Bitcoin hasn’t really held much interest to me up until this point, since I’ve seen it mostly as the preserve of techno-utopian libertarians and/or criminals. But it took reading The Economist’s The great chain of being sure about things to actually look into how it works. It may be applied to things other than exchange:
[T]he cryptographic technology that underlies bitcoin, called the “blockchain”, has applications well beyond cash and currency. It offers a way for people who do not know or trust each other to create a record of who owns what that will compel the assent of everyone concerned. It is a way of making and preserving truths.
The blockchain is a global ledger that keeps track of transactions and potentially other information in a way that is (so far) immune to being fiddled with after the fact. One aspect of this is that each update by “miners” to the global blockchain ledger requires a lot of computational power, which has very concerning real-world side effects:
With no other way to establish the bona fides of miners, the bitcoin architecture forces them to do a lot of hard computing; this “proof of work”, without which there can be no reward, insures that all concerned have skin in the game. But it adds up to a lot of otherwise pointless computing. According to blockchain.info the network’s miners are now trying 450 thousand trillion solutions per second. And every calculation takes energy.
Because miners keep details of their hardware secret, nobody really knows how much power the network consumes. If everyone were using the most efficient hardware, its annual electricity usage might be about two terawatt-hours—a bit more than the amount used by the 150,000 inhabitants of King’s County in California’s Central Valley. Make really pessimistic assumptions about the miners’ efficiency, though, and you can get the figure up to 40 terawatt-hours, almost two-thirds of what the 10m people in Los Angeles County get through. That surely overstates the problem; still, the more widely people use bitcoin, the worse the waste could get.
I very much doubt that bitcoin nor its libertarian utopia1 will come to much of anything, but the blockchain is definitely interesting technology that may play a useful role in the future.