You probably heard someone talking about “Blockchain” or “Bitcoin” and you didn’t give it much thought. Perhaps a friend recommended you to buy cryptocurrencies to become a millionaire and you decided to try your luck, without investigating much. Or, in the in the best case scenario, you were always interested in knowing a little more about all this, but you have been procrastinating.
My goal with this article is to try to give a glimpse of the potential of this technology that has come to revolutionise the digital world as we know it today. Many people even argue that it is a “new generation of the Internet.”
The iceberg under the water
People talk a lot about Bitcoin. I imagine you have an idea of what this is, more or less. Bitcoin is like “the tip of the iceberg” of what this technology is. It’s the most visible part. However, for cryptocurrency to exist requires the existence of the Blockchain, and not everyone knows what it is or are aware of all the potential it has. Blockchain is the technology behind Bitcoin, but it does not only make this digital currency work, it can also have many more applications.
Bitcoin is like “the tip of the iceberg” of what this technology is. It’s the most visible part. However, for cryptocurrency to exist requires the existence of the Blockchain, and not everyone knows what it is or are aware of all the potential it has.
To begin the Blockchain is defined to be a distributed by saying that that it is a distributed database among all the computers that are part of a network. But to understand this in greater detail and why it is so revolutionary, it is important to understand why it arises and what problem it’s trying to solve.
The Internet: Centralisation of power in a few intermediaries
Let’s think about the Internet, which came to revolutionise a lot of aspects of our lives and brought a great democratization of knowledge, information, and access. However if we think about it in this new context, new companies emerged that came to monopolize a lot of information and decisions as well.
While before all power was in the hands of the states, now new players such as Google and Facebook are emerging that are virtual empires and also centralize power. They have control of the information, of our data, and they are in charge of huge communities of people (think of Facebook and its more than 2 billion users). These companies know who we are, they control what we read, they are intermediaries in everything we do through the platform threatening a large number of rights, especially privacy.
The same happens with all companies of what is called the collaborative economy whose objective is to connect people: Uber for example connects people with cars. However this is always with the intermediation of the company which defines the rules and stays with a commission, not to mention all our private information. The same applies to Airbnb, Amazon, Spotify…
The problem of trust on the Internet
It is not by chance that we have intermediaries. And this is largely due to the need to build trust on the internet. When we make a purchase through Amazon, we do not trust the person we are buying from- we trust Amazon. The intermediary company gives us security, it is an entity in whom we can trust and to whom we can claim in case of having a problem.
Let’s take money as an example, which is one of the clearest examples of the application of blockchain. When we pay in cash, that is to say pay offline, there is a trust given by the physical object (banknote/coins), even if it comes for person you don’t know. We do not need to know who the other person is or have an intermediary who can trust us, because the object has a value that we all know and share. When I give a ticket to someone, I stop owning it and now the other person owns it Therefore, the advantages of paying in cash are anonymity and the trust given by the object that cannot be duplicated.
However if we want to make a remote transfer over the Internet, two conflicts arise. First of all we cannot trust the identity of third parties over the Internet without the intervention of an intermediary. Secondly a property of computer bits is that they can be copied indefinitely so we could give the same ticket to many people. Because of this, in the traditional form of the internet, the limited use of a digital asset cannot be guaranteed.
We are going from a centralized logic, where someone controls all the information, to a distributed one, where the information is divided between all the computers. No one can monopolize content.
Before blockchain, the role of intermediaries in the digital exchange of assets was fundamental and indispensable. An example of this is the digitalisation of banks who must keep track of how much money each person has at all times, and if a person pays an amount to someone else they no longer have that amount of money. Therefore the payment is made first to the intermediary and then to the next person. However this generates a cost of information and high commissions.
Bitcoin: the first digital limited resource
Satoshi Nakamoto, the mysterious creator of Bitcoin discovered the way to generate digital scarcity and this creates a huge disruption in what the Internet is. Blockchain allows you to eliminate intermediaries and build trust online.
To better understand how it works: let’s use the analogy with an island in Micronesia. On this island a tribe called YAP lives who have a very particular way of managing their own economy: just as we have bills and coins, they have very large stones that represent their savings. To avoid taking them from one place to another every time they had to make a payment they decided to leave them all in a place that is always visible to everyone, and to remember who is the owner of each stone.
But then the question arose: how do you remember who each stone is? One option could have been to designate a person to remember who each stone is. But people are people, and allocating the monopoly of knowledge to a single person carries its risks, for example if something happens to that person (if they become ill or die), or even if the person lies or decides to reveal themselves in some way.
The first time that bitcoin was used as a bargaining chip was in 2010, when buying two pizzas. At the time, they bought them for 10.000 bitcoin, each Bitcoin equivalent to 0.003 cents. If we calculate today how much he paid, with a bitcoin at 3,500 dollars in 2019, he paid like 350.000 for a pizza.
Therefore they proposed to do the following: that there is not a single person who would keep track but that everyone keeps a record of everything. So if one person wants to pay another, he tells everyone “now my stone is this” and they all update their database.
On the scale of the societies in which we live, this would not be possible to manage due to the immense number of people and transactions. That is why until now we always deal with intermediaries who centralize all this information: banks, governments, judges, etc. However today we have technology: the computing power of computers could help us keep this record.
Therefore if we replace people with computers and stones with Bitcoins, we have a clear example of what blockchain is.
As we said before Blockchain is a distributed database where all the nodes have a record of the information all the time. We went from a centralized logic, where someone controls all the information, to a distributed one, where the information is divided between all the computers. No one can monopolize the content: all computers agree on the single database where they will converge.
Blockchain do not not belong to anyone, no one can modify it alone. If one of the computers stops working or is hacked, all the others are there to ensure the registered information.
It is called Blockchain because it is precisely a chain of blocks: the information is stored in a chain in transaction blocks linked to the previous block through advanced cryptography. This allows it to be known in what order the transactions were verified. In this way, the record remains to know that if I transfer a bitcoin, for example, I stop having it and now it belongs to someone else. This solves the problem of bit copying in online payment.
The Blockchain can be imagined as if it were a large spreadsheet where we can all add columns, but nobody can modify the rows that have already been written. If someone wanted to change any data they would have to hack all the other computers, which is computationally infeasible due to the level of power required.
Alex and Don Tapscott define in their book “Blockchain revolution” three fundamental characteristics that this technology has: it is public (everyone can see it whenever they want), distributed (it runs on multiple computers) and encrypted (it includes public and private keys that guarantee security).
In conclusion, we can think about how blockchain has the potential to generate a revolution in the current logic that dominates the Internet, regulated by powerful intermediaries that control the personal data of its users. Thanks to this technology, people will be able to recover the power of their information, even to obtain an economic benefit from it, being able to process access to it with other actors.
By Greta Gawianski – Product Consultant at Open Earth Foundation. This note was previously published on Infobae.