Blockchain and cryptocurrencies represent a wild new digital frontier, loosely governed, rampant with outlaws, and full of untapped, unknown potential that is fuelling its own crypto gold-rush. The thing is, all of this great potential, these world-changing ideas, are as yet unable to perform practically in the real world. Today, Etherum, far and away the biggest and most supported chain, is both slow and costly for end users, meaning that distributed apps (dApps), games, marketplaces, and all the other innovative new applications are still a long way from replacing the centralized, fee-ridden mainstays they threaten to disrupt.
To understand why this is the case, and to better understand where crypto stands in late 2018, it’s important to take a brief look back at how far we have come in blockchain development.
Genesis 1.0… “Let there be Lite[coin]”
Blockchain’s Big Bang came in the form of a white paper published by the mysterious god of crypto Satoshi Nakamoto back in 2009. With this paper Nakamoto established the very first cryptocurrency, Bitcoin; the granddaddy of all cryptocurrencies and distributed ledgers. It was the core technology behind Bitcoin, blockchain, that would turn Bitcoin from an interesting economic experiment into a global phenomenon with the potential to disrupt hundreds of industries, if not the global economy. It would also spark several important evolutions, which will be discussed in later articles.
Bitcoin was Genesis, the first project to really utilize blockchain technology, and so it represents the first life-form of the first generation; a digital, cryptocurrency that presented the first real challenge to the global economic system in decades. Soon after Bitcoin, other ‘alt-coins,’ such as Litecoin, quickly emerged. However, none were as successful as the original, despite offering various improvements on transaction cost and time.
Since the first generation of blockchain solutions was focused solely on creating cryptocurrencies, the question arises… why?
It’s important to remember that around the same time that this Whitepaper was published, countries all over the world plunged into recession. Faith, or trust, in the established order with its “too big to fail” institutions and third-party guarantors, plummeted. Bitcoin came at exactly the right time, offering a solution that created trust between peers without the need for expensive, failure-prone middlemen.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” — Satoshi Nakamoto (Bitcoin Whitepaper)
Creating Trust in the Digital World
Bitcoin, and all the early first generation cryptocurrencies created this trust between peers through a radical new approach to record keeping; distributed ledgers.
You can find hundreds of excellent explanations for how this technology works online, but very simply this decentralized approach uses a global network of computers, called nodes, that gather transactions into ‘blocks’ and finalize them with ‘proof-of-work,’ essentially an intensive puzzle that must be performed by a CPU. This process is referred to as ‘mining.’ When a node finds a proof-of-work, it completes the transactions and broadcasts the new block to all nodes, which accept the block only if all transactions in it are valid. They then move on to processing the next set of transactions into the next block, with the whole process taking around 10 minutes per block. Each block contains a record of the cryptographic hash of the previous block, a timestamp, and the relevant transaction data, thus forming a chronological chain of these blocks, hence ‘blockchain.’ Because of this chronology, the network always considers the longest chain to be the correct one and will keep working on extending that one.
This system is incredibly secure because each of the globally distributed nodes contains a record of the complete chain, so any attempt to alter or attack the chain is both virtually impossible since the block would need to be attacked and altered on every single node simultaneously, and clearly visible to the network.
Because the transaction information is so well secured, virtually impossible to hack, and distributed democratically around the world with no single entity able to control the blockchain, it becomes easy to trust in the system for peer-to-peer transactions. It also makes the system incredibly flexible for other applications, as we will soon see.
The next step in blockchain’s evolution, generation 2.0, is exemplified by Ethereum and the creation of the ‘smart-contract’ which enabled new kinds of tokens to be created for purposes other than currency. Blockchain 2.0 extended blockchain 1.0 to include non-native asset tokens, dApps, and created powerful new use cases such as DAOs and ICO’s.
This distributed ledger technology is wildly promising and has obviously evolved far past the original concept of cryptocurrency. But while existing solutions are exciting and full of potential they are still too slow, too costly, and too unwieldy to be genuinely practical in our everyday lives thanks to the outdated, slow, and unscaleable infrastructures they run on.
AERUM is building the next generation of fast, scaleable blockchain infrastructure to solve this problem and empower both developers end-users to unlock the full potential of blockchain technology. To learn more, please visit our website. You can also get in touch with us via Telegram, LinkedIn, Facebook, and Twitter.