Some notes on blockchains

Ok so the crypto currency revolution is well enough under way, and since the hard fork is also in process, it’s good enough time to jot down some of the things I’ve learned through exploring the BitCoin universe.

Blockchains started with a Whitepaper1, written by Satoshi Nakamoto. It laid out a new protocol for creating immutable records in a way that didn’t require trusting the person you were transacting with. It’s all secured with math and code, which makes it perfect for the internet world.

At base, the premise is simple. Transferring happens between wallets that are cryptographic tokens. If I transfer bitcoin from one wallet to another, I run a bit of code on my computer, generate a lot of numbers and letters that contain information about the transaction, and then broadcast the news to the network.

From there, it’s a race to figure out whether my transaction is legit or not. The first computer to verify that all the math is right and that all the variables are correct (my wallet, receivers wallet, balance in my wallet, etc.) gets a nominal fee. The process of doing all of that is called mining, and the participants are rewarded for delivering a verifying proof-of-work with cold hard bitcoin.

Once everything has been checked, the transaction and all of the computational work that backs it up get added to the blockchain. In elegant fashion, the chain records an entire history of transactions and verifications, a digital archive of every transfer to occur on the network.

This ledger becomes the single source of truth for the network participants, from which everyone can continue to check and verify transactions. Pulling the latest copy down from any source, I can check the veracity of the transactions and the integrity of the ledger based on the previous work of my peers.

The innovation provided by the Bitcoin protocol allows value to transfer digitally, without the worry of duplication or trusted parties.

Since then, Bitcoin itself has become a valuable commodity, and early investors have become wealthy as people have flocked to obtain coins. A robust market place of buyers, sellers and exchanges has sprung up that moves fiat cash in to digital assets secured by computers around the world.

Innovation on the underlying blockchain concept has continued. The idea of securing a network with proofs and the supporting protocols have spread to file storage, computational power, shipping, and more.

There is a lot more to come.

Ledgers are a foundational piece of the current economy. Business itself is largely a ledger, kept in aggregate through the various accounts of each company. So while the blockchain’s first solved for the transfer of value between entities, going forward we will see much more transfer between values.

We are already seeing the rules and networks that we currently use to manage these systems in society recreated with software.

The digital enablement of ledgers and the resulting protocols, will enable of lot of rules to move from meatspace to the internet. The secured network transfer is largely intermediated by codes that were the domain of lawyers and governments.

The decision making processes that underlie our economy, now debated in polity bodies like Congress, the EU, or the UN, will in the future look much more like the digital debates around bitcoins hard fork.

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