2017 is said to be the year of Bitcoin, with everyone from your friends to your grandparents hearing the term numerous times in the media. However, it is sad that the underlying technology isn’t getting as much attention. It should be. That Technology is known as Blockchain.
So what is Blockchain Tech?
Picture a spreadsheet of records that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet securely with total consensus across the distributed network and you will have a basic understanding of Blockchain. The spreadsheets are referred to as blocks which are chained up together to form a distributed ledger. Hence, Blockchain. By storing blocks of information that are identical across its network, the blockchain cannot be controlled by any single entity and have no single point of failure. This makes Blockchain decentralised by nature and very robust. In fact, ever since it was invented in 2009, the Bitcoin Blockchain has operated without any significant disruption.
With this combination of decentralisation, robustness and accountability, many have touted Blockchain to be the next generation of the internet, web 3.0, bringing security, transparency, traceability and immutability to the internet.
Today, we commonly rely on the banking system to perform transactions and these usually cost between 2 to 4% and can take up to several days to complete the transaction. This is due to the fact that it is a centralised system which requires their servers to verify the transactions one at a time. Blockchain, on the other hand, handles transactions without any intermediary due to its decentralised nature and as both parties can see their transaction on the blockchain exactly as it has occurred, a third party is not required to verify the transaction. Depending on the blockchain’s capabilities, transaction fees and timings will be drastically reduced. A cryptocurrency known as Ripple (XRP) for example, cost an average of 1 cent and takes around 4 seconds to complete a transaction. This essentially makes Banks Irrelevant, with people such as Andrey Sharov, the V.P of Russia’s Biggest Bank, Sberbank, to state that Blockchain will make Banks disappear in 10 years. A pretty bold statement seeing how banks have been around for over 250 years.
Instead of centralised servers, computational power is provided by the distributed network of computers, to achieve distributed consensus and there are 2 widely used methods to achieve this namely, proof of work and proof of stake.
The blockchain is an undeniably ingenious invention. But since its conception in Bitcoin, Blockchain Technology has evolved into something much greater. Companies have begun adopting the Technology for everything, from banking and identity to tracking assets all over the world and it doesn’t stop there. Blockchain goes even further when we talk about something known as Decentralised Autonomous Organisation or DAO for short. As its name suggests, DAOs are company organisations that are decentralised and automated. Instead of directors, managers and employees, the DAO works in the form of computer coded rules and guidelines, known as Smart contracts, which are put in place by the people in the distributed network. This will revolutionize traditional companies and freelance as we know it with people basically becoming their own CEOs.
Companies like Singularity Net are even using Blockchain to create a decentralised AI marketplace.
Limitations & Challenges
However, it is not all roses. There are some limitations when it comes to Blockchain technology. One such limitation is with regards to Scalability. Due to the high volume of transactions, blockchains like bitcoin have become tremendous slow and costly to transact. Currently, bitcoin processes around 7 transactions per second and cost an average of 10 USD. With solutions such as Lightning Network in the works, this problem should be addressed in the near future.
There is one notable security flaw in blockchains that was even highlighted by its creator Satoshi Nakamoto and that is the 51% Attack. Nakamoto theorises that If the majority of miners are controlled by a single entity, they would have the power to decide which transactions get approved or not. This would allow them to prevent other transactions, and allow their own coins to be spent multiple times. However, this attack will be extremely costly to the point where not even large-scale governments could mount such an attack and even if such an attack did take place, the potential damage one could cause is small, though enough that it would result in a panic and a rapid decline the currency’s value.
Blockchain is a complete overhaul of how things in our world are going to be recorded, organised and run, pointing us towards a Decentralised Future.
What do you think? Are you a fan of decentralisation? Let me know your thoughts in the comments below!