The Block Party
Blockchain, an image by IncOperate.
Let’s talk about “blockchain,” because everyone is and if you aren’t you are either dead or frozen in an error state and in need of a reboot.
In true tech fashion let us start with the target audience and market size that this article is intended for.
Target audience: those who feel overwhelmed by or oblivious of contemporary digital jargon like, “blockchain” “PoW” “PoS” “PoA” “Web 3.0” “EVM” “smart contracts” “NFTs” “Metaverse” etc.
Sidebar: Not all terms will be covered in this article, but there will be follow up articles.
Market size: Vast majority of the global population. Sure it seems like everyone is talking about these technically flamboyant terms, but is it really everyone? No. According to Statista, based on the number of crypto wallets in active use, only 0.71% of the world’s population is currently interacting with blockchain technology. This technology is around to stay, but it is not projected to receive mainstream adoption for the next five years.
If blockchain is the solution, what is the problem that it solves?
The problem: There is no technological framework that allows for direct, secure, peer to peer exchanges. All existing systems involve middlemen in the form of brands, banks, agencies or institutions, to ensure and enforce protocols of security, confidentiality, transparency and trust. Despite assurances from these middlemen breaches occur in the system, and compromise all involved — the individual consumer, the middleman, the asset and the data around the trade’s transactional instance. Since they are centrally managed, only those in charge can address the breach in information security and data integrity. This renders vulnerable the assets in one’s possession, as the transactions that govern their state of ownership can be easily altered, accessed and appropriated by external hackers and malicious perpetrators. It also makes the true owners have to be at the mercy of those managing and claiming to provide a “safe” holding house for their assets.
The Solution: A blockchain solves this layered problem by rewiring brand based trust into math based trust. The framework it brings into expression is a new type of database, a shared ledger that is designed to register transactions only after they are peer-verified and have reached a state of agreement (consensus) that results in a collectively accepted transaction history and operational reality.
The salient features of a blockchain that ensure such unrivalled levels of transparency are:
the absence of a central governing authority
the immutable nature of the information recorded within its architecture (which allows it to be completely open to the public).
Each participant is singularly in charge of their own involvement, acquisitions and purchased assets within the network.
Each participant gets to contribute, solve for and keep secure the infrastructure, which makes the system democratic and decentralised in nature.
There is a transfer of responsibility for asset management, safety and security from institutional intermediary to the owner of the asset i.e. there is no centralised management. This implies, each participant assumes agency over their own assets through a non-custodial wallet.
Side bar: When you acquire a bank safe that is a custodial vault, it belongs to the bank but is assigned to you for a fee. This is unlike a non-custodial wallet which is comparable to a safe you buy and install in your own house that only you have access to. You lose the keys or forget the number sequence, you are locked out of your own safe.
Pros and Cons for non-custodial wallets: The pro is you are in charge of your wealth and investment assets at all times, you know where your coins and NFTs are stored, and it isn’t living in two places at once like in traditional currency banking. The massive con is if you were to forget the security sequence (like a mnemonic password composed of a string of consecutive randomly chosen words that have to be recalled in order) to access your wallet (more like a bank vault that is owned and operated solely by you), no one else can help. In a nutshell there is no one else to blame for breaches, losses, hacks or inability to accomplish a password reset. There is no password reset. There is no customer service. You only have yourself to blame if anything goes south. Last year a NYT report claimed over 140 Billion worth of bitcoin remains unclaimed due to owners who forgot their access keys.
What does that mean? It means like everything else human minds have given rise to, blockchain has positives and negatives in what it offers.
So what is blockchain?
Blockchain, aka Distributed Ledger System (DLS), as its street name suggests, is a digital chain of unique blocks of data secured through cryptography. Each block of transactional information is layered with a security mechanism in the form of a digital fingerprint, known as a hash, that identifies the block as distinct from other blocks. Stripes are as unique and indelible to a tiger’s identity as a hash is to a block of data. Each block discerns its place in the chain sequence based on its own hash, and the hash of the block that precedes and follows it. Think of it as lining up domino tiles but with the complexity of gene sequencing. The parts have to recognise each other but also have to be recognised by the whole (network), this ensures stark transparency and true accountability. Each block of data contains information that is relevant to the transaction that occurred, like: the date, time, amount transacted and the inimitably encoded electronic address (a secure digital signature/ private key) of the participating parties. These private keys, which act as the individual’s electronic signature and fingerprint on the system, executes in conjunction with the public key held by the blockchain.
Blockchain should not be confused with the Eye of Mordor that sees all and knows all, nor with the Oracle in the Matrix. Blockchain isn’t omniscient or prognostic, it is merely a database. What people upload onto it, people are responsible for. A blockchain only sees what is written on it, so while a blockchain processes content on its ledger computationally and cryptographically, all such content has to be uploaded onto it manually, i.e. inputs and verifications on a blockchain still require people. History should show that we are a messy species, and like most other things we are capable of ruining, we have managed to ruin blockchain too. People can lie, forge content, plagiarise, steal, cheat, extort and manipulate on a distributed ledger system just as often as they can opt to be fraudulent and perfidious in the real world. Blockchain is not a therapist or an existentialist, it cannot make a human being any better, only self awareness and self realisation can cultivate that. So let’s not blame technology for how poorly we as a species tend to show up.
Pros
There are witnesses to every digital contract being executed, every trade and transaction being recorded, every asset token being minted and every transfer instance being transcribed, which makes the infrastructure incredibly resilient against data tampering and data modification. No dodgy deals can be covertly enacted, as every transactional instance requires signature approval from the participating parties, which is witnessed by all on the network. Any attempt to change information around the transaction instance would render the signature invalid and expose the irregularity to everyone on the blockchain, which unlike whistleblowing is preventative and proactive. Since this mechanism gives an “Iceberg ahead” alert in advance of encountering the iceberg, it prevents the Titanic from sinking.
Hackers who want to tamper with the records or the ledger as a whole cannot do so, as the system is distributed across peer-to-peer networks that are kept in sync through continuous updates. If you keep all the records solely in one place, it can be easily broken into, co-opted and corrupted, but blockchain records do not have a single point of failure, and thus cannot be doctored from just one computer. To alter a record retroactively on a blockchain, a hacker would have to access every instance of that record on a given blockchain and simultaneously alter all of them. This would be energetically inefficient on a Proof of Work DLS and monetarily cost prohibitive on a Proof of Stake DLS.
Cons
In its early expression, blockchain involved complex computational calculations that took several machines several minutes to reconcile. This resource intensive puzzle solving method is known as Proof of Work, and offers cryptographic proof by evidencing a traceable through-line for an interactive action carried out on the system. Each activity instance on the network is ascertained by one party (the prover) who proves to others on the network (the verifiers) that the most reasonable amount of effort necessary to avert any malicious or thoughtless appropriation of the network has been expended to secure the instance and by extension the network. Verifiers can then validate this expenditure with minimal effort on their end. Despite the hue and cry against PoW blockchain, PoW wasn’t mindlessly designed to be consumptive and wasteful, to the contrary, it was the most effective and democratic way to ensure the P2P network’s decentralised integrity. PoW is enacted to preserve and secure the transactional instance and the network against malicious threats and take overs.
Cryptocurrency: No one wants to work for free, and this is why carrying out “proof of work” gets rewarded by the system through the dispensing of a decentralised token, such as bitcoin (BTC) or Ether (ETH). No banks, no intermediaries, no government agencies in the mix, this is a system that is by the people and secured for the people. This is why there are so many BTC evangelists. BTC feels utopian because it sticks it to the man and allows for each stakeholder to be directly compensated for their involvement in securing and verifying the system’s integrity, but as with most things that belong to all and can be appropriated by any, cryptocurrencies and blockchain can also fall prey to the tragedy of the commons.
Side bar: Proof of Work is also known as mining, because when an individual helps process large amounts of data through their network access point (server), it churns out the proportional number of coins as a return on investment for the time and energy the user expended toward securing the system.
PoW does consume vast troves of energy, PoS by contrast consumes 99.95% less power and is 3600x more efficient. PoW blockchains have had a catastrophic carbon footprint for being leading edge technology (Bitcoin alone is responsible for producing close to 69 million metrics of CO2) but I would argue that at its inception, most technologies endure a learning curve before they can be lean and truly green. Other points of concern that has made me wary at times, is the dissonance between blockchain’s potential, i.e. what it promises and blockchain’s reality i.e. how its early adopters have managed to distort its core purpose through materialistic fanfare and short sighted monetary gains.
A blockchain is decentralised only to the degree that the number of tokens in circulation (PoW) or number of nodes being staked (PoS) are not held or governed by a select few, i.e. concentrated controlling interest results in centralisation. On Proof Of Work (PoW) ledgers, privileged individuals known as crypto whales, sit on large cryptocurrency reserves, stirring hype around the performance of the given token based on the benefit it yields their own bottomline. Since the currency isn’t pegged to anything tangible, its value fluctuates based on supply and demand i.e. trading volume, the perceived and projected price floor and ceiling of the currency in question, and the billionaire boys club flexing their tom-toms on twitter. With PoW and PoS there is always a chance of mutiny, which occurs in the form of a 51% attack. So long as a group of miners collude to gain controlling interest together or a a single entity or group stakes 51% of the operating nodes, the ledger will yaw to prioritise the agenda of the majority in charge.
These vulnerabilities gave rise to PoA (Proof of Authority), but unlike the prior two concepts this one embraces centralisation, it just makes it more efficient. This consensus algorithm is far less energy intensive, and far more secure from 51% attacks and replay attacks (get into this another time), but its integrity is at odds with blockchain’s original treatise, which is decentralisation. PoA’s security approach asks people to stake their identity, which means you voluntarily disclose your identity publicly and put your personal reputation on the line publicly. No one wants to be made an example of and pelted with rotten tomatoes in the town square, so even though a PoA or PoSA is comprised of fewer validating nodes, none of these nodes want to be hung for their crimes. So this lean model that relies on a short list of validators is highly scalable.
Smaller decentralised blockchains with fewer community members, i.e. fewer staked or mining nodes, are more susceptible to getting infiltrated and manipulated. On a decentralised blockchain, the larger the active community staking or mining nodes on the network, the more resilient the whole network is. With centralised blockchains, the fewer validating nodes, the leaner and more efficient it is.
Blockchains that are nascent, tend to have fewer staked or mining nodes and thus despite subscribing to the decentralised modus operandi, tend to be centralised under the entity that is launching the network, i.e. Flow from Dapperlabs. Flow is in its early stages of expression and thus just beginning to adopt enough community members to become truly decentralised. Ethereum and Bitcoin are examples of the Proof of Work consensus algorithm. Ethereum endured a split on its blockchain, known as a hard fork and lost 6,500 of its nodes over the past two weeks. Bitcoin has over 47,000 mining nodes. Binance on the other hand has consciously elected to be a centralized exchange. BSC operates only 21 validating nodes in its PoSA (Proof of Stake Authority) network, which if you were to compare to Bitcoin’s 47K+ Proof of Work mining nodes clearly portrays BSC’s skew toward centralization, particularly since all the PoSA nodes are operated solely by BSC. Consequently it’s safe to say that not all blockchains are created equal, even if their DNA predisposes them to produce a level and transparent playing field. Not all blockchains consume the same energy footprints either, but some certainly exist at the cost of polar bears. As a rule of thumb if you truly want to embrace decentralization and democratization, you should opt for a large Proof of Stake blockchain with numerous validating nodes operated by different community members. If you prefer true energy efficiency, you can opt for PoA or a hybrid PoSA consensus algorithm.
Common sense dictates that like any other expression of manmade artifice in the world, a decentralised ledger system is only capable of being as intentional and inclusive as the people on it, how they exercise the power they hold, and the values that define their participation. Blame human beings, not the technology itself. Not all blockchains are created equal, even if their DNA predisposes them to produce a level playing field. Not all blockchains consume the same energy footprints, but some certainly exist at the cost of polar bears.
The digital generation is highly reactive, strongly opinionated and quick to jump to conclusions, but slow to admit to its lack of patience, understanding and objectivity. Thus many are keen to throw the baby out with the bathwater, which stymies all growth and evolution in this sector. We have seen counter arguments against renewable energies that are just as ill informed, based on the fact that rare earths are mined to create the infrastructure capable of harnessing solar and wind power. I do not negate the backlash against the environmental ramifications of PoW blockchain, but as with any invention that is ahead of its time, there is a price to pay, particularly during its early expression. Horse drawn carriages resulted in cobbled streets smelling like fertiliser, cars contribute to air pollution and PoW blockchains consume large amounts of energy to hold us mutually accountable on a peer to peer level and to the whole community on the network. The ecological costs of the learning curve is inevitable, this is why it is imperative to focus on the long term value add use cases for a more energetically streamlined blockchain, otherwise all this trial and error would have been for nothing. Besides the fruits DLS bears can be immensely productive when deployed effectively: NFTs and smart contracts. (Will get into this in the next article).
Blockchain is capable of inciting exponentially positive impacts for the world if we used discernment and only deployed it where it is critically needed.
Quick overview of Blockchain Uses.
Uses for Blockchain
There is a lot of hype around blockchain. To make an application more relevant to the times and to breed investor conviction, many entrepreneurs integrate blockchain infrastructure simply so they are on trend. They also lean toward blockchain so they can fundraise for their company through an ICO (initial coin offering). To investors who share my values, we discuss how myopic such a mercenary use of this egalitarian, representative, inclusive technology is, and thus how unnecessary it is. Such misuse of blockchain has resulted in a proliferation of collectibles marketplaces that serve no greater purpose, and actively result in not only the exploitation of artists, intellectual property theft and the utter bastardisation of the creative economy but also the dismissive denudation of finite planetary resources. This is where I personally get off the blockchain bandwagon. This frenzied avarice around ICOs and elitist digital collectibles anchored in pump and dump schemes is frankly not mindful, sustainable or a good use of the technology.
Blockchains can imbue any undertaking that is in need of accountability and transparency with those high integrity attributes. Good examples of this include:
1. to promote the security and track the viewing of stored records, i.e. medical, insurance, financial, housing, educational, public, employment, supply chain etc.
2. to execute and witness contracts of all forms
3. to promote raw material traceability
4. to create a secure online voting booth, and consequently protect voting results
5. to serve as a ledger for a digital currency
6. to foster less bureaucratic forms of governance (i.e. DAOs — Decentralised Autonomous Organisations)
7. to engender true stakeholdership in outcomes that affect the collective and
8. to systematically tabulate large reserves of data from IOT devices.
Examples: Ocean does autonomous MPA (marine protected areas) enforcement. Teraverse aims to reforest the planet through harnessing the power of staking and bonding. My bias is to give back to the world, to help preserve global and local commons and leverage technology to scale social justice, climate action and environmental stewardship. The platform my team and I are developing is called IncOperate, our mission is to help consumers vote with their dollars.
Why blockchain is seen synonymous to bitcoin:
Since the first and best known use case is connected to the first and best known peer-verified electronic money, people have come to equate a ledger that stores transactions securely with a cryptocurrency that allows people to trade without intermediaries. Just because you conflate dough to only mean bread does not mean that dough cannot be used to make plenty of other foods.
Blockchain serving as the foundation for digital cash is but one application of the technology, but as mentioned this technology can be used for so many productive social and environmental outcomes.
Side Bar: Since I have used the term “cryptographic” frequently, let’s delve into what that means! Know how you would chat with your bestie in pig latin in grade school so no one else could know which boy or girl you were gossiping about? Obfuscation of information to ensure no third party intercepts the confidential message relayed between sender and recipient is precisely what cryptography is about. Congratulations you had a minor calling toward intelligence work when you were crushing on someone in middle school. Cryptography is a way to ensure secure communication in the presence of threats, nefarious activity and adversarial behaviour. However, just like pig latin could be hacked by those who get its underlying pattern of obfuscation, ciphers can be decoded by unintended recipients too. Thus a secret language is only secret if it is hard to predict, the more random it feels, the harder it becomes to decode it. The Zodiac Killer’s final message, the 340 Cipher, took the world 51 years and a pandemic lockdown to unravel, but that had to do with a typo in the message the killer encoded, which introduced an element of variability that lay in everyone’s blindspot. Blockchain hashes are like the Zodiac Killer’s misspelled codex except it’s intentional, the system chooses and assigns characters that allow for maximum variability, but these hashes are also immutable because they cannot be hacked from one point of access.
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