Just the Tip with Dan Netzer: The Blockchain Revolution

Just the Tip with Dan Netzer: The Blockchain Revolution

By Dan Nezter

A Brief History and Introduction to Blockchain Technology

If you’re at least somewhat familiar with the biz/tech world then you’ve probably heard people use the phrase, “the blockchain,” and you likely associate it with the notorious cryptocurrency, bitcoin. Satoshi Nakamoto, the pseudonym of the person or group who created bitcoin, constructed the first ever blockchain in order to successfully overcome the double-spending problem of digital currency without the need for a “central certifying authority.” It wasn’t until later that the tech world caught on and computer programmers began to create many different types of blockchains. All over the world, programmers realized that blockchains could be used to facilitate situations that normally require people to rely on a trusted intermediary by creating open-source, decentralized confirmation networks that replaced the need for trusted intermediaries all together.

“Trusted intermediaries.” “Central certifying authority.” “Open-source.” “Decentralized confirmation networks.” If this sounds boring or makes you feel dumb that’s because it’s designed to, but behind all the complicated jargon are a few fairly simple concepts. Trusted intermediaries and central certifying authorities fulfill the exact same purpose and are essentially synonymous, and we rely on them all the time. When we put money into a bank account, we rely on banks to hold our money safely; when we buy things online, we rely on companies like Ebay and Amazon to ensure we receive our purchases; when we run out of storage space on our phones or computers and need to buy cloud storage, we rely on companies like Apple to provide us with secure cloud space. When we talk about blockchains being used to create decentralized, open-source networks that can replace trusted intermediaries, we mean that instead of the responsibility of trust assurance resting in the hands of one central authority, like Amazon or Apple, trust assurance is instead provided by a blockchain so that any individual, living anywhere in the world, can independently contribute to confirming the transactions and contracts. Because blockchains are decentralized open-source network platforms, they make situations that would otherwise require a central certifying authority much cheaper, much quicker, and much easier, and this is precisely why blockchain technology is going to change the world.

What’s a Blockchain?

A blockchain is a decentralized, tamperproof, public record book of transactions or contracts that functions as a trust-providing platform for strangers to pay, trade, or create contracts with one another. In essence, a blockchain is simply a long list of contracts or exchanges of goods/services/value that are represented and confirmed on a particular network.

What’s a Centralized Network and How’s a Blockchain Different?

Think of your debit card — when you swipe your card at the grocery store, your transaction is processed by a card reading machine. During that processing time, the machine is reading your card information and communicating with your bank to confirm 1. you are the rightful owner of the card and 2. you have enough funds in your account to cover the transaction.

The distinguishing factor between debit transactions and a blockchain alternative is a matter of who is confirming the transactions. In the debit card example, a bank would confirm the transactions whereas transactions processed on a blockchain network are confirmed by many different individuals working independently without the formation of a company. It is the last part of the previous sentence that reveals a deep insight: because they are decentralized, blockchains have the potential to replace companies with individual workers.

Decentralization is a good thing for consumers because it means that there is no one central power who controls the confirmation system, which creates the potential for much cheaper and much faster transactions. Transactions are cheaper because there is no business/organization involved, meaning there are far less people to be paid and there is no company taking profits, and transactions are faster because computing power is open-sourced, allowing many different individuals to simultaneously confirm transactions as opposed to one business/organization having to confirm all transactions on their own network.

Certainly Blockchain Technology Won’t Disrupt Established Businesses, Will It?

A service that is executed on a blockchain network will always be able to outcompete a business that offers a non-blockchain version of the service because blockchain networks, by definition, are non-profit platforms: the only people being paid are the programmers who confirm transactions and contracts on the network. Thus, companies that are forced to charge higher transaction fees in order to earn profits and pay all of their employees will be unable to match the prices offered by a blockchain alternative. Think of it this way: a company like Amazon has to pay its chief officers, executives, marketing teams, legal consultation, customer service departments, HR departments, software development teams, managers, analysts, engineers, fulfillment teams, IT departments, construction & cloud storage contractors, and everyone else who works for them. A blockchain marketplace alternative to Amazon requires only one group: the programmers who confirm the network; buyers and sellers handle the rest.

So, what does the implementation of blockchain technology mean? It immensely minimizes the cost of ensuring trust and follow through between people who enter into any sort of contract or monetary agreement with one another, and it gives 100% of the revenue generated from the cost of trust assurance right back to the ones who ensure it — the computer programmers who confirm transactions and contracts on a particular blockchain.

Keep an eye out for news about blockchain technology in the coming years, and if you’re curious or want to know more about it, give this article a thumbs up and comment your questions below and we’ll be happy to go more in-depth in a future article.

Disclosure: I do not own stock in any of the companies mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from The Ladder), and I have no business relationship with any company mentioned in this article.



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