Welcome to the Blockchain
A Quick and Personal Into to the Revolution
On August 2005, hurricane Katrina decimated the city of New Orleans causing great emotional and financial grief. As I began my work on blockchain based technologies and the added series of devastating hurricanes of 2017, I am reminded of a project that I had worked on in post-Katrina 2006. When first responders sought new ideas on coping with such events.
That project was to develop a location-based communication device (running on first generation tablets) that did not require an internet infrastructure. It used an obscure Microsoft peer-to-peer (p2p) toolkit that enabled it to share information with other devices using only its internal Wi-Fi. Imagine that: an autonomous and self-repairing network of communicative devices that could have been an invaluable rescue tool today and back in 2005. These devices did not depend on any communication antennas, cell or internet infrastructure. All that was needed is the physical proximity of one or more other devices — an invaluable and resilient communication platform and situation alertness tool for rescue workers facing a catastrophic situation.
I was immensely proud of the prototype that we developed. It worked and it was magical, but unfortunately the product did not take off. Perhaps it was somewhat ahead of its time. But, I had always hoped to cross paths with decentralized p2p technology again. So, when the opportunity appeared to work with Alex Mashinsky on the blockchain based Celsius Network project, understanding that the blockchain in it’s core is built on similar serverless p2p technology, I jumped in head-first. Only later to learn about and love the genius and the greater implications of this technology.
I had always believed that serverless p2p, a network connected among itself with no single governing authority, had the potential to disrupt various markets and industries, but nobody guessed back then that it’s first large scale success will be to challenge money!
For those unfamiliar with the blockchain — don’t worry, even with all its recent glory still only a handful of techies truly understand it. In order to grab the concept of the blockchain and its use in the financial system, it is imperative to understand the following concept: every non-cash monetary transaction, for example a purchase using a credit card, is recorded by the banks on a “ledger” of transactions. Using these records, the bank adjusts the sum of funds in our financial accounts. Imagine, a big diary where all transactions are written to — who paid what to whom.
Thus, the concept of keeping “records” of transactions is a key component of financial institutions’ operations. Using this core concept, sometime in 2008, a proposal for a digital public ledger appeared on the scene by the mysterious Satoshi Nakamoto. This ledger technology was known as the blockchain.
Satoshi Nakamoto conceptualized a digital ledger that stores data in “blocks” and then secures it to a previous block, or “chained” using cryptography. This chaining prevents anyone from going back and changing the records. This digital ledger is then shared across computers using a distributed p2p network. The ‘truth’ on order of transactions and their validity is achieved through a process of ‘consensus’ across the participating peers (nodes).
The genius of this system is that it solved the single biggest problem computer science was not able to solve in a non centralized architecture— double spending. Double spending means that the system is vulnerable to people spending their money more than once. Say you have a $100 bill, you tell one merchant that buying his merchandise for $100, and then immediately do the same with another merchant before the system recorded that the first transaction took place. You have therefore spent $200 while having $100. The blockchain prevents such a case using the consensus on the ledger blocks. Throughout the history of the blockchain it was proven that the system works and cannot be tempered with or cheated (malicious attacks targeted vulnerabilities that are not related to the blockchain itself).
Some of the nodes are computers who attempt to find the cryptographic keys in order to lock the new ledger blocks that are entered into the ledger. These nodes are also called ‘miners’ and they are rewarded with coins for their work in successfully finding an accepted lock to a block. This is called Proof of Work, describing the energy used to find a marching key. There are new techniques used and planned that challenge proof-of-work mining, but are beyond the scope of this brief.
Bitcoin is the name of the original crypto-currency handled by a blockchain. It was implemented using Nakamoto’s proposal and it is the current leading digital currency with a market cap of around $230B (as at January 14, 2017). In 2013, Vitalik Buterin, an ex-Bitcoin developer, proposed a ledger based on software instead of simple monetary transactions. The proposed blockchain evolved to become the open-source Ethereum project where a scripting functionality, called smart-contracts, is embedded in the blocks.
The Ethereum blockchain is a completely different ecosystem and has its own currency called ether. Ethereum opened a whole new world of innovation no longer limited to simple financial transactions. Although new competing programmable blockchains are appearing, such as EOS, NEM and others, Ethereum is by far the most popular and largest economy, second only to Bitcoin.
For developers what is most curious about blockchain programming, specifically a Turing state driven system like Ethereum, is that you must (mostly) leave behind centralized software-as-a-service approach and think distributed simple programs — smart-contracts. The decentralized design requires some refocusing. For example: need to focus on anonymity not just privacy; leave behind control and traction for user empowerment and ownership; adjust the business models where old models like freemium, where key is to draw people in and keep them until they are convinced to pay, are out the window, currency in the blockchain is now built into the product. The new design is about the ecosystem. Think about utility and value within your ecosystem. When designing solutions for the blockchain “empty your cup” as the great Bruce Lee used to say.
The blockchain era is still in its infancy. To be honest utility of blockchain is still limited to safe digital assets transactions and fundraising innovation using a private token economy (ICOs). But these are extremely powerful hooks, arguably more powerful than the anchor that grew the internet in the mid 90’s — email. Those who claim email was a more efficient communication than the telephone or fax, simply fails to recall how bad it was in the early days.
The blockchain is a fertile ground for ideas and innovations, not seen since the first internet browser (NCSA Mosaic) appeared. I cannot overstate the fundamental changes the blockchain can bring, not only to in banking, credit, insurance, and anything tied to financial activity — these are easy bait. The blockchain can easily impact our everyday life, for example, imagine appliances that you pick up free from the store and pay micro-payments only when using them. Or cars that bid among themselves on parking spaces. This is just the type of stuff we can imagine now, but did we really imagine Uber or Facebook in 1994? Great things are coming, join the ride it’s open to all.