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With Bitcoin blowing past $20k today, crypto fever is back. Yet most describe it as a “new class of assets.” Which critically underplays the disruption that is blockchain. So here’s my thread/primer on it. It's worth understanding, because some version of this is the future:
There’s a revolution in progress that has the potential to advance the Internet era from adolescence to maturity, and in the process, alter nearly every major industry and government, and to completely disrupt the financial sector.
The engine behind this change is blockchain—or, more broadly, distributed ledger technology. Some are already calling this the fourth industrial revolution (as significant as the steam engine, electricity, and the microchip before it).
But what is blockchain?
Let's start with its incredible history, which one pioneer I met interestingly compared to immaculate conception.
Let's start with its incredible history, which one pioneer I met interestingly compared to immaculate conception.
In 2008, a person (or more likely, group of people) using the pseudonym Satoshi Nakamoto began contributing out of the blue to a cryptography mailing list. “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party,” Nakamoto wrote.
The digital currency "Nakamoto" was developing, called Bitcoin, offered a way to make direct payments over the Internet anonymously. And it was independent of not just intermediaries like banks and credit card companies, but also governments and their monetary policies.
The programming challenge was how to make sure no single entity controls Bitcoin, users can't double-spend the same coin, and no one can hack it.
The revolutionary solution was to not trust people, but to trust an open network of independent computers around the world instead.
The revolutionary solution was to not trust people, but to trust an open network of independent computers around the world instead.
So Nakamoto started a peer-to-peer network, where transactions had to be verified on multiple computers (or nodes) before being approved. This is known as consensus.
These transactions are organized into blocks of data that are complexly encrypted and permanently linked together in chronological order.
Each block contains a snapshot of all the blocks that have come before it, and this growing chain is then stored on the entire network, making it likely impossible to alter anything without getting caught. Think of it as the computer equivalent of DNA.
This is blockchain: a public database of cryptographically secured permanent records stored on thousands of computers, which prevents them from being controlled, manipulated or vulnerable to a single point of failure (or single point of trust).
And so far it’s working: Bitcoin's never been hacked
In this plan for Bitcoin, which "Nakamoto" launched a year later, were the seeds of not just a currency but a movement: it was accessible, replicable, secure, anonymous, decentralized, transparent, and consensus-driven.
In this plan for Bitcoin, which "Nakamoto" launched a year later, were the seeds of not just a currency but a movement: it was accessible, replicable, secure, anonymous, decentralized, transparent, and consensus-driven.
It is poised to change nearly everything that requires a record being kept of it, whether real estate, banking, stocks, marriages, contracts, personal identification -- as well as most types of if/then agreements (called a smart contract when on a blockchain).
For example this year there's been a lot of activity around DeFi, or decentralized finance, projects: smart contracts providing lending, borrowing, exchange, indexing, robo-advising & other financial services. Some say DeFi will disrupt banks like email disrupted the post office.
The transparency of decentralized blockchain is also key: Imagine donating to a charity and being able to follow your funds all the way to their end use. Or purchasing an item and tracing every element back to its origins, to make sure it was responsibly and honestly sourced.
Beyond this, advocates believe this technology can help solve not just online problems like privacy, cybersecurity and the concentration of power into the hands of half a dozen big tech companies, but global problems like poverty, corruption and financial exclusion.
Galia Benartzi of Bancor explains it thus: Just as we expect a separation of church & state, "we are now moving toward the possibility of a separation of bank & state. Money, how we make it and use it, may return to the domain of the people and the discretion of the individual."
Most want the world to be safer, more free, more open & more equal—with anonymity possible when desired. Decentralized blockchain is arguably the best & quickest path there. That’s why the decentralization part of this matters, as does your understanding of & advocacy for it.
