Untangling the Buzzword “Blockchain”
Understanding what “Blockchain” is really about in 3 easy steps
Reading about Blockchain is very confusing. The word Blockchain comes with a variety of general promises for innovation, meaningful upgrades to information and financial networks as well as building more anti-fragile back-office infrastructures across the world. Sometimes Blockchain is used to describe a potential for transformation (using words such as decentralization, transparency, automation and disintermediation) of public and private systems, some of which lie on the power lines of society. So with this level of promise and power, why is there so much confusion?
1) Buzzwords
The internet and handheld computer boom of the last decade cast a breakneck speed of change on the public relations and mass media sphere. It was also accompanied by an exponential increase in demand for information on internet based technologies. While society is still catching its breath, the information gap was widening and the need to describe businesses that are still evolving around the clock brought the emergence of a multitude of high-tech Buzzwords.
A buzzword is described by Merriam-Webster Dictionary “An important-sounding usually technical word or phrase often of little meaning”. Popular buzzwords such as Big Data, Cyber, Cloud and Blockchain reduce groups of complicated and diverse technologies and practices into a short and easy to remember title in order to describe business or industries. These titles are often mistaken for the technologies themselves.
Blockchain is not a technology, it’s a name of an industry.
2) Naming the components
Naming and learning about the nuts and bolts eases the navigation of environments suffering from an information overload, this is definitely the case for Blockchain due to the multitude of Start-Ups and variety of crypocurrencies on the market.
It’s important to note that the Blockchain startup scene, thought its name might deceive, is not built around block-chained databases. A block-chain database is a potentially tamper-proof database that uses a trick called hash links, but a block-chain can not stand alone and needs other innovative programmable component in order to become truly useful.
Other components which got less coverage are equally essential and important to this industry: Digital signatures which are based on cryptography and allow using secret and reusable codes in order to prove identity or ownership of a digital ‘address’ over open access networks, peer-to-peer (p2p) messaging and most importantly consensus mechanisms which are based on game theory. If you mix them all together: a tamper-proof and transparent database such as a block-chain, and digital signatures, representing digital goods, then, applying a trustworthy network consensus mechanism, you can establish the transfer of scarce digital goods over an open network.
Satoshi Nakamoto’s 2009 breakthrough in network consensus mechanisms and the emergence of digital cash that followed sparked the imagination of many people. Companies, projects and startups are applying their understanding of today’s corporate needs or exploring different technological visions by re-thinking or tweaking and applying to different challenges most of the components named in the previous paragraph. They are designing software and networks using a variety of design and economic philosophies. Most of these projects do use a block-chain (hashed-linked) database as the system’s ledger, but some of the most well known projects in the ‘Blockchain’ sphere actually use alternative databases with other names. So here you’ve got it — Blockchain isn’t really about blockchains.
3)Hitting a raw nerve
Money is a very political and emotional sphere and combining it with decentralizing and transparency tech make things even more controversial and prone to politics. This added another layer of confusion when reading popular coverage of this new industry or High-Tech and finance sub-sector.
Everyone agrees that Bitcoin network has been live for over a decade and that it’s technological components, including blockchains, are useful, this sector draws funding and excitement, but there is no agreement on the purposes or the best application for this cluster of technologies. Thankfully, if you’re willing to wait, things promise to be much more clear in a couple of years, as the cryptocurrency and blockchain space is evolving very fast.
Is Bitcoin the true innovation or just an ice breaker? Is the secure database aspect more promising than the money aspect of these applied technologies? Is Satoshi’s ‘Proof Of Work’ a brilliant solution for creating decentralized consensus or a wasteful hack soon to be replaced? Will cryptocurrencies even survive? Currently, the ecosystem and media are rich in conflicting perspective which might be a sign that something interesting is happening, but if you want to know what that thing is, it completely depends who you’re asking. No wonder there’s confusion.
Summary and an invitation to learn more
Q: Why is Blockchain so confusing?
A: Confusing the industry with the technology leads to not naming important components the are essential for this sector. The Blockchain industry isn’t about block-chains but about the latter combined with digital signatures, and useful consensus mechanisms. The politics of money and information increase the confusion about this to high degree, as different vision compete for the public’s attention and money.
Becoming familiar with the technological components of a tech sector will help you navigate and decide for yourself as the conversation is evolving.
The next post will be fully dedicated to a ‘creature’ nicknamed a hash-chain database — or an actual block-chain.
