What is Blockchain?

Arguably, no technology since the rise of the Internet has caused as much of a stir as blockchain technology. Nor has any discovery since had as much potential to transform various parts of the global economy, create new industries, empower the otherwise disenfranchised, and spawn entirely novel approaches to solving major problems. 

Because this comparison between the internet and blockchain is a particularly apt one, I want to meditate on it. I think if we take a holistic view, we’ll see that there are many things we can learn about the newer technology from its older counterpart. 

To begin with, the internet had amazingly humble origins. It would’ve taken a visionary of unparalleled skill to have imagined Amazon or Google when they first learned of ARPAnet; the Internet’s precursor. Back then, the earliest version of what would become the internet was just a loose network of computers at various places linked together in exceedingly crude ways. 

It’s my opinion that blockchain is in similarly early days. Just as it would’ve been easy to dismiss ARPAnet as being like a telephone line for computers, it would be easy to write blockchain off as a glorified ledger, thus failing to see what it could grow into under the right circumstances. 

The internet was also propelled forward by an early cadre of die-hard techies and enthusiasts who were motivated to build amazing things with these new tools. While this isn’t quite true in the same way for blockchain (many of its developments are being driven by financial speculation on cryptocurrency exchanges),

it would be a mistake to let this blind you to some of the truly awesome ideas being actively created with today’s blockchains.  

Finally, it’s easy to lose sight of the fact that what makes both the internet and blockchain epoch-defining technologies is that so much can be built on top of them. We might be justifiably impressed by the intricacy of the internet’s internal machinery, but what really makes it remarkable is that people are able to build websites, blogging platforms, social networks, and entire e-commerce businesses online without knowing how any of that machinery works.

Revolutions have been sparked, governments toppled, and whole domains of knowledge opened up by individuals for whom the idea of what a hypertext transfer protocol (HTTP) actually consists of is so hidden away that it might as well be in Narnia. 

It’s too early to forecast what the blockchain equivalents of these applications will be, but smart contracts, cryptocurrencies, decentralized autonomous organizations, and similar creations give us some tantalizing clues. 

With this preamble in place, I’d like to ask whether you wish you could go back in time and learn more about the internet when it was still just ARPAnet? If so, I’m afraid you’ll have to be disappointed, because Career Karma doesn’t have a time-turner (that they’ve shown me, anyway).

But it’s not too late to take this step with blockchain. 

If that prospect interests you—or if you’ve ever asked yourself ‘What is blockchain?’—then you’ve come to the right place. 

How Does Blockchain Work? 

Alt Text = A picture of a radio tower viewed from the bottom.  

Caption =  Blockchain technology can be hard to get a handle on. 

Before we can begin to answer the question ‘What is blockchain technology?’, we’ll need to agree upon an acceptable blockchain definition. Then we can proceed to explore its underlying components.  

Blockchain Explained

In the densest terms, a blockchain is a ledger that is digital, public, distributed, decentralized, and immutable. This phrasing is a bit inelegant, but by taking each of these terms one at a time we can arrive at a clearer picture of what blockchain technology consists of. 

First, blockchains are ledgers. A ledger is a book in which transactions are recorded. If the butcher, the baker, and the candlestick maker all trade amongst themselves for goods and services, usually that trading activity goes into a ledger. 

Ledgers are nearly as old as accounting itself and were written on a physical medium such as paper. 

At some point after the development of computers, however, recordkeepers began to use digital ledgers, which are stored as 1’s and 0’s on a hard drive.  

By being public and distributed, blockchains depart from the standard use cases for ledgers. Ledgers tend to be private and concentrated, such that in most cases the only person who sees my list of transactions is me.

But if we are storing the same information on a blockchain, absolutely everyone using that blockchain has a list of all the transactions that have occurred since the very first block.

When a new person begins using our blockchain, they download their own copy of the distributed, public, and digital ledger.

Implicitly, then, we can see how blockchains are decentralized because it isn’t owned or controlled by any single central entity. 

Finally, blockchains are immutable, meaning that they can’t be changed. If I try to change a transaction on my copy of the blockchain—giving myself an extra $1,000,000, for instance—this could be compared against all the other copies of the blockchain and quickly revealed to be a fraud. 

So to recap, blockchains are essentially like old-timey ledgers, but digital, public, distributed, decentralized, and immutable. As we’ll see, all of these traits together play a big part in making blockchains so potentially revolutionary. 

Why Is Blockchain Important?

As with the introduction, I want to broach this subject by comparing blockchains to something so commonplace that most of us wouldn’t even recognize it as a technology at all: 

Money.

Do me a favor; take a dollar bill from your wallet and put it on the table in front of you. Would you believe that this little green rectangle is a distillation of something like 3,000 years worth of philosophical, economic, political, and historical forces; a tool that has been one of the keystones upon which the whole of the modern world was built?

Like the invention of writing, the revolutionary impact of money stems from the fact that it allows people to think thoughts they otherwise wouldn’t be capable of, and to build systems of an intricacy that wouldn’t be possible in its absence. 

On a small enough scale a moneyless, barter economy works adequately. But consider what happens if you have chickens to trade when no one wants eggs, or if you have a piano to trade when no one is currently in the market for something so big and expensive? 

The two biggest problems that money solves are 1) the fact that people’s desires don’t always line up and 2) many goods don’t have ‘fungibility’ (they can’t be broken into pieces).

Because money is something that most people want more of, it can be traded in place of other goods, then used to buy whatever you require. I don’t have to wait until you want eggs; we can trade for money now. I don’t have to bust up my piano; I can sell it to someone who can pay in installments.

Now that we have money, I can begin setting a small fraction of it back as a store of value, saving it to invest in something bigger down the road, or as insurance against some kind of disaster. 

With all of the contributions that money makes to economic life, let’s consider something that it subtracts from it: the need to trust the other person. I don’t have to agree with you, like you, understand your motives, or even know of your existence for us to engage in trade. As long as we’re both using some kind of agreed-upon medium like money, each of us can benefit from our transactions.

(Of course, the possibility of counterfeiting still exists, but are you more worried about some of your dollars being fake, or that under a barter system you would need to constantly check every block of cheese and every gallon of water to make sure that it is what the merchant says it is?) 

This trustlessness is a crucial aspect of money’s power and importance. But in the modern world, we all still have to trust a financial intermediary like a bank. 

This is somewhat problematic. Do you remember the global financial crisis of 2008?

I think it’s safe to say that most of us are less than enthusiastic about the prospect of trusting the government and the banks after that. And indeed, it was precisely this event that spurred many of the early blockchain pioneers to push their technology forward.

Because the great promise of blockchain is its removal of this last vestige of the need to trust a central institution. 

How do you know I have the money I say I have? Because every transaction I’ve ever made on the blockchain is embedded in a distributed public ledger, and everyone using the blockchain has their own copy so that my balance can be verified. 

How can you be sure that I’m not going to double-spend money in my account on two different goods at the same time? Because doing that successfully would require me to somehow fool all the computers in the network with ledgers that don’t agree with mine.

Verification and tracking are built into the fabric of blockchain, removing the need (or ability) for any centralized authority to take responsibility for doing it themselves. 

This alone is a big deal, but taking monetary authorities out of the picture has other ramifications. In the case of the Bitcoin blockchain, we know exactly how many bitcoin there will be and exactly when they will become available. Supply and demand can do wacky things with prices, but there will never be a government debasing the value of Bitcoin by printing millions of them to finance their projects.

What Are Some Applications of Blockchain Technology?

I’d like to spend some time now going through the many possible uses of blockchain technology.

While I do discuss cryptocurrencies, I’ve chosen to leave that for last; almost everyone is familiar with them, and I think it would be more productive to instead focus on other places where blockchains have transformative potential.

That, and I also have a ‘What Are Cryptocurrencies?’ article coming out in the near future, if you are interested. 

Smart Contracts 

Smart contracts are codes written to execute if some set of conditions is obtained. If this sounds like a contract that’s written as a computer program, that’s because this is exactly what a smart contract is. 

To give an example: Imagine that you’ve agreed to rent a room from me on AirBnb. To make this whole process as straightforward as possible, we are using a smart contract on a blockchain like Ethereum. 

The smart contract has some simple conditionals in it, which are ‘if-then’ statements that check to see whether a requirement has been met before taking an action, just as in a computer program. 

In this scenario, the ‘if’ condition might be that you’ve given me some fraction of a cryptoasset as a deposit on the room. If you have, then a receipt is issued and becomes part of our smart contract. The ‘then’ condition would be that you receive a digital key to open the door to your room. 

If any part of the conditions is not met, a refund would be issued. By becoming a part of the blockchain’s distributed ledger, it’ll be impossible for transactions to be forged, and because everyone has a copy of the contract’s underlying code, there’ll be no way for either of us to defraud the other without all parties being alerted. 

Because smart contract technology is immature at present, a lot of work and expertise is required to write one. But it’s not hard to imagine a day in which this is no longer the case, and at the moment smart contract templates exist for many common agreements. 

Smart contracts would then significantly cut down on the friction of accomplishing all sorts of goals; renting equipment, paying for services, or working for a company for a predetermined amount of time. 

Supply Chain Management

There are several ways in which blockchains could impact supply chains. As it turns out, getting stuff from one place to another can be a tricky business. This is especially true in the modern world, when parts can be manufactured on every continent.

The startup Chronicled is looking into using blockchain to make it nearly impossible to slip counterfeit drugs into the world’s supply of medicines. Their closed blockchain only allows vetted manufacturers to join, and each of these participants has the ability to assign unique identifiers to their drugs. 

These identifiers are tracked on the Chronicled blockchain and are therefore extremely difficult to forge, meaning drug distributors and their patients can be far more confident that they’re getting what they need. 

Speaking of things we consume, buyers have become more and more conscious of the sustainability and ethics of the food that they purchase. With the bewildering complexity of the logistics required to make and transport food, it’s all too easy for some of it to be sourced in ways that the final consumer wouldn’t endorse.

By leveraging the distributed and immutable nature of blockchain technology, a number of major players in the food space—Walmart, Tyson, Nestle, and others—are making it easier to track and verify the origins of the food purchased by their customers. 

Cryptocurrencies

And now we turn to the most famous application of blockchain: cryptocurrencies.

A cryptocurrency is a form of virtual currency built on top of a blockchain. While most people today either trade them on exchanges in the short term (to make a profit) or hold them in digital wallets for the long term (to make a profit), in principle cryptocurrencies are built with a dizzying variety of purposes in mind. 

The Basic Attention Token (BAT), for example, is tied to a special browser called Brave, and aims to store user’s interactions with advertising content on a distributed ledger so that online marketing is more useful and efficient. The Golem Network Token (GNT), meanwhile, is trying to make it possible for participants to rent out their computer’s extra CPU cycles so that a vast, global, supercomputer can be stitched together from many different machines. 

And dogecoin, of course(if you are familiar with it), is a long-running joke that started getting out of hand and has now become a serious cryptocurrency in its own right!

Concluding Thoughts. 

Hopefully what you’ve seen here has whetted your appetite to learn more, because blockchain is an exciting new technology that will take some time to become familiar with. As we collectively watch it mature, however, I for one am excited to see what the creators of the world do with it!