Trust — a central part of human relationships, politics, medical practices, and business operations. A word frequently used and a fundamental core of the human species … but what exactly is trust? Asking seemingly simple questions like this surfaces more layers of truth, allowing one to think deeply by pushing thoughts closer to the nature of human existence. Accountability and predictability are pivotal components; when accountability is shown and repeated predictably, trust is strengthened. For centuries society has relied upon powerful authorities to mediate transactions amongst each other. However, a new era is emerging with a technology battling centralized powers and redefining trust for the world — Blockchain.
Blockchain embraces all generations, cultures, and languages. It is the underlying quiet technology behind the storm of Bitcoin and the crypto industry. To comprehend the phenomena of this societal revolution, it’s essential to understand the high-level basics of blockchain, as it’s redefining a cornerstone of our civilization.
It’s in human nature to need trust when exchanging goods or services. However, it’s also human nature to verify that transactions are made with integrity. Therefore, intermediaries serve as central authorities to resolve the lack of confidence between two parties. The global economy relies on infrastructures such as banks, mortgage firms, and credit report agencies to facilitate agreements. For instance, when you cast a vote, do you have proof that the person or purpose you voted for received your ballot? The truth is you don’t, but you place your trust in the polling site acting as the intermediary that they will record each vote accurately.
This system works but has severe limitations and inefficiencies. Many banks, for example, have enormous fees when wiring money abroad, not to mention delayed settlement times. Most people, especially those living in first-world countries, accept these costs because it’s convenient, makes our lives easier, and we trust that banks will act with integrity. Yet trust is delicate; it takes years to build and seconds to destroy. Banks and other centralized authorities in any country are vulnerable to hacks and corruption. This begs the question, does the world actually need them?
Blockchain is a database that stores encrypted blocks of data chained together in chronological order, creating a single source of truth. This replaces centralized human authorities who facilitate trust with computer science and mathematical proof that something occurred. At its core, blockchain is a decentralized, digital ledger. The term “block” represents a list of transactions or records, and “chain” represents the linked relationships of each block.
Every block has a unique identification number known as a hash, which shows it’s specific records and transactions. The public ledger is shared across a network of connected computers called nodes, which communicate to secure the network. They store a complete copy of the distributed ledger and verify the transactions within the blocks. Those who run a node participate voluntarily; it takes little effort or computing power to do so. The more nodes in a specific blockchain, the more decentralized, secure, and difficult to hack the network becomes.
The example below shows Laura attempting to make an asset transaction with Jack, with the request distributed to the nodes in the network. This system allows users to place their trust with a transparent algorithm that reliably stores and transfers value without the need of central authorities.
Blockchain resembles the components of Google Docs — only without the central jurisdiction of Google. When two people use Google Docs to create a class project, they share one document, and both can edit together in real-time. This document is viewed as the single source of updated and agreed-upon edits to the project. Blockchain works in the same way, only rather than verifying and updating a document, the nodes automatically verify and update the ledger of transactions.
In comparison, the two conducting the class project could use Microsoft Word. In this scenario, the two are unable to edit in real-time, forcing them to send back and forth their most recent updated versions of the project. This is similar to how banks process money transfers and balances.
Blockchain enables a system of shared documents between two parties rather than transfer bank statements and legal documents back and forth. Outlining how the transaction process of blockchain works is best suited through how it’s executed by its most famous user — Bitcoin.
It’s the fall of 2008, many people across the globe are suffering from the Great Recession, dealing with the loss of retirement funds, jobs, and houses. Banks and credit rating agencies face worldwide scrutiny due to their widespread fraudulent activity leading to the economic crises. Lehman Brothers, the fourth-largest investment bank at the time, files for bankruptcy, and distrust of centralized authorities amongst the public is at an all-time high.
Meanwhile, a mysterious figure named Satoshi Nakomoto publishes a white paper outlining a digital currency with a finite supply of 21 Million coins. Nakomoto defined a currency that would eliminate the need for banks to broker transactions. Although Bitcoin is seen today as a store of value, Nakomoto’s white paper describes an alternative payment system operating free of central control, made possible by blockchain.
There is a significant difference between how Bitcoins are traded and how they are created. Understanding how Bitcoin transactions occur will convey how blockchain redefines trust for the world. When a new Bitcoin (BTC) transaction takes place, nodes validate the information is accurate. Each BTC transaction that occurs in 10-minute increments is stored in a block and given its hash number. This hash is chained to the previous block, which holds the last 10 minutes of transaction data.
Once nodes verify the transactions and create a block, the data added is permanent. The new list of transactions is chained with the previous block, whose data is also immutable. Each crypto-asset has its own blockchain network that records every transaction open to the public. The Bitcoin blockchain shows each BTC ever created or transacted with since Satoshi mined the first coin on January 3rd, 2009.
Anyone who has purchased BTC is given their own private keys, serving as a digital wallet and signature to request and approve transactions. The decentralized code Nakomoto wrote in the protocol allows the ledger to be distributed and held by nodes worldwide. These nodes secure the network with cryptography; through this, Bitcoin has no single point of failure. As of today, there are hundreds of thousands of nodes validating the network’s records. To breach it, one must hack every single node in the Bitcoin blockchain.
This decentralized financial system known as, “DeFi” provides trust, legitimacy and reinvents the outdated financial monetary system. DeFi provides ownership and control of the hard-earned money people work for and alleviates the need to ask for permission or pay centralized authorities.
Satoshi set forth a requisite in Bitcoin’s code, allowing no more than 21 million BTC’s to be created. As of August 2021, there are 18.7 million BTC’s in circulation, with the last one predicted to be made in 2140. This system connects people worldwide to a single trustworthy ledger and method to store data accurately and unalterably — A global, single source of trust.
Bitcoin revolutionizing the financial system is only the first mainstream adoption of blockchain. The digital age of the internet has allowed other central authorities to build incredible wealth and control over society. Nevertheless, a new generation of the internet is ascending, with blockchain leading the charge.
In the ‘90’s web1 was the beginning of the world wide web and is known as the “read-only internet.” Information-based websites such as Yahoo, AskJeeves, and Google grew to prominence, and the market saw massive adoption. Although the content was fixed and lacked any significant interaction, people were fascinated by computers enabling them to communicate with each other and share data.
The internet was innovative, scary, and challenging to use in 1994. Bryant Gumbel wasn’t entirely sure what this new technology was, not to mention what an @ in an email address represented.
Essentially web1 set out to provide the world with a way to gather information free of censorship. As technology evolved, web2 was created in the 2000s, bringing the “social internet” we live in today. This era includes Facebook, Twitter, Instagram, and those who survived the internet’s first transition like Google and Amazon. Although no one owns the internet, these conglomerates certainly influence significant opinions and activity.
The kings of the internet today do not require users to pay with money; instead, they charge something far more valuable — data. Their services are used in exchange for consumer’s private information, equivalent to each individual’s online identities. Through this, Facebook and other web2 authorities have access to every specific detail of the publics’ lives, and people have no control over what their digital identities are being used for.
Data is the most valuable asset in web2 , and it’s owned by the current internet powers. The business models of organizations like Facebook and Google, include collecting users’ data for free and selling it to advertisers. They control the picture, video, or post you see with the sole purpose of keeping you on the platform longer and increasing the likelihood you buy an advertisement. This leads to an addicting cycle of past choices on the web, affecting what users see in the present. What’s seen in the present directly influences decisions made in the future, and this perpetual circle of controlled content critically impacts beliefs, mental health, and personal relationships.
The time has come for an extensive change in mindset over the privacy of each individual’s data. Blockchain provides this opportunity by facilitating the inception of web3 known as the “Semantic Web.” This new age of the internet hopes to provide an unfiltered, incorruptible and decentralized platform. web3 purpose is to enable self-sovereign identity (SSI), which provides users ownership and control of their private data. SSI is the equivalent of an online driver’s license owned by users and a personal profile across different internet platforms.
Social media users have different profiles and connections on Facebook, Twitter, and other internet applications. web3 can combine each of those profiles into one digital identity owned by the consumer. Individuals’ online identities will be stored and secured on the blockchain. From there, users decide which platforms they use and who they interact with. This alleviates the current concerns of data privacy and censorship that the current internet has today.
Just as Google and Amazon survived the first transformation of the internet, the existing internet powers may or may not transition to web3 on the blockchain. The successful applications in this era will not own their users but will have the ability to verify they are not imposters by the computer nodes securing the network.
The future of social media on the blockchain will be a cross-platform, community-owned social network. This allows users to decide who can see their data, how it is used, and potentially control the number of advertisements they see. Some web3 projects like Brave Web Browser offer compensation in their token for opting into ads. This would be as if Instagram asked users permission to show an advertisement, and if deemed okay, rewarding them with Instagram stock.
Many consider Ethereum- the second most popular crypto asset by market capitalization, to be the future web3 Co-founded by Russian / Canadian developer Vitalik Buterin, Ethereum is a decentralized blockchain network with endless potential and incredible utility. The network allows users to create decentralized applications (DApps) and store and trade nonfungible tokens (NFT’s) amongst many other use cases.
Although viewed together frequently, Ethereum and Bitcoin are not competitors; they have vastly different features and serve different purposes. Bitcoin is a cryptocurrency and is recognized by many as Gold 2.0. On the other hand, Ethereum is a platform that can solve the web’s current censorship and centralization issues, creating a new, decentralized internet infrastructure.
Just like members of The Today Show in 1994 couldn’t fully grasp what the internet was, many in the media today don’t fully comprehend what blockchain is. This results in fear being spread and false narratives created. It’s easy for one to diminish something they may not understand, but changing an opinion in light of new evidence is a sign of intelligence. For instance, Shark Tank’s Kevin O’Leary went from a Bitcoin Bear degrading the asset on TV to DeFi Bull recommending it as a hedge to inflation.
The adoption of new technology is both exciting and intimidating. Blockchain and crypto assets are in their infancy, and new markets are volatile by nature. The crypto market capitalization will grow through future bull and bear markets, which will decrease its price volatility. Eventually, investors will begin to look beyond the price of crypto assets and realize the bigger picture. When this occurs, people will see blockchain as the heart of the crypto industry; and notice how it’s changing the world by redefining trust and handing society back our intellectual freedoms.
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