CA Explaination on what is a blockchain?

CA Explaination on what is a blockchain?

There is lot of buzz around Blockchain and crypto currency nowadays? Here is a CA Explaination on what is Blockchain and the possibilities with the blockchain technology? Please note that this is my interpretation on what is Blockchain

  • We Humans are a network species. We operate in groups. We always work in groups. We’re like ants or bees in the sense that we have to cooperate to do anything interesting.” 
    • What makes us unique is that we cooperate across genetic boundaries – we’re the only species that does this.
  • We build networks, which have to be governed (or we have to figure out a way to organize them) 
    • Historically we’ve done this by creating a country with a king, or president, or corporation in charge, or have a democracy where it’s one person one vote
    • But whoever is at the center of the network, ends up becoming very powerful
    • “These networks are very important. Electricity is a network. The phone system is a network. Money is a network. Your favorite religion is a network. So it’s very important who runs these networks.”
  • In the last 100 years, we’ve created a new way to organize these networks – through markets
    • Markets are a way to organize a network with no single ruler”
  • Blockchains are a way to bring these market based networks into all digital systems
    • Bitcoin is the most famous one
      • With Bitcoin we say  – “Money is too important to be controlled by any one central entity. So what we’re going to do instead, is organize it, through a blockchain based network, and we’re going to use mathematics and rules to make sure that even though nobody is in charge, nobody can cheat and no one can spend the same money twice.”
    • Ethereum is another one
      • This is a network for running trustless financial contracts
Also see this Video that explains the technical details of Blockchain

Now lets see what are the possibilities with the blockchain technology?

  • A network to control electricity
  • A solar network, where everyone puts a solar panel on their house, and they pay into the network with solar power, and they get paid back out with a solar coin
  • A network to allocate bandwidth – “We don’t need Verizon to do our cell phones, you could do it collectively”
  • You could even create a social network – You don’t have a single “king” like Mark Zuckerburgor Jack Dorsey
  • But the most important point – The network works when people contribute scarce resources
  • “The internet was originally supposed to be a democratizing force. It was supposed to to be, ‘Oh, everything’s going to be equal and even. We’re all going to have websites. And nobody’s going to be in charge.’ Now meet your new overlords – Google, Facebook, Twitter, and Amazon. These are the people really in charge.”
  • “Blockchains give us a system for taking networks that normally would have been run by individuals, kings, or corporations, and instead making sure they’re leaderless”
  • The thing is, blockchain tech. has started with the single hardest thing –  money
    • Bitcoin is trying to replace gold, or even money at some point
    • “If you can do that, then you can replace any network ruler. If you can run the network for money, without a single entity in charge, when everyone’s trying to steal from it, then in theory you can make any network decentralized.”

I will continue to update this article on Blockchain as my understanding evolves around this concept. Please use this form to ask me any questions around Blockchain.

 

Background

Blockchain based projects and cryptocurrencies find their origin in 2009 when an entity with a pseudonym Satoshi Nakamoto wrote a whitepaper explaining the concept of a decentralized currency named Bitcoin which worked on top of a distributed ledger known as the blockchain. Basically, the copies of this ledger exist across the globe on various computers and no single entity controls the system. Hence, it’s decentralized as nobody can shut it down even if they wanted to.

Like all new inventions, it went unnoticed for some time. Then in 2013, a young Canadian named Vitalik Buterin decided to expand the use case for blockchains. He used blockchain for building smart contracts thereby creating an ecosystem wherein with the use of open source code and decentralized ledgers various new projects could launch their applications using the ethereum blockchain as their backbone. A smart contract is a digital contract which executes itself based on the terms and conditions decided between the two parties at the time of signing it digitally. It’s the tamper proof nature of this contract which makes it so valuable.

 

The blockchains are made secure by a technology which inculcates high-end cryptography which has been under development since the two great wars as the countries innovated in order to send coded messages across to their allies. We can delve deeper into the whole cryptography process and how blockchain backed exchange of value is the safest and most secure form of data transfer but that is beyond the scope of this article.6, 7

 

Coins / Tokens

In order to power these blockchains and to create value for the developers, the concept of coins/tokens was launched. For the stock market community, these tokens would be analogous to shares in a company but unlike stocks, these tokens have actual utility in the functioning of that particular blockchain.

 

Every project at the time of its initiation creates a fixed number of tokens that would ever come into circulation. The tokens are nothing but a binary code of ones and zeros which can be transferred between individuals who hold wallets compatible with these tokens or cryptoassets. Cryptoassets is an umbrella term which includes various project that can range from currency coins, utility tokens and so on.

Initial Coin Offering (ICO)

If a team of developers wants to raise money for their project they go via the primary route of funding which is known as Initial Coin Offering (ICO). It is hard to miss the uncanny resemblance of the token economics to an actual stock, right from its ICO to being traded on the secondary markets via cryptocurrency exchanges such as Binance.

 

Once the crowdsale has been done for a blockchain project, the funding is used to develop the ideas described by the development team in their whitepaper into something tangible, a reality and it’s this execution ability of the team over the roadmap initially detailed by them that adds value to its token over time.

 

Now the question arises how does one create future value for the project, establish rewards and incentives for the developers to keep innovating and make further advancement in the project and also doing the job of maintaining the blockchain and the whole ecosystem. Remember these are decentralised applications and there is no single entity that will reward the developers, rather the blockchain has to reward its developers by itself.

 

This is where the coins/tokens and cryptocurrency Exchanges come into play. Most of the good projects after their ICO launch approach various exchanges with the intent to get listed so that their token can be traded like a stock does on the stock market. Depending on the usability, popularity and value creation by that particular blockchain, the value of its token would rise or fall.

Posted in Blockchain, CA Mumbai.

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