A few months ago, I was speaking at a Blockchain Meetup of over 500 attendees in Toronto. Several speakers remarked that living in the Blockchain space was like being in 1985 during the Internet’s early days. More recently another speaker noted that we are now in 1989, relative to the Internet era. “Wow,” I remarked, “we’ve grown four years in five short months, that’s 10 times (10x) growth for you!”
Blockchain technology is moving so quickly that it’s challenging to keep up even for those of us within the area. And many professionals don’t yet understand the basics let alone the many critical subtleties one must consider when assessing it. One could argue that even some of the popular narratives and explanations of Blockchain are somewhat dated and may even be misleading. So, let’s get started with the key tenets of Blockchain, and then address where the technology is headed in the near future.
What is Blockchain?
Blockchain is a distributed network of computers (“nodes”) that utilize the underlying infrastructure of the Internet to validate and process transactions of some value. These transactions are validated and added to “blocks” of data that are processed in a pre-defined interval of time (i.e., 12-seconds or 10-minutes, etc.).
Blockchain uses existing cryptography schemes to append new blocks to previous blocks. This way, blocks are never overwritten or destroyed, just appended to, forming a chain of blocks, hence “blockchain.” This chain of blocks is synchronized across all of the nodes by providing an economic incentive to the node that is able to first validate and then add the block to the chain by solving a complex mathematical task.
Each node on the blockchain network maintains the same chain of blocks, also called a “ledger” as in an accounting ledger of records. This chain of blocks or ledger of records is distributed across multiple nodes that agree to the correct state of the ledger through the process of consensus. Different consensus mechanisms exist, but the most common one is called Proof-of-Work, as described here. Once a block has been added to blockchain, it becomes an immutable record.
There are many different blockchains – public, private and consortium blockchains. In a public blockchain anyone can join and become a node, all transactions are publically available, the value of the transaction is public, and the identity of those parties who are sending/receiving the transaction is pseudo-anonymous. Private and consortium blockchains also exist where rules (governance models) can be pre-defined and roles and consensus mechanisms can be managed.
Blockchain is not new: in fact, the earliest blockchain has been functioning successfully since January 2009. Yes, Bitcoin has some negative perceptions, but don’t blame the technology or the concept for the wrong-doing of some people. And more importantly, don’t ignore it and either miss-out on the world’s biggest opportunity in our era or end up becoming irrelevant in a few years. Bitcoin is one of many different flavours of blockchain platforms in existence today, Ethereum and Hyperledger Fabric being a couple of other popular blockchain infrastructure platforms.
Blockchain has been called the 'next Internet', the 'Internet of value'. What is this new Internet of value exactly? Let me explain this through an example. The current Internet facilitates communications and the sharing of information. It is great at it: we can send each other information, we can learn, collaborate, socialize, and work using the Internet. In fact, one could argue we couldn’t function without it.
The Internet is great at sharing information. I can create this article, retain the master copy and post it online for you to read. You have a version of my article, but I retain the master. Alternatively, I can also email you a copy of my article. In either case, if I change the master article, and don’t post it online or send you an update, you now have an outdated version. To overcome this problem, solutions like Google Docs enable people to share documents and collaborate online in real time. This way, everyone shares the instance of the article.
All of the afore-mentioned scenarios work when the object (as in the case of my article) has no tangible value. Think about something of value such as money: it would not be such a great thing if I sent you a copy of a dollar and retained the original. That would be fraud. Yes, one can send and receive money online and via banks, but when you think of doing this across international boundaries or for a small fraction of money, then the existing solutions are too expensive, take too long, or just cannot handle the fractional value of the transaction.
This is where blockchain comes in. It leverages a combination of several existing technologies innovatively to address the challenges of the traditional Internet and of existing systems (in this example – financial systems), and enables the transfer of value (cryptocurrency, digital assets) almost instantly at a fraction of the cost and time. It also stores the record of such a transaction in an immutable and tamper-proof manner by distributing the record across a large distributed or decentralized network.
Trouble in Paradise?
Here is the curveball, while the narrative I have shared thus fa