Of late there has been some fascinating developments surrounding the Blockchain technology (also commonly referred to as Distributed Ledger) and a lot is being said about it. Of course where there’s smoke, there’s fire. In the last couple of months plenty of blockchain based initiatives were launched. If one simply follows Bitcoin and the Fintech space it’s very likely this person came across names like Ethereum, Ripple or Stellar. I myself only began to pick up an interest in Bitcoin and its underlying technology in November 2014 while reading an article about Coinbase founders on Bloomberg Markets. It grabbed enough of my curiosity to set myself to understand more about it and dig in the somewhat blurry world of Bitcoin and blockchain.
Essentially the blockchain technology originates from cryptography, advances in computing power and the collaborative forces of the word wide web and open-source software. Mark my words this new IT technology is a very big deal! After the Internet in the 90’s and commercial space travel today it’s probably the most disruptive trend in the market. It could have systemic implications on the current infrastructures and technologies many industries currently use, the first being financial services. For instance Blockchain is already enabling seamless payments and transactions in a peer-to-peer level at much lower costs and less friction. In fact it has the capacity to do much much more than that and its range of applications are close to infinite. One could treat the blockchain as a digital equivalent to a notary’s stamp: using the blockchain as a way to authenticate digital transactions, offering irrevocable proof of ownership with a traceable history. The beauty of it is that once an asset or contract is digitized one can effectively transfer its title on that distributed ledger in real-time, at digital speed. Blythe Masters (CEO of Digital Asset Holdings) says the total addressable market for blockchain based services could amount to trillions! Ethereum project founder Vitalik Buterin (21 years old) said he’s more excited about the coming, not yet existing innovations in the blockchain ecosystem than the ones already in place…
Where it all began…
In 2008 a mysterious guy under the pseudonym of Satoshi Nakamoto published a White Paper (WP) describing a new payment system, what he called Bitcoin. In his WP the author explains how “an electronic payment system based on cryptographic proof instead of trust [would allow] any two willing parties to transact directly with each other without the need of a trusted third party”, say a clearing house or a bank. Furthermore the author explains a way to circumvent the common double-spending problem found in electronic files. Unlike physical coins or money, electronic files can be duplicated, and hence the act of spending a digital coin does not remove its data from the ownership of the original holder (source wikipedia). One way to resolve this is to use a trusted third party (like central banks) but the problem attached to this is the single of point failure from both the technical and the trust viewpoint. An alternative solution would be a (public) distributed ledger in the sense of a peer-to-peer network whereby for a transaction to be valid the majority of the system participants (>51%) have to validate it as in a consensus manner. Furthermore these numerous parties or participants are incentivized or rewarded by newly issued Bitcoins for providing CPU power and their wisdom to validate those transactions and keep the system secured.
Forget bitcoin, Blockchain is the new black!
Since this first publication on Bitcoin and the blockchain technology dozens of WP have been written to build upon and develop the foundation laid by Satoshi. You can think of the White Paper as a sort of MVP (minimum viable product) where the authors describe their vision and get feedbacks. All of what these WP describe or reveal are either new blockchain based protocols (such as Ripple or Ethereum) or Decentralized Apps such as La’Zooz.
Nonetheless a lot of work remain to be done to make this technology ready for mainstream adoption. Can the consensus mechanism survive large scale criminal attacks? How will governments regulate it? Can the network cope with the potential transaction volume? Those questions are currently being tackled by numerous not-for-profit organizations such as Ethereum or Ripple as well as other start-ups and the world will certainly look much different in 3 to 5 years time already. This post has merely scratched the surface of what the blockchain ecosystem is and following posts will address the imaginable range of Blockchain applications. One of the craziest I read being Bitnation, a Blockchain led government!
For further reading and information about Blockchain have a look at this non-exhaustive list of resources:
The Economist Intelligence Unit Report
Blockchain: The Financial Challenge of our Time (Blythe Masters)
techruptive 