For a very quick introduction, you may be wondering why you should care about the ever-burgeoning popularity of the bitcoin phenomenon. After all, many people are attracted to the "Austrian School" formal belief that money is merely a public good that can be manipulated in accord with public will. This belief states that the only way to have sustainable prosperity is by having large numbers of small units of currency that are easy to exchange. In fact, this is how the bitcoins came into existence.
So, if you are curious about how the value of the bitcoin has been steadily on the rise over recent months and years, it is pretty safe to say that you have stumbled upon a piece of technology that has the potential to reshape the world of internet trade for the next half a century. That's right -- I said that the future of the marketplace lies in the realm of digital asset exchange. It has only recently taken a major leap into the mainstream of public awareness, but that is a giant leap forward in terms of its implications. The future of the decentralized web is in high tech privacy protection called "bitcoin" technology.
Now, the fundamental question that arises is what is the "blockchain"? You may be familiar with it as the technology that underlies the worldwide web. What you might not know is that the bitcoin has an "outsider" -- the technology that underpins the trading of the virtual currency -- called the "blockchain".
The bitcoin is like a collection of computer networks. Each one is called "mining" network, since they are all trying to solve a difficult mathematical problem. This problem goes back to the original premise of the original internet: that information should be easy to transmit. In other words, the proof of the work required to transact anything on the internet was long and complicated enough that only a super computer with highly specialized skills could crack.
However, what changed all that was the arrival of "bitcoin miners". Miners are people who go through a process of adopting and then maintaining the correct version of the protocol that's needed to follow the protocol and maintain the integrity of the ledger. This can take years for them to do. The latest version of the protocol (Version 0.7) released in March of this year was supposed to make the whole thing more secure, although not by much. For now, the main problem is that a mis-spike in the number of verified transactions (the number of valid signatures following a given transaction) can send the system into a "critical" security state called" Byzantine Fault".
At the time of this writing, the latest version of the protocol has been put into effect. The main change was to make it harder for a hacker to deanonymicate users who conduct secure online transactions. Now, if you conduct secure transactions on the major exchanges, you can expect your trades to go through even with a minor "flimsy" weakness in the underlying code. This means that while July 2013 may have marked the beginning of the end for traditional high-fee high-volume electronic cash transactions, we may still be in the dark at the heart of the transaction: the source of fees.
Some may be concerned about this, but there's no reason to be. In April 2013, when this flaw was discovered, a newbie programmer who'd never before worked on the backend of any type of transaction experienced an epiphany. Rather than waiting for this flaw to be corrected, why don't we adopt a new model that is flexible enough to embrace new flaws that may come along? Let's call this model the "blockchain as a service" model and treat the major exchanges like their online grocery store or the post office.
Rather than waiting for the government to step in and "fine" these small breaches, why not embrace the model and let them deal with it? Let's call this new model the "blockchain as a service" model and treat the major exchanges like their online grocery store or the post office. Let's use this same analogy to understand why the digital asset exchange will experience less volume and likely more downtime in the months to come. We'll also examine why governments, FEDs, and other regulating agencies might seek to regulate the exchanges in the future, but that discussion is for another day. For now, let's consider this issue from a transactional point of view and why we should be watching the Bitcoin prices.