Blockchain - Whats with all the Hype?
Every so often there comes a disruptive technology that sends shockwaves through the status quo. From the initial iterations of the very familiar Automated Teller Machines (ATMs) of the 1970s to DNA testing and sequencing of the past few decades, as well as the significant strides that the Internet has made since the early ‘80s – each of which have led way to evermore trailblazing innovations thereafter. Among these “movements” we’ve more recently seen the advent and application of blockchain technology break its way into the Earth’s stratosphere.
This can be traced back to cryptographer involvement from the likes of David Chaum’s somewhat simple blockchain-like proposal in his 1982 paper titled “Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups”. Furthermore, Chaum’s input towards the modern-day blockchain and cryptocurrency phenomena can be cemented in his contribution to the introduction of blind signatures in cryptography, which we ourselves may more familiarly recognize as the disguised digital signatures we sign when sending assets to one another across some of the more common blockchains we see in today’s cryptocurrency ecosystem.
Since then numerous computer scientists, cryptographers, and innovators have complemented, added to, and modified prior works to journey us from the inferior state that the blockchain realm was in decades ago, to today’s current cryptocurrency space, but none more so than the mysterious pseudonym-titled Satoshi Nakamoto in the commendable 2008 white paper “Bitcoin: A Peer-to-Peer Electronic Cash System”. This can in fact be considered the first widespread application of blockchain in use, however, since then we have seen an overabundant use of this technology across various cryptocurrencies, utility cases, decentralized finance applications (DeFi), smart contracts, and non-fungible tokens to name a few. So what exactly caused this explosion of innovation and hype? To understand this, we first need to understand the core features of a blockchain.
The Blockchain Idea
In short, a blockchain is essentially a digital ledger of transactions (similar to a database) that is distributed and shared across an entire network of computer systems on the blockchain in a peer-to-peer format. When compared to a typical database which is often arranged into tables, a blockchain structures itself in, well, “blocks”, that are strung together creating an irreversible timeline of data. Each block in the chain consists of a number of transactions, and each time a new transaction occurs on the chain, a record of that transaction is simultaneously added to every participant’s digital ledger across the network. The beauty of this is that if one block was to be tampered with, altered, or destroyed it would be immediately apparent within the computer network, and penalties are incurred to those that do this.
As a result, the blockchain can be prized for its ability to maintain a secure and decentralized record of transactions, as the blockchain guarantees the fidelity and security of a record of data and generates trust, without the need for a trusted third party. The bottom line – blockchain as a technology is the creation of an immutable ledger or record of transactions that cannot be manipulated, altered or destroyed and this is the key underlying premise of its attraction and application in the modern-day world.
The First Glance Benefits
But again we ask, why all the hype, and better yet is blockchain technology simply a solution still searching for a problem? Decades have passed whereby organizations, institutions, and furthermore governments have garnered more control and more visibility over our daily activities and digital identities, often without our consent. In its purest form, and it does come with its flaws as we will see later, blockchain has arrived as a decentralization vessel to intrinsically counter this notion by redistributing that power back to individuals by allowing said data to be held across a network, with no-one individual or organization holding the “skeleton” key to that data.
This together with the ability to openly view transactions in real-time via the various blockchain explorers at our disposal, allow us to view more openly what’s happening across the network in question. Coupled with the increased security associated with blockchains, there has inevitably been an introduction of widespread mass adoption across various industry sectors to help curb prior irregularities and economic inefficiencies.
Besides the recording of transactions, thousands of projects seek to implement blockchain in what can sometimes be considered a superfluity of real-world use cases. However, there still do exist some formidable mentions that come with arguably far more pros than cons:
Banking & Finance: Blockchain technology has been touted as an extremely disruptive force to the Banking & Finance sector in a myriad of instances. In fact, perhaps no industry sector stands to be challenged and benefit from integrating blockchain into its core processes more so than international banking. Aside from permitting 24-hour payment processing, transaction-related cryptocurrencies built on the blockchain also allow the individual to have some liberty in their choice of transaction fees, whereas banks sometimes apply unruly transaction fees that are unavoidable and unfavorable, particularly for international payments. Additionally, crypto transaction speeds are far superior to international bank transfers, often taking no longer than a few minutes (or seconds) versus the incomparable length of days that it can take for an international bank transfer. Blockchain also permits the ability to bank the unbanked in third-world and developing countries where several individuals are denied the right to sometimes even open a simple bank account, while also maintaining the utmost privacy and security when doing so.
Currency: Now it’s time to frighten some of the governments! The United States Dollar i.e. the world’s reserve currency is centrally controlled by the Federal Reserve. In other words, residents of the U.S. (or whichever country in question) have their savings and assets held at the mercy of a centrally controlled authority and are subject to the effects of government instability, political risk, and currency devaluations. In fact, Bitcoin’s initial conception was born under the principle of mitigating this centralized currency risk by allowing decentralization as a counter-concept, and it is this core notion that forms the bedrock for cryptocurrencies similar to Bitcoin.
Property Ownership & Records: The ability to record property rights in their current state is unnecessarily costly, laborious, and inefficient often relying on physical signatures, posting, and manual deliveries. By contrast, the blockchain permits landowners, landlords, and tenants to trust that their title deeds and executed documents are permanently and accurately recorded. This is already being utilized in such countries as the United Arab Emirates among others.
Smart Contract & Smart Contract Execution: You may have heard of it… A smart contract is a computer-coded contract incorporated onto the blockchain that allows the facilitation, verification, negotiation, and final execution of a contract agreement between two or more parties. Real-world use cases could be a landlord and tenant auto-exchanging the door key code and security deposit simultaneously via the smart contract respectively, or perhaps in the use of more complex negotiation contracts such as the execution of derivative trades. The use cases are numerous and elaborative, to say the least.
Supply-Chain: Imagine having the visibility and transparency to know with fine detail the exact source and origin point of your materials, food, or produce. Well, that is possible and demonstratable on the blockchain! This has been incorporated by the likes of Pfizer, Walmart, Siemens, and Unilever to name a few big blue chips. The blockchain allows noneditable timestamps and journey routes of goods, while also having true knowledge of such labels as “Organic” or “Fair Trade”. As reported by Forbes “… supply chain blockchains "tokenize" a variety of transaction-related data, creating unique and readily verifiable identifiers for purchase orders, inventory units, bills of lading, etc.”.
Other Sectors: Healthcare is another area that has already heavily adopted the idea of using blockchain to securely store patients’ medical records. In addition, the future will most likely incorporate blockchain as a way to vote securely during elections, making use of blockchain’s immutability characteristic to its fullest, preventing fraudulent wrongdoing in the process.
But let’s be honest, not everything can be a bed of roses and it would be careless to not appreciate the drawbacks of blockchain technology and its ongoing difficulties. Firstly, taking Bitcoin as a prime example, there’s the immense computational power required to validate transactions on the network. This is comparable to the same levels of annual power consumption of countries such as Norway and Ukraine combined. Not to mention miners driving up their electricity bills off the back of actually using electricity to validate transactions on the blockchain. Their reward comes in the form of the mined bitcoin which would circumvent the costs incurred to mine Bitcoin in the first place. Over the past few years, solar-powered mining farms or other energy-efficient alternatives have come into play to evade the energy costs associated with mining as well as the negative impact this would have on the environment.
In addition, various blockchains’ scalability dilemmas became a prime topic of discussion. Transactions per second (TPS) was known to be an issue for blockchain enthusiasts, however, thankfully there have been new and extremely scalable alternate Layer-1 blockchains that have come into play. This includes the likes of Solana, Near Protocol, and not to mention Bitcoin’s competitive cousin Ethereum which will soon boast a Proof-of-Stake system rather than Proof-of-Work, which will avail a far superior TPS rate once completed.
However, the topmost issue clouding blockchain’s nomination as a saving technological grace, is that of illegal activity and everything that comes with it. Much of what blockchain and cryptocurrency can be praised for, can also be leveraged as a debating tool to argue against the benefits. Confidentiality and privacy is an absolutely favorable facets of blockchain, yet this also permits illegal trading and activity on the blockchain network. You need to look no further than the illicit world that surfaced off the back of the Silk Road, known as an online dark web and illegal marketplace that ran for two years until the end of 2013. No tracking, illicit exchanges, and zero taxes (no doubt), all contributed to a spider-web of untraceable activity of illegal trade.
And finally… Regulation. With increased liberty and privacy to “the people” comes decreased transparency for governments, and arguably less control. The crypto community has expressed fear about each of their respective government’s stances on cryptocurrency and regulation. Given large institutional adoption across the board along with retail market involvement in the ecosystem I think it’s fair to say that cryptocurrency is here to stay, however not knowing what a government will impose from a regulatory standpoint, leaves everyone slightly apprehensive. Could governments ban crypto? Could they impose extremely unfavorable taxes? Could they demand centralization policies to decentralize as much as they can? All are open for discussion, however, one thing that is known is that there are numerous governments exploring and deploying Central Bank Digital Currencies (CBDCs), which effectively allow the use of a centrally governed digital currency, that would achieve a lot of the benefits of a typical cryptocurrency on the whole, with the exception of decentralization – which in itself is a core value of the initial blockchain/cryptocurrency proposal since its inception in Satoshi’s earlier paper.
The Bottom Line
What we do know at this stage is that blockchain and cryptocurrencies aren’t going anywhere, and it’s more than just hype. With practical applications of the technology being innovatively intertwined with our day-to-day lives, alongside the exploration of new and disruptive cryptocurrency projects, many of us can’t help but join the bandwagon. Blockchain offers efficiency, privacy, security, and increased accuracy to name a few features, and this partly helps to explain why so many assets are being tokenized to help migrate them over to a ground-breaking technology in today’s era.
Author - Matthew Romu