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 far has been widely discussed and is true for public blockchains, the recent spike in cryptocurrency values and network congestion as a result of scaling limitations of public blockchains have led to increased cost of transactions and there is a trade-off between how much you pay for your transaction to be processed quickly and how long you wait. Thus this early narrative of Bitcoin Blockchain and other public blockchain needs some refinement.
And, therefore, to really appreciate the approach to blockchain you would want to adopt for your organization or startup, you really need to learn about this in a meaningful way: the Blockchain and distributed ledger technologies and architectures, the Blockchain ecosystem, smart contracts, decentralized autonomous organizations, cryptocurrencies and tokens, business opportunities, disruptive threats, and brand new business models being creating. Understanding governance models and how to plan and implement the right Blockchain solution are critical to success.
Time Flies Faster in 'Blockchain space'
First, the rate at which blockchain activity is growing has fast outpaced what we saw at similar stages of the Internet. This is understandable, as most disruptive technologies are disrupting at a faster rate now. Of note though, is that not only is the activity accelerating exponentially in blockchain, blockchain has eclipsed most of other trending tech over the last few years (see Figure 1 below).
Figure 1 - Interest in blockchain eclipsing popular technologies and trends. Source: Google Trends, April 2017. RedMobile Consulting via Introduction to Enterprise Blockchain Training Course, TransformationWorx.com
Time Flies with Great Intensity
Second, the intensity with which new blockchain platforms, middleware, and applications are popping up is astounding. Think of a business, any business that has several parties involved in fulfilling a 'value-driven' transaction, where the end-to-end transaction is time-consuming or has costly intermediaries, or where transparency and trust are an issue ... and viola! There is a good chance that a blockchain-based solution is already out there. A solution waiting to disrupt or transform the 'old Internet'-based way of doing things.
As a side note, I am not saying there should be a blockchain-based solution or app for all of these use cases; in fact, I am pretty sure many use cases do not warrant a blockchain solution. But the fact is blockchain is a fast-evolving space and it has already evolved (some purists may argue that it has somewhat devolved) from a purely public, immutable, open, and shared ledger set up to one that has over 80 platforms offering several types of configurations and consensus mechanisms to suit the varying needs of different business applications.
Coming back to the intensity and growth rate of new blockchain disruptors in the market, figure 2 below demontrates that the disrupters of not-so-long ago, such as PayPal, Dropbox, Amazon Cloud drive, are now 'incumbents' ready to be disrupted.
Figure 2 - Blockchain disruptors are already starting to challenge those who disrupted not so long ago. Source - BTCS and updated for market cap on May 22, 2017 via introduction to Enterprise Blockchain Training Course, TransformationWorx.com
You Feel the Rush
Third, if you are in this space, you will feel the rush; it’s not like the gold-rush, it’s like the gold-rush on steroids. It doesn’t really matter how you look at it: the passion and drive of the people in this space will rub off on you like musk. The dramatic increase in cryptocurrency prices is unnerving, hitting a market cap of $60B in mid-May of 2017 growing to almost $111B in June of 2017 (see Figure 3), with some currencies going 8x to 50x over the last few months (Figure 4); The velocity at which capital is being raised through Initial Coin Offerings (ICOs) will make anyone in funding venture and capital markets take serious note (Figure 5).
Figure 3 - Total market cap of all cryptocurrencies and tokens, June 15, 2016 to June 15 2017. Source: coinmarketcap.com