Trust mechanism under Bitcoin

     The core technology "blockchain" used by Bitcoin may change the future economic operation model.

Bitcoin has a bad reputation. The digital cryptocurrency has been criticized for its wild price fluctuations, its fanatical supporters and its use in illegal transactions such as extortion, drug dealing and hiring hitmen.

However, these criticisms are somewhat biased. In fact, the price of one bitcoin is now quite stable, and has been stable at around $250 for most of this year. The attitudes of regulators and financial institutions have turned from initial skepticism to enthusiasm, and the European Union has recently recognized its legal status as a currency. The core technology behind bitcoin, "blockchain", is often overlooked, and the significance of this innovative technology goes far beyond the scope of cryptocurrency. Blockchain allows people to build confidence in their partners without a central authority, so that they can cooperate without going through an independent third party. In short, blockchain is a machine for creating trust.

How to understand the work of blockchain? First, let's clarify three concepts: Bitcoin, the blockchain that supports Bitcoin, and the conceptual blockchain. Take Napster, which was launched in 1999, as an example. This company was the first P2P file sharing website, providing millions of free music downloads. Although the Napster website was closed soon, it inspired many other P2P services, such as Skype (for calls), Spotify (streaming music platform) and Bitcoin.

Blockchain technology is powerful. It has a shared, secure ledger that can be accessed by anyone but is not controlled by a single user. Under certain rules, all users can update the ledger. Bitcoin uses blockchain ledger technology to avoid duplicate transactions and continuously track transactions, making it possible to circulate currency without a central bank.

An unexpected benefit of blockchain is encryption technology, which uses mathematical principles to make any attempt to tamper with a part of the blockchain completely transparent. Therefore, through mathematical means, the confidentiality of information is maintained while being used as a tool for public transactions.

The popularity of Bitcoin may be just a curiosity, but the credit record standard technology used by blockchain is very helpful for transactions and is now gradually being taken seriously. Many innovative companies are preparing to invest in blockchain technology and create their own blockchains.

For example, blockchain technology can be used to build public databases, register land or register the ownership of luxury goods or works of art. Document notarization information can be embedded in the public blockchain to be notarized, and people no longer need a notary to guarantee it. Financial services companies are trying to use blockchain to record proof of user assets instead of using a large number of internal ledgers.

A trusted private ledger eliminates the need to check every transaction, which is faster and minimizes errors. Santander estimates that using this technology will save banks about $20 billion a year by 2022. 25 banks have joined a blockchain startup called R3CEV to develop a common standard, and Nasdaq has also begun using blockchain technology to record equity transactions between private companies.

The promotion of blockchain may not be a good thing for those "trusted" institutions - central institutions and management systems. For example, banks, clearing companies and government departments are generally considered to be able to fully trust the handling of affairs. Even if some banks and institutions are exploring the use of new technologies, they will be hindered by others. However, considering that the credibility of governments and banks has been declining in recent years, it may not necessarily be a bad thing to establish more supervision and transparency in a way.

Blockchain has the potential to change the way people and businesses collaborate with each other. It goes beyond Bitcoin itself and breeds a trust mechanism that will bring more benefits to people.