Everyone is talking about crypto, the colloquial term for blockchain based digital assets. Love it or hate it, it seems to be on everyone’s lips. Bitcoin is the most popular and well-known of these, yet Bitcoin is only one of thousands of networks, applications, and protocols empowered through blockchain technology. It’s hard to actually cut through the noise (or myths) and, with all the hype around making money, we see that the fundamentals and foundations of this amazing technology are generally overlooked and misunderstood. So, let’s start by understanding that blockchain technology is a breakthrough.
Blockchain, recently made possible through decades of computer science and mathematical innovations, enables computers in different locations to access, verify, and share data. It overcomes the challenge of sharing information quickly and reliably among separate entities without a centralized gatekeeper. This allows peers in the digital world to transact business without an overlord, similar to handing a friend a 20-dollar bill directly. This has never been possible in the digital world before the blockchain breakthrough. This is why we care.
Four unique characteristics make blockchain revolutionary:
Decentralized: No central authority controls transactions occurring over the network.
Immutable: Posted transactions are there forever and can never be deleted or changed by anyone.
Transparent: Every transaction on the blockchain is public record and can be viewed by anyone on the network.
Authenticated with cryptography: Blockchains ensure the legitimacy of each transaction and participant with complex mathematical codes.
Blockchain empowers its users, as Vitalik Buterin, co-founder of Ethereum, explained: “Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” This is what we mean by peer-to-peer.
It can be easier to start understanding blockchain as a new kind of database with data stored on many independent computers worldwide, making it distributed. Blockchains are also decentralized. To illustrate, think about your photos on your laptop. If you drop said laptop in the ocean, you’ve probably lost your snapshots of vacation on the Big Island sipping a frothy, fruity rum drink. But what if there were 100,000 computers that all had copies of your photos (for some of you, that’s a scary thought, so let’s just pretend it’s only the photos you want people to see), and every time you take a new photo, every computer gets a copy. That is decentralized. No single point of failure and no point more important than any other.
In a blockchain, transactions are unchangeable once written into a block, unlike most databases that allow alterations or overwriting. So, if Bob sends Sally one bitcoin (BTC), once that transaction is confirmed, Sally has one BTC. That transaction is irrefutable, written in stone, and can never be changed.
Transparency means everything on the chain is visible to anyone at any time, which is the opposite of most databases. This strength allows for confirmation of ownership, chain of title, and transaction activity while maintaining anonymity and a permanent record that can be traced if needed. You can transact while generally maintaining anonymity and yet there is still a permanent record that can be traced if needed.
Blockchains are cryptographically secure. The challenge with digital signatures has always been the concern that they can be copied. Enter cryptography. Blockchain uses cryptography to secure data so that it can only be accessed by the desired party. Think of cryptography as a lock on your data that can only be accessed with the right key. Cryptography not only makes it easier to establish the authenticity of someone conducting a transaction, but it can also create verifiably rare digital assets that mimic scarcity and rarity in the natural world, like gold and diamonds.
In all, these features of blockchain position it as the biggest technological disruptor since the Internet, which is why we want everyone to be aware, because everyone’s lives will be changed.
We’ll unpack all this further in the rest of Chapter 1 of our new book, Crypto Decrypted, out May 23, 2023.
Grab your copy today to grasp the blockchain breakthrough and so much more!