TL:DR The briefest guide to blockchain is that Blockchain technology means that network information is held in many places (decentralised), rather than being held in one place (centralised).
Bluffer’s Guide to Blockchain: What is Blockchain?
Put very simply, the internet as we know it (Web 2.0) relies on platforms (Facebook, YouTube or WordPress, for example) storing data on private servers.
Blockchain technology (Web 3.0) means that data is stored on numerous different nodes (computers or servers) and that data cannot be verified, altered or removed unless it is agreed upon by each independent node.
How did Blockchain Start?
On 31st October 2008, as the world reeled from the effects of the financial crisis (also referred to as ‘The Credit Crunch’), Blockchain technology was introduced to the world via the Bitcoin Whitepaper
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party,” the author Satoshi Nakamoto wrote.
It is believed that Satoshi Nakamoto is in fact a pseudonym for a group of up to 11 people who worked for up to 5 years developing the game-changing technology and have since chosen to remain anonymous and unrecognised for their efforts.
“The main properties: Double-spending is prevented with a peer-to-peer network. No mint or other trusted parties. Participants can be anonymous. New coins are made from Hashcash style proof-of-work. The proof of work for new coin generation also powers the network to prevent double spending,” He added.
Are Blockchain and Bitcoin the Same?
Blockchain and Bitcoin are synonymous, but they are not the same.
Read further into this guide to blockchain for a deeper understanding.
How Blockchain Works
Bitcoin works on a blockchain but blockchain technology has many potential applications. Cryptocurrencies are just one possibility.
In 2013 Vitalek Buterin, an early adopter and contributor to the Bitcoin Codebase, began to feel frustrated by the limitations of the Bitcoin Blockchain and created the second public blockchain which is called Ethereum. Launched in 2015, Ethereum records assets such as contracts and loans as well as its own cryptocurrency.
At the time of writing, all transactions on the Bitcoin and Ethereum blockchains are verified by a method called Proof of Work. This relies on miners (the people who operate the nodes) solving unique and complex mathematical problems – the kind that take a lot of computing power, electricity and time.
This has implications for scalability and means both of these blockchains (the Bitcoin and the Ethereum blockchain) are limited in terms of being able to be used as a global payments system to rival Swift/BIC, IBAN, or PayPal for example.
An alternative to Proof of Work (PoW) is Proof of Stake (PoS).
People working under PoW are generally referred to as miners and people working under PoS are generally referred to as forgers.
Miners use computing power to solve a complex cryptographic problem created by an algorithm and are rewarded with a block of the chain, whereas forgers have to stake a certain amount of coins in order to verify the transaction and claim the transaction fees as their reward.
At the time of writing, 32 Eths are required to stake, and 1 Eth is priced at £1,309.25.
It’s great fun to look back on Crypto prices in years to come.
Why Blockchain is the Future
The global lockdowns mandated in response to Covid-19 have expedited existing trends for activity to migrate online. Cash is projected to make up just 22% of payments by 2022 so the concept of digital currencies becomes much less alien to us.
The online bank, Revolut, provides their customers with an app which makes it super-easy to invest in stocks or crypto at the touch of a button on your phone. You can check out their guide to blockchain and cryptocurrencies here
The potential for reducing transaction fees and interest rates and improving privacy and security will become compelling the more people learn and understand what is involved.
The allure of the technology and the possibility of profits will draw investors and speculators alike. It’s hard to pick a winner in a crowded field, but the direction of travel is beginning to seem inevitable.
Why Blockchain will Fail
Blockchain is by definition a disruptive technology.
Not only are there vested interests against it but getting customers to change their habits – especially their financial habits – can be a very slow process indeed.
Did you know that, statistically, people are more likely to change their spouse than change their bank?
There are many barriers in the way of blockchain achieving critical mass, and most of them are behavioural or intangible and will take a very concerted effort to change.
Will Blockchain Change the World?
Used properly and undertaken widely, it certainly has the potential to – in ways we probably can’t even imagine now.
But Web 2.0 had the same potential and in the end we tended towards oligarchy and centralisation once again – with all the inherent flaws and benefits that brings.
History is littered with stories of people getting fabulously rich (and losing fortunes) on new technologies. The next decade will likely see turmoil and resolution as blockchain evolves and disrupts existing technology and itself.
Will blockchain technology disrupt human nature?
That is perhaps a more pertinent question.
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