Understanding Blockchain by Melanie Swan — Preface Breakdown

This series is based on Blockchain by Melanie Swan. Each article is a chapter summary whose purpose is to supplement your understanding of the material. To get a more in-depth understanding of the material, read the book and support Melanie. You can find the book here!

Key Concepts

  • Could blockchain be the next tech revolution?
  • What is Bitcoin?
  • What is blockchain?
  • What is the potential impact of blockchain?
  • What are the possible applications of blockchain?

Key Terms & Definitions

  • Cryptocurrency — digital currency that uses encryption to mint new coins and to verify transactions
  • Bitcoin —a type of cryptocurrency
  • Blockchain — a chronologically ordered and public ledger system
  • Node — a point in a network or diagram at which lines or pathways intersect or branches (in the context of the Bitcoin network, it represents a computer that runs the network)
  • Assets — an item of property owned by a person or company, can be physical (ex. houses) or intangible (ex. data)
  • Mining — the process of obtaining new cryptocurrency coins by running a computer process to solve specific mathematical problems
  • Decentralized — the dispersion or distribution of functions and powers
  • Disintermediated — the removal of the intermediary
  • Paradigm — a pattern or model
  • Ledger — a book or other collection of financial accounts
  • Pseudonymous — writing or written under a false name
  • Linked List — a data structure with an ordered set of data elements, each containing a link to its successor
  • Genesis Block — the very first block in a blockchain
  • Machine to Machine (M2M) — a wireless or wired network setup that allows devices of the same type and ability to communicate freely.
  • Internet of Things (IoT) — the interconnection via the Internet of computing devices embedded in everyday objects, enabling them to send and receive
  • Early Adopter — a person who starts using a product or technology as soon as it becomes available

Chapter Notes

I. Chapter Intro

  • Blockchain & the Internet
    - The blockchain, like the internet, is a new class of thing
    - It is a new organizing paradigm designed to discovering, valuing, and transferring anything 
    - Like the internet, it has many potential applications that we have yet to realize
    - Heavily tied to money and the exchange of “value”, however, it is also applicable to hard assets (property) and intangible assets (data)
  • Started with the digital currency “Bitcoin (BTC)”
    - Bitcoin has no centralized authority, instead it is run by a network of users/miners (a term we will define later)
    - Its key value proposition: “IT DOES NOT REQUIRE THE USERS TO TRUST EACH OTHER”
    - Solves the trust problem that has plagued the internet for decades
    - Bitcoin runs on the internet in a decentralized trust-less system that uses a public ledger known as the “blockchain”
  • The blockchain has the potential to be the next major technological revolution and paradigm

II. Currency, Contracts, and Applications beyond Financial Markets

  • Though the blockchain is most relevant in the world of economics and finance, it also has applications in other realms
    - It allows public interest to transcend governmental power structures by creating decentralized systems, thereby reducing the power of centralized power sources
    - Ex. New dis-intermediated business models can free businesses from skewed third parties
    - Ex. Property can become smart property that can be tracked, controlled, exchanged on the blockchain

III. Blockchain 1.0, 2.0, and 3.0

  • Blockchain 1.0 — Currency
  • Blockchain 2.0 — Contracts
  • Blockchain 3.0 — Applications
    (Each stage will be elaborated upon in future chapters)

IV. What is Bitcoin?

  • Bitcoin is a decentralized digital currency that uses encryption to mint new coins and to verify and secure the transfer of currency
  • All records are kept in an online, public ledger known as the blockchain that runs on users’ (miners specifically) computers and can be viewed by anyone
  • Bitcoin is pseudonymous, meaning that records bear a fictitious name. Public key addresses are used to transfer coins and record transactions so that no personal identification info is needed
  • “Mining” is how new coins are created; in order to compensate users for sacrificing their computational power to verify and record payments in the blockchain, limited new coins are distributed to these users at set time intervals
  • Bitcoin can be exchanged to fiat and can be sent and received between users

V. What is the Blockchain?

  • Key characteristics of the blockchain
    - Public ledger system that contains the entire history of the coin
    - Constantly growing as new “blocks” of data that contains transactional records gets added to the rest of the chain by miners
    - Blocks are added in a linear, chronological order, also known as a linked list in computer science
    - Each “node”, computers connected to the network that run the code and verify transactions, contains a copy of the blockchain
    - The entire blockchain holds information about addresses and balances from the beginning of the chain (its genesis block) to the most recent block
    - All blocks can be queried for transactional history data (https://blockchain.info
    - Trust-less proof mechanism
    - Enables decentralization and disintermediation for transactions
    - Literally a giant public spreadsheet

VI. The Connected World and Blockchain: The Fifth Disruptive Computing Paradigm

  • Computing paradigms have defined much of recent human history
  • Timeline of past computing paradigms
    - 1970s Mainframe
    - 1980s PC
    - 1990s Internet
    - 2000s Social-Mobile
    - 2010s Blockchain
  • Current emerging paradigm could be the blockchain paradigm
    - Blockchain enables not only the movement of money, but also the transfer of information and the allocation of resources
    - Could lead to the “pervasive expectation of value exchange functionality”

VII. M2M (machine to machine) /IoT (internet of things) Bitcoin Payment Network to Enable the Machine Economy

  • Blockchain could be the key enabler of the IoT world
    - Cryptocurrencies can be used for transactions between M2M and IoT devices 
    - A new layer of “machine economy” can be created
  • Blockchain can also be understood as “the internet of money”
    - Intermediary free transactions
    - Decentralized trust-less transactions
  • Blockchain has the potential to change the structure of society to one that is unprecedented and currently unimaginable

VIII. Mainstream Adoption: Trust, Usability, Ease of Use

  • New technologies get adopted by the public without much concern for technical details as long as appropriate, usable, trustable frontend get developed and as long as it is used to address a real need
  • The blockchain industry will most likely mature in phases
  • Blockchain is currently at the pivot point between the early adopter phase and the widespread adoption phase
    - Early adopters are more concerned about money, technology, and ideology
    - Widespread adoption is contingent upon solving practical problems for the populace

Chapter Summary

  • Blockchain has the potential to be the next major disruptive technology
  • Blockchain allows for a trust-less system
  • Blockchain can also be understood as the “internet of money”
  • Blockchain can be useful in more than just economic applications
  • Blockchain is a public ledger system that allows for the disintermediation and decentralization of all transactions of any type between all parties
  • Bitcoin is a decentralized digital currency, secured by encryption, that is built on top of the blockchain
  • Blockchain could be the new emerging computing paradigm
  • Blockchain has applications in M2M and IoT in that it enables a machine economy
  • New technologies are adopted when useful frontend applications are developed
  • Blockchain technology is at the inflection point between the early adopter phase and the widespread adoption phase

Thank you for reading the article! 
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