Blockchain Hurricane

Kate Baucherel

• Editorial: Business Expert Press
• Año: 2020
• ISBN:
  9781951527372
• Categoría: Business
• Categoría: Trading

This book gives business decision makers and students a clear overview of the history, current applications, and future potential of distributed ledgers and cryptocurrency.

The hype around blockchain technology is matched only by the innovation it inspires and the skepticism it provokes. This book gives business decision makers and students a clear overview of the history, current applications, and future potential of distributed ledgers and cryptocurrency.

It explores strengths and weaknesses, emerging opportunities, and perceived threats. Technical frameworks are presented in a business context to help strategists understand the risks and rewards of different approaches to blockchain implementation, and the decision factors in determining whether this is a viable solution to the problem at hand.

CHAPTER 1

The Hype and the Hope

What has blockchain ever done for us? Its first decade has been turbulent, fascinating, full of promise, fraught with danger, riddled with duplicity, and ultimately inspiring. Its inextricable link to Bitcoin has generated a high degree of skepticism over the contribution blockchain can make to our world, matched only by the fervor of advocates who believe that blockchain and cryptocurrency can drive fundamental changes in working practices and meet societal challenges.

This book seeks to inform, not to evangelize. We will look at the evolution of cryptocurrency from its origins in cryptography to its birth in the fires of a global financial crisis, and through the first decade of digital cash. We will examine the niches where blockchain, the technology that underpins cryptocurrency, can be an effective solution to other problems, where it is already being employed, and how to decide whether it is an appropriate path to take in resolving challenges in your business and industry. We’ll reflect on the mistakes that have been made in rushing to adopt blockchain where hype overtakes practicality, in the hope that we can learn from a checkered history. We’ll also explore the real innovations that are happening, the things that could not be achieved without blockchain and cryptocurrency, and the future impact that experts foresee.

Decrypting the Jargon

One of the challenges of any emerging technology is the new vocabulary that develops to explain its features. The jargon surrounding blockchain and cryptocurrency is no exception.

Blockchain is technically a subset of Distributed Ledger Technology (DLT), but the term has become ubiquitous. Due to common misconceptions and a lack of trust around blockchain and cryptocurrency in the public eye, DLT often has more positive connotations when presenting software solutions in a business setting, but the two terms are often used interchangeably, and both of them will be used in this book. A distributed ledger is, quite simply, a record of transactions (like an accounting ledger), which is held simultaneously in several places. This is not the same as multiple users having access to a single database: the strength of a distributed ledger is that there are many identical copies that are all updated with the same transactions as they occur. It means that transactions can be entered to the ledger by any party, and if all the holders of copies agree that the transaction is valid (or strictly speaking reach a consensus), it will be incorporated in every instance of the ledger.

The entries into the ledger rely on cryptography to make the detail of the transactions confidential to the casual observer, and to enable authorized users to check the integrity of the records they hold. Any information to be recorded on the ledger is processed to produce a hash, a unique string of letters and numbers that represents the original content. This cannot be deciphered by anyone who does not have the key to the encryption, in the same way that end-to-end encryption in communication apps such as WhatsApp and secure e-mail systems ensures that only the sender and the recipient can read the content. If you have a record that purports to be identical to the original, then comparing the hash of the information you hold against the hash held in the blockchain provides irrefutable proof that the record you hold is, or is not, genuine.

Here are some of the common terms used to describe the aspects and functions of blockchain and the world of cryptocurrency.

• Records are decentralized and administrative functions are disintermediated: there is no central agency, for example a bank, making entries into a database under its sole control.
• Transactions posted to the ledger are immutable: once they have been validated, you cannot go back and make changes. This is essential to maintain trust in the records.
• The transactions held in the ledger have positional integrity. Each block is timestamped and linked to the blocks before and after it.
• The various methods of agreeing transactions to the satisfaction of the whole community are consensus mechanisms, of which there are many, some more effective than others.
• Using a consensus mechanism renders the blockchain trustless. That doesn’t mean that the records cannot be trusted, rather that there is no need to place your trust in any third party.
• A blockchain may be public, private, or permissioned depending on its structure and degree of decentralization.
• The code within the blockchain that executes transactions is known as a smart contract, which is ironic as it is neither a contract, nor particularly smart.
• The ledger is transparent: participants can see all the transactions that have been posted. Anyone can access public blockchain records, for instance the Ethereum blockchain can be viewed on Etherscan.io. It is also possible to see the smart contracts that govern transaction behavior. This is important to maintain confidence in the integrity of the recorded transactions but comes with its disadvantages, most notably in the context of commercial confidentiality, which might be compromised by public access. In a permissioned or private blockchain, of course, only those participants to whom access is granted can access the records.
• Participants in a blockchain are nodes. They may be full nodes, which hold a copy of the entire distributed ledger, or light client nodes, which transact but do not hold all the records.
• Cryptocurrency is the blanket term for digital cash, and noncrypto currencies are known as fiat currencies. Strictly speaking, this term refers to those currencies whose value is set by their issuing government (rather than being backed by reserves), but it has become generic in this context.
• Public blockchains and cryptocurrencies should adhere to five core principles: to be open, public, neutral, censorship-resistant, and borderless.

As the picture unfolds other concepts will emerge, but for now, let’s start at the very beginning.

Changing Worlds

This is not the first time that a new technology has generated a polarized opinion. In 1995, Newsweek published an article about another emerging movement that was taking the world by storm. Writing on “Why the Web Won’t Be Nirvana,”¹ Clifford Stoll said: “I’m uneasy about this most trendy and oversold community. …[it] beckons brightly, seductively flashing an icon of knowledge-as-power...” He discounted the “internet hucksters” and their predictions that we would one day be reading books and newspapers over the internet, educating our kids, catalogue shopping online with a point and a click, ordering airline tickets, making restaurant reservations. Could you, quarter of a century ago, have conceived of the ease with which we have come to read, browse, and transact online? Now try to visualize a near future where creators receive enough automatic micropayments for the use of their work to make a good living, where gamers have a viable career as digital asset managers, where you have control of your personal data and can choose who uses it and for what purpose, where you share electricity you generate among your neighbors, and where the provenance of the food you consume and cosmetics you use can be determined with the click of an app on your phone. This is what excites the pioneers in the blockchain and cryptocurrency space and inspires innovators to explore and harness new technologies.

Similar excitement gripped industrialists and investors in the early days of rail travel. The world’s first steam railway ran from Stockton on Tees to Darlington in northeast England. Financed by a consortium of industrialists who raised £120,000 for its construction—the equivalent of over $2.5 million today—it opened in 1825 and at full speed ran at a dizzying 15 miles per hour. The steam engine Locomotion took two hours to draw 36 wagons of freight and passengers along the eight miles of track. The investors of the 19th century had a vision, but could not have conceived of the rapid change wrought by the expansion of the railways across North America, and today’s bullet trains, maglev, hyperloop, or the Channel Tunnel between England and France.

Blockchain is often compared to the internet, not in function but in its potential to disrupt, to deliver unexpected change. In 1989 a very small community of people were using the nascent World Wide Web. Academics and employees in geographically diverse organizations had for many years used bulletin boards and message systems, often embedded within early ERP software platforms, as a direct alternative to physical, written mail, or telephone calls. It was a difficult medium for the layman to access, something we have forgotten in these heady days of one-click connection, and in this there are direct parallels with blockchain. Mikko Hyponnen of cybersecurity specialists, F-Secure, recalls the complex instructions they had to give to enable people to access their website, carefully explaining the need for internet access (most often achieved by dialing a provider through a modem), a TCP/IP stack, and a browser.² Netscape, one of the earliest applications that we would recognize as a modern browser, did not exist and Windows did not have Transmission Control or Internet Protocols built into its software, but for early adopters the new experience was worth the inconvenience.

Just over a decade later, March 2000 saw the bursting of the “dot com bubble” and early speculative internet developments fell by the wayside. Even at that time we could not have imagined the likes of Twitter and its social media peers, nor our eventual reliance on the internet to deliver information to us through video, audio, and community forums. Some science fiction writers over the years came close, including David Brin in his 1990 novel Earth,³ which featured a dynamic global web of information, citizen surveillance, and wireless connections to wearable technology, among other things. We originally used the internet to streamline two-way communication with people we knew and to read brochure websites that replicated the printed word. The things we were accustomed to doing could be achieved more quickly online and there were cost savings to be made. Innovation started out as a linear process before leaping the void to unimagined functionality.

Blockchain is in the same position now. Ten years after the inception of Bitcoin, the first boom-and-bust cycle of cryptocurrency mirrored the dot com journey. Speculative applications all but disappeared from the landscape as the ready money of the early days dried up, leaving the way clear for serious business models with longer term potential. There are still barriers to access and adoption although these are falling rapidly as organizations, notably cryptocurrency exchanges and blockchain game developers, innovate for ease of onboarding and develop applications with a seamless user experience. The main players in the space, I believe, have not yet emerged. And like the pioneers of the internet or the engineers behind the first railways we simply cannot foresee some of the societal and behavioral changes that await us.

The Blockchain Journey

Our journey begins with the launch of the first decentralized digital currency in 2009, something that researchers had been creeping toward for many years. The encryption techniques and the linking chain structure which underpin the Bitcoin blockchain were innovations standing on the shoulders of giants, but the eventual breakthrough published in Satoshi Nakamoto’s white paper delivered a new w...

Índice

• Cover
• Halftitle
• Title
• Copyright
• Endoresments
• Abstract
• Contents
• Acknowledgments
• Chapter 1
• Chapter 2
• Chapter 3
• Chapter 4
• Chapter 5
• Chapter 6
• Chapter 7
• Reference
• About the Author
• Index
• Backcover