November 26th, 2022
A Brief History
The first blockchain-like protocol was proposed by cryptographer David Chaum in 1982. But it was Satoshi Nakamoto (alias name) who invented and implemented the first blockchain technology in 2008 along with the world’s first digital currency, bitcoin. Blockchain technologies are what enable cryptocurrencies to work effectively like the internet is to gmail. The blockchain is an immutable distributed digital ledger with many use cases beyond cryptocurrencies. Now you probably are like what the heck did I just say. In simple words it is something that records transactions and stores it in multiple places within a network, making it impossible to edit. Think of the records being held in data packets (“boxes”) that are spread out in the network. Essentially the record of moving money cannot be erased by anyone, and can be verified by anyone on the same networks.
The two properties- immutability and distribution are the fundamental properties of blockchain. This is what makes them “independent” in the sense that people do not need to rely on banks or government institutions for things like transferring money, storing money in an online wallet. No government policy can affect this technology/concept is completely independent of institutions. The below steps are how the steps of blockchain technology work-
Since this is just a beginners introduction, I won’t go into too much depth about the networks and validation processes. As you can see, this all seems like too much, and many are very skeptical. This is just like how it was in the 90s when the internet was introduced. A lot of people were skeptical but now that has become paramount to our daily life.
Types of Blockchain
There are four types of blockchains:
Public Blockchains- Most common type as of right now. These are open, decentralized networks of computers accessible to anyone wanting to validate a transaction. The people who validate these transactions are called miners and receive rewards. Examples: Bitcoin and Ethereum blockchains.
Private Blockchains- These are not open; they have access restrictions. People who need to join require permissions. This might be the network some government agencies might use in the future as public blockchains can be accessed by anyone.
Hybrid blockchains- These are a combination of public and private blockchains. Examples: Dragonchain, R3.
Sidechains- It is another blockchain running parallel to the main chain. This allows users to move digital assets between two different blockchains. Used to improve scalability and efficiency.
Pros and Cons
What is the benefit of all this, you might ask. Here are some of the benefits listed below:
Lower cost due to reduction of third party transaction fees
Peer to peer
Not everything is perfect, here are just some of the disadvantages of this technology:
Environmental impact- this technology uses a lot of electricity to operate as miners run computers for months without shutting them down.
Personal responsibility- since you are your own bank, if you lose your seed phrase (phrases as your password) all your money is lost forever, but with a bank you can go in-person and reset the password.
False narratives- due to the decentralization, some cryptocurrencies are used in unlawful activities. However, not all crypto currencies are used this way so generalizing is never correct.
Blockchains are still too early for their time and it’s very hard to predict if they are going to be the next internet or just a fad that dies off. Blockchain is a lot more intricate and complicated than mentioned in this article. Concepts such as proof of work or proof of stake aren’t discussed here because of their intricacies. Only time will tell the blockchain's future.