Blockchain has become one of the biggest buzzwords to do the rounds in technology and business over the past year. Large companies mention it frequently in their earnings calls according to CB Insights, and myriad startups claim to have harnessed it to put a fairer, more transparent spin on everything from healthcare to publishing to law.
But many struggle to explain what it is. First a note about how to refer to blockchain:
Is it “blockchain,” “the blockchain” or “a blockchain?”
It seems trivial, but defining blockchain has become confusing because it’s often referred to as both one thing, and many things. There are actually different types of blockchains. The best known one underpins bitcoin, first launched in 2009, while another underpins the ethereum network.
Sometimes when people say “the blockchain,” they’re actually referring to a wider space known as decentralized ledger technologies (DLT) that include blockchain technologies. Some lesser-known DLTs aren’t public or even decentralized. Ledgers created by Ripple and Hyperledger aren’t technically blockchains, for instance.
Blockchain may be the buzzword that’s captured everyone’s attention, but the important new technology to be aware of is decentralized ledger technologies (DLT).
Ok but still, what is blockchain?
It’s a type of distributed, digital ledger. The name comes from the way new information that’s part of a “block” gets added to a “chain.” But it’s easier to think of it more like a giant Excel spreadsheet that’s shared across many different computers. Each time the spreadsheet is updated, everybody can see the change. In this way, a blockchain is a ledger that’s distributed across a network of computers, which records all changes for users to see.
The changes made to each ledger are typically known as smart contracts. With the blockchain that supports bitcoin, the smart contracts are quite basic in that they only carry out a simple, monetary transaction.
What’s a smart contract?
They are small, automated programs that run on top of a blockchain.
So why should I care about that?
Because smart contracts are critical to the wider promise of how decentralized ledger technologies could transform industries. The ethereum network had one of the first blockchains to run sophisticated smart contracts when it was established in July 2015. This was an important milestone because it showed that blockchain technology could be put to use for other things besides currency-trading. It could break open complex systems traditionally controlled by a few powerful actors, like tracking all the steps on a supply chain or the process of buying property.
If bitcoin represented a decentralized bank that could move money around, ethereum was like a giant decentralized computer.
So what can you run on this giant computer that makes everything transparent?
Right now, not very much, and that’s one of the big challenges that blockchain developers are facing right now. The computations required are so complicated, that building something which millions of people can use takes lots of processing power and time. Take an app like Peepeth, which is a decentralized alternative to Twitter. Sending a “peep” can take around a day, and involves a complicated process of buying and spending tiny slivers of tokens you also have to buy.
The most popular program ever to run on ethereum was a collecting game called CryptoKitties. It was a bit like Pokemon. You could buy a kitty, breed it with another and sell it to other parties. But the game became so popular that in late 2017 it almost shut down the entire ethereum blockchain.
CryptoKitties has about 400 regular users today but at its peak had around 100,000 users. That’s actually not a lot if you’re hoping to build decentralized alternatives to the likes of Facebook, Amazon or Twitter, whose user bases are in the billions. Many experts believe that until blockchain developers can solve the so-called scaleability problem, it’ll continue to be a niche technology.
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