Blockchain: facts, fiction, and its real potential
By: Edgar Czop
Tags: Blockchain, Bitcoin, Tedx, Ethereum

“Will blockchain change everything or nothing?” — Marek Kirejczyk at TEDxLazarskiUniversity

The blockchain, the term which is nowadays more and more popular, an emerging technology that aims to disrupt a number of industries. How? Why? This is where the message becomes a bit blurry. We will try to separate facts from fiction on this overhyped technology and present a clear vision of what blockchain might become in the upcoming decade.

Disruptive technologies

Firstly, we need to understand what are disruptive technologies and how they transform industries. These might be things that we know very well, i.e. a digital camera which transformed personal camera market, or smartphones which changed forever the way we use mobile phones.

Initially new technologies make little sense to customer. The performance of disruptive technologies — like amount of megapixels for cameras, computing power for smartphones, or intelligence of virtual assistants — is improving over time. Many years ago the resolution of digital cameras was too low to satisfy consumer market and smartphones were barely “smart”, in fact you could do not much more than just reply to emails. However, it is easy to miss the point. In time when suddenly given technology start to make sense to the consumer as these products are becoming more and more attractive. Kodak would miss that point. In consequence, lose the market and eventually bankrupt as he missed the digital camera revolution, by reacting too late.

“The performance of disruptive technologies is improving over time”

As the years goes by, performance get improved to a point that exceeds the sufficient level. If disruptive products have further progress and exceed the level of acceptable consumer interest, people will not be longer interested in buying them. For example: who in the era of smartphones cares about digital cameras megapixels? Almost no one buys personal cameras these days, because there is a bunch of cameras in every mobile phone. Smartphone themselves achieved a level where very little progress is made year to year. The size of the screen is probably the last important attribute customer cares about. It can not go much bigger from what it is today, as it already takes over 90% of available space.

Distributed cryptocurrency

This all leads us to where blockchain is today. The number of people interest of this technology is growing. However, we cannot find many blockchain based products they could use. The reason is being very early in the game. The truth is blockchain does not make a lot of sense to most of the industries. Yet.

Bitcoin

But let’s start from the beginning: Bitcoin, the very first distributed cryptocurrency. Why distributed? Most crucial feature of bitcoin is its decentralization. There is no company, no institution, no person, no group of people, there is no single server controlling the network. And yet some rules have to be followed. One cannot “print” extra bitcoins, spend money that is not his or her nor spend money twice. It is because the power is diversified among its users. Furthermore, the whole infrastructure is “managed” by volunteer coders and run by an open network of dedicated computers spread around the world.

“One easy way to imagine how bitcoin works is to imagine blockchain as a giant spreadsheet”

The gigant spreadsheet

One easy way to imagine how bitcoin works is to imagine blockchain as a giant spreadsheet. Every row represents one transaction. There are three columns: “from”, “to”, and “amount”. In the first and the second column we have public keys or addresses representing peoples or institutions, (respectively ‘from’ and ‘to’), and in the third we have amount of value transferred in a given transaction. And so bitcoin is a ledger, a distributed database, list of all bitcoin transactions that ever happened.

Ethereum — The next chapter for blockchain

As it was already mentioned, bitcoin is just the beginning. The next chapter for the blockchain is written by Ethereum. The idea behind Ethereum is similar to bitcoin spreadsheet. However, now we can create new kind of transaction that will add a piece of computer code to the blockchain. The code is called a smart contract. When we have this piece of software in the blockchain we are able to not only sent transaction from person to person but also do it from smart contract to smart contract, from person to smart contract and vice versa. In smart contract we can also trigger execution of code— again — via transaction.

“The next chapter for the blockchain is written by Ethereum”

Why do I care?

That sounds like a weird piece of technology. So why would you care? Well, just assume you are deploying a smart contract to the blockchain and sending a small amount of money (ethereum’s ether) to this smart contract and the other person is doing the same. Smart contract can be set to transfer all the money randomly to the one person — you or this other person. We have just build the lottery on the blockchain. We can generalize smart contract, so that anyone can participate in this lottery. If the code is correct there is no space to cheat on this system or on each other. And still: there is no third party (group of people, institution, even a server) controlling it.

Imagine a insurance company operating in this environment. Assume that you and a group of people have put some amount of money to the smart contract. As a participant of the insurance company build on the blockchain you have the same rights as other people who signed the contract. Unfortunately, there is a fire in your apartment. But do not worry, due to “the fund” created in smart contract the money can be withdrawn to cover costs of renovating your apartment. Who pays how much? How much is being withdrawn? How do we know fire really happened in the apartment? All these rules can be encoded into a smart contract.

The bubble

It is impossible to talk about blockchain these days and not mention a bubble. We got over $12 bln raised in so-called ICOs crowdfunding on blockchain for blockchain startups. We have over 1500 cryptocurrencies with market cap over $200 bln. Lots of money in unproven technology, right? Well, we all know it is not a first bubble in the IT industry. You might remember the dot-com bubble which burst in early 2000’ making majority of the .com companies went bankrupt. Nevertheless, in these difficult times there were companies that (barely) survived. eBay, Amazon, Netflix, and Google would be a couple of examples.