exponentially, Infoseek, Excite, AltaVista, and Yahoo were born to guide users around it. Once this basic infrastructure gained critical mass, a new generation of companies took advantage of low-cost connectivity by creating internet services that were compelling substitutes for existing businesses.

CNET moved news online. Amazon offered more books for sale than any bookshop. Priceline and Expedia made it easier to buy airline tickets and brought unprecedented transparency to the process. The ability of these newcomers to get extensive reach at relatively low cost put significant pressure on traditional businesses like newspapers and brick-and-mortar retailers.

Relying on broad internet connectivity, the next wave of companies created novel, transformative applications that fundamentally changed the way businesses created and captured value. These companies were built on a new peer-to-peer architecture and generated value by coordinating distributed networks of users. Think of how eBay changed online retail through auctions, Napster changed the music industry, Skype changed telecommunications, and Google, which exploited user-generated links to provide more relevant results, changed web search.

Companies are already using blockchain to track items through complex supply chains. The very foundations of our economy have changed. The New Architecture Blockchain—a peer-to-peer network that sits on top of the internet—was introduced in October as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology.

Just as e-mail enabled bilateral messaging, bitcoin enables bilateral financial transactions. A team of volunteers around the world maintains the core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small community. Similarly, blockchain could dramatically reduce the cost of transactions.

It has the potential to become the system of record for all transactions. If that happens, the economy will once again undergo a radical shift, as new, blockchain-based sources of influence and control emerge.

Consider how business works now. Keeping ongoing records of transactions is a core function of any business. Those records track past actions and performance and guide planning for the future. Many organizations have no master ledger of all their activities; instead records are distributed across internal units and functions. The problem is, reconciling transactions across individual and private ledgers takes a lot of time and is prone to error.

For example, a typical stock transaction can be executed within microseconds, often without human intervention. However, the settlement—the ownership transfer of the stock—can take as long as a week. Instead a series of intermediaries act as guarantors of assets as the record of the transaction traverses organizations and the ledgers are individually updated. In a blockchain system, the ledger is replicated in a large number of identical databases, each hosted and maintained by an interested party.

When changes are entered in one copy, all the other copies are simultaneously updated. So as transactions occur, records of the value and assets exchanged are permanently entered in all ledgers. There is no need for third-party intermediaries to verify or transfer ownership. If a stock transaction took place on a blockchain-based system, it would be settled within seconds, securely and verifiably. The infamous hacks that have hit bitcoin exchanges exposed weaknesses not in the blockchain itself but in separate systems linked to parties using the blockchain.

A Framework for Blockchain Adoption If bitcoin is like early e-mail, is blockchain decades from reaching its full potential? In our view the answer is a qualified yes. In our analysis, history suggests that two dimensions affect how a foundational technology and its business use cases evolve. The first is novelty—the degree to which an application is new to the world.

The more novel it is, the more effort will be required to ensure that users understand what problems it solves. The second dimension is complexity, represented by the level of ecosystem coordination involved—the number and diversity of parties that need to work together to produce value with the technology.

For example, a social network with just one member is of little use; a social network is worthwhile only when many of your own connections have signed on to it. Other users of the application must be brought on board to generate value for all participants. The same will be true for many blockchain applications. And, as the scale and impact of those applications increase, their adoption will require significant institutional change.

Identifying which one a blockchain innovation falls into will help executives understand the types of challenges it presents, the level of collaboration and consensus it needs, and the legislative and regulatory efforts it will require. Managers can use it to assess the state of blockchain development in any industry, as well as to evaluate strategic investments in their own blockchain capabilities.

Single use. In the first quadrant are low-novelty and low-coordination applications that create better, less costly, highly focused solutions. Bitcoin, too, falls into this quadrant. Even in its early days, bitcoin offered immediate value to the few people who used it simply as an alternative payment method. You can think of it as a complex e-mail that transfers not just information but also actual value.

If blockchain follows the path network technologies took in business, we can expect blockchain innovations to build on single-use applications to create local private networks on which multiple organizations are connected through a distributed ledger. Guedda Hassan Mohamed Much of the initial private blockchain-based development is taking place in the financial services sector, often within small networks of firms, so the coordination requirements are relatively modest.

Nasdaq is working with Chain. Bank of America, JPMorgan, the New York Stock Exchange, Fidelity Investments, and Standard Chartered are testing blockchain technology as a replacement for paper-based and manual transaction processing in such areas as trade finance, foreign exchange, cross-border settlement, and securities settlement.

We anticipate a proliferation of private blockchains that serve specific purposes for various industries. The third quadrant contains applications that are relatively low in novelty because they build on existing single-use and localized applications, but are high in coordination needs because they involve broader and increasingly public uses. These innovations aim to replace entire ways of doing business. They face high barriers to adoption, however; not only do they require more coordination but the processes they hope to replace may be full-blown and deeply embedded within organizations and institutions.

Examples of substitutes include cryptocurrencies—new, fully formed currency systems that have grown out of the simple bitcoin payment technology. The ledger system is decentralized, but information is transparently available to members of the specific blockchain.

All members or nodes can record, pass along and view any transactional data that is encrypted onto their blockchain. This process creates trust while also maintaining a high level of data integrity. Blockchain applications in cybersecurity and other sectors. The transparent ledger allows for password-free entry. Using biometrics, including retina scans and fingerprints, the ledger can create a single-source, uncrackable form of entry into any private data.

Decentralized storage ensures that each block contains only a small informational piece to a much larger puzzle, limiting hackable data to almost nothing. Blockchain and Cryptocurrency Integrity First implemented as the operational network behind Bitcoin, blockchain is now used in more than 1, different cryptocurrencies , a number that grows almost daily.

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