Blockchain: An Introduction to Bitcoin, Other Cryptocurrencies and Utilities

Yet the tech’s arrival came with little announcement, from unknown quarters dominated by tech geeks who were motivated by their belief in a better humanity, or simply tired of the current economic order. Most of these early starters are likely to be rich today in “fiat” terms – a circumstance that was somewhat a by-product or an unintended consequence of their dream of a better human economic system for a shared prosperity.

Today, there is a growing momentum for adoption with thousands of cryptocurrencies in existence, dozens being released each day, carrying too many different consensus mechanisms to name them all. While the limits of the tech’s potential are being tested relentlessly, there is no end in sight of what it portends for humanity. From health to supply chains, to property titles and land deeds, to finance and ecommerce all the way to the remaking of the internet (Web 3.0) across the globe, its reverberation is felt.

This article seeks to introduce the tech to a layman and non-techies, to help them ask the right questions. The terms are simplified for ease of understanding. A snappy introduction of the tech – separating blockchain from cryptocurrencies such as bitcoin – is made, followed by the state of applications and progress in innovation. The tech’s future and propellers of mass adoption are also introduced for a basic understanding. Further reading is encouraged for deeper understanding.

Blockchain technology: A simplified definition and difference with cryptocurrencies

Blockchain is an immutable distributed ledger/network of declarations either of ownership, rights, data, resources, etc. that are verifiable trustlessly and incentivised (generally through mining or staking). At the centre of this trustless system are cryptographically designed codes that ensure that it is tamper-proof or compromise-free, based on an agreed set of rules or consensus. Hence the people contributing to a blockchain, or the ones that are upholding its integrity do not need to know each other to believe in the veracity of a single truth. An example commonly used is; imagine a set of strangers writing a single book with an agreed upon set of rules of what makes a new page of the book valid to be added to the book. Meanwhile, all the strangers are simultaneously and at all times in possession of the up-to-date version, so that when an invalid page is added, because it did not meet the rules, the strangers vote to remove it as inauthentic and perhaps punish the irresponsible page writer through the established set of rules, whatever the rules may be. A distinction between blockchain and cryptocurrencies/tokens, is that blockchain is the tech that underlies all cryptocurrencies/tokens and those cryptocurrencies/tokens power the blockchain as an incentive mechanism to ensure that good actors within a blockchain network are rewarded and bad actors (sometimes) punished depending on the blockchain’s consensus protocol. Hence, it could be said that while all cryptocurrencies/tokens require a blockchain to be relevant, not all blockchains need a native cryptocurrency or token to be functional or relevant.

It therefore goes without saying that while the origins of blockchain lay in the humble idea of providing a self-authenticating record, today it has become one of the leading buzzwords, getting most beginners confused as to what it is and what it can be used for. The sector today is mostly dominated by speculators and scammers, to the extent that even those still grappling to grasp its meaning can be overcome by the fear of missing out (commonly called FOMO) thus giving in to the temptation to rush and cash in on the promise of the new age of money. To avoid such mistakes, it is important to know what blockchain can do as well as the limitations of the technology. For instance, there is no blockchain that can cure cancer or end extreme poverty, although such claims have been made in the past. Therefore, when next someone proposes a blockchain solution for a problem, a single and perhaps most important question worth asking is: is there a trust issue with this particular problem?

Types of blockchain, what blockchain is not, and why that matters

In principle, it is possible to run a blockchain with just three computers. With three computers, there is possibility of a simple majority for consensus building. But then depending on the type of blockchain, the consensus system and incentive process, it is easy for someone with a higher computational power to capture the network and add blocks that are not authentic and yet not disprovable, something which is generally referred to as a 51% attack. There are different types of blockchains, and the hashpower – which loosely translates into the number and capacity of computers used to run nodes in support of the blockchain – determines how weak or strong the network is and how vulnerable it is to 51% capture. Today there are many types of blockchains but they are generally categorised as either public or private, permissioned or permissionless.

The most resilient networks are arguably the public and permissionless blockchains partly because of the very purpose of the blockchain (trustlessness and disintermediation) and more importantly because they carry with them the innate potential of larger decentralization, bigger community support and enlarged network reach. The weakest form of blockchains are undoubtedly the private permissioned blockchains because they do not only defeat the original purpose of the blockchain (i.e disintermediation), but they also have centralization of power and hence suffer from Distributed Denial of Service (DDoS) vulnerabilities like any traditional centralized network or database.

Bitcoin: Coming out of the shadows, a word of caution to the pessimists

Since the publication of the Bitcoin white paper on October 31, 2008, the mining of the genesis block on 3 January 2009, to the proliferation of the blockchain today, bitcoin has suffered uncountable condemnations and “expert assassinations”. Somehow it survived the near-ten-years of its existence. Perhaps, though jokingly, because Satoshi Nakomoto dedicated the first 50BTC reward to the Gods, thereby making them unspendable. Indeed, Bitcoin has been declared dead so many times that today many people wonder if it is the very same Bitcoin that has always been vilified as criminal money, drug dealers’ bed mate and money launderers’ best friend. Clearly, Bitcoin has got more than one life. If anything, Bitcoin has a far better image today than in any time of its existence and has achieved legal status in many countries across the globe, thanks to an unrelenting community, some humble experts who are willing to take back their words, and perhaps progressive governments who are finally waking up to the new dawn of globalization.

It is however still common in many countries for people to either blatantly dismiss Bitcoin as an “unreal” money or a scam. It is important to note that though you can easily be scammed in the name of Bitcoin, Bitcoin is not a scam in itself, so people who want to put their hard-earned money into it must learn the basics or find an advisor. It is equally common for people to say Bitcoin has no value because, according to them, it has no backing like government bonds. Well, today the “economy of intermediation” is worth billions, if not trillions, backed by humanity’s search for trust and integrity. Now think of anything that will take the place of this economy in the fourth industrial revolution and there is none but Bitcoin, at least for now. This is the backing of Bitcoin. And a lot more could be said here.

Promise of blockchain technology: Beyond the Hype, Bubbles, and Risk-Reward Arguments

It is generally believed that early adopters of blockchain and its brainchild, Bitcoin, rarely did it for the financial windfall. This perhaps explains stories such as that of the pizza day celebration, a popular celebration in crypto space to commemorate the event of 2010 when a developer bought two Papa John’s pizzas for 10,000 Bitcoins, worth tens of millions of dollars today. Though one cannot get into the minds of the founders and early adopters, it is obvious that the idea behind blockchain and Bitcoin at the time was more of a fascination, an obsession or an inspiration beyond financial gain. After all, there was little ecosystem support, no shops received it as money and little was known about it. Nevertheless, today most people hear about Bitcoin on the grounds of financial rewards, the gains it has made and sometimes no information about the technology itself. It is very clear that today the technology is overhyped and is being applied (or at least promised to be applied) in areas where it is not actually needed. It is true that cryptocurrencies, for instance, started 2017 with a total market capitalization of 20 billion and ended the year with over 850 billion market capitalization, but it is also true that by mid-2018, between 70-90% of the market cap was wiped out again. Clearly, volatility is the name of the current market and you should not invest money you cannot afford to lose. To suggest that the market is in a bubble would be an understatement, and companies who previously had nothing to do with blockchain now add blockchain to their name to prop up shares. A startling example is that of the iced tea company which came under investigation for adding blockchain to their name to prop up the value of their stock price, which was plummeting. These examples are numerous, signalling need for caution to newcomers.

Misleading hypes and scams have clearly overshadowed the new breakthroughs and growing promise of the sector. Everyday a new blockchain applicability emerges and the frontiers of the technology are being pushed in ways that could not be imagined by the early adopters, though the technology is still in a very nascent stage. The commonest advantage of blockchain today is its decentralized nature, which makes it more resilient and less vulnerable to distributed denial of service attacks (DDoS) compared to most traditional networks. The second advantage is the solution it has provided for the age-old problem of double spending (ie. mainly using the byzantine general’s problem). Also, the fact that blockchains, at least those that merit their name, are trustless or permisionless leading to disintermediation, is a crucial piece of value of the technology. However, there is a catch. Disintermediation does not mean there is no middle point of contact between dealing parties, it just means that this point of contact is not occupied by fellow humans who are always corruptible. It is rather lines of code which are set based on rules and once the parties agree on the rules, the fear of corruptibility is very limited and mostly eliminated, without need to trust anyone.

Web 3.0, Blockchain Name Services and the new age of the internet

If there is anything about blockchain that people, including non-techies, should be particularly excited about, it is the remaking of the internet from what it is today. The age of proliferation of distributed and decentralized applications has arrived with no end to what it could be in, say, ten years from now. Mass adoption and democratization of Decentralized Applications (called Dapps) development coupled with interoperability of blockchains presents a new wave of internet reformation from traditional centralized apps to fully decentralized apps. This presents a new breed of web apps resilient to DDoS attacks, with no single point of failure vulnerabilities and with privacy and censorship-free policies at its core. The arrival of ecosystems such as Crowd Machine which is a blockchain agnostic, zero-code virtual machine, that allows anyone with no programming background to deploy their own blockchain based decentralized applications without writing a single code will definitely propel the blockchain sector’s mass adoption. For years, services in web and mobile applications have been a geeks-only space and the rest of the world were simply consumers of the internet of information which exacerbated inequalities to new record levels. Today it is no longer the same.

The development of these scalable interoperability ecosystems such as Crowd Machine, Essentia One, Open Platform, Wanchain, OneLedger, etc., coupled with the development of Blockchain Name Service (BNS) which allows for domain names reservation and deployment on the blockchain promises to truly disrupt the web and further simplify the use of blockchain technology for all. Current ecosystems in BNS such as Ethereum (.eth) and Wanchain (.wan) and Neo Name Services (.neo) are likely to be some of the largest utility blockchains in the years to come, and disruption in this area comes with a big promise.

Furthermore, general problems of scalability and speed are being solved on leading blockchains such as Ethereum blockchain (i.e with Sharding and Plasma) and the Bitcoin blockchain (i.e with lightning network) with new blockchains implementing these improvement proposals at their very start.

It is important that people move beyond the hype and individual speculative gains to fully appreciate the innovations behind the technology. If anything, note that the technology is here to stay and has proven (albeit limited for now) what it could mean for the next wave of human progress; the fourth industrial revolution.

By Solomon Anzagra (Soloman72@gmail.com).