A blockchain is a powerful group of technologies that make something like bitcoin possible but we can make blockchains without having to use bitcoin and because of that this technology is kind of way beyond just bitcoin or even other coins.
Blockchain is called or can be understood as a distributed ledger as a distributed accounting where instead of having all the accounting, all the books, all the logs in one place, it is distributed and it’s distributed by the people who are using and benefiting from it.
Decentralization gives blockchain its power because rather than having a central place that you may need to trust or could be mistrusted or abused you have decentralized places, a decentralized system.
The advantages of decentralization are:
Easy to repair
Hard to injure because if you take down a center or a set of books, or even take a server off you still have the rest of the server going and everything is being decentralized, so there’s no loss.
More robust, powerful, and adaptable.
The disadvantages are:
- Decentralized systems are less efficient
- Often slower
- Not as efficient in terms of resource use including money and energy.
- So, Blockchain is a way to distribute the ledger, the accounting and because of that you can also distribute trust but the price of that distribution and decentralization is not very efficient.
- It also wastes a lot of energy to make this system work.
- But, in general, a blockchain system will always remain less efficient than a centralized one and again that is the cost of having a decentralized system.
Centralization tends to make things more efficient.
Blockchain is used not just for bitcoin but for many other coins as a basis to make a currency of exchange that does not have a central location i.e., it can be done at a low level, in kind of a crowdsourced way so that having a currency like that is useful.
It is useful in several ways:
- In places where the central bank is not very effective
- In places of their developing world or
- Where the central bank charges a lot for their services
- So, having a decentralized thing means having a kind of currency that can be used very cheaply, because there’s no central cost, no central bankers to pay etc.
- Another reason to want a decentralized currency is if you’re trying to do something that a government does not approve of.
- So, here you have something that is outside of the government. That could be criminals or something revolutionary, something political or transnational.
Even if you were a huge patriot, you still might want to have a currency that is not in the central banking system because it would withstand and be outside of the kind of natural fluctuations and political wins that not only affect national currencies but coins themselves because they’re not based on any fiat currency, wealth, gold, paper or government themselves are often very volatile. This is one of the arguments against bitcoin as a currency.
- Bitcoin serves more time as a kind of gold or a lottery rather than a currency.
- It is so volatile that it goes up and down, the currency is unstable and it’s very hard to actually spend it.
- The reason is: you never know whether things are going to go up or down and is being held in a speculative way.
There are many other things that blockchain is being used for this technology.
- We have things like smart contracts which are used to negotiate trust and acceptance of conferring approval even though there’s no central agency giving an approval.
- ·They get it through the network as a whole and there are ways in which one can use a blockchain-like system to do all kinds of necessary things.
- For example: If we imagine a mirror world where there are many people contributing virtual artifacts, objects, places and trying to knit them together into a single world. But they need some way to verify that things are legitimate or not, and there are not just counterfeits to overwhelm a central agency trying to approve everything.
- Here, one can distribute that approval into a blockchain system because it is being done at the edges and that’s the kind of system that people would need to have.
- People can also embed a blockchain system into the artifact that would ensure its authenticity in a distributed way rather than having a central agency or clearinghouse to approve things.
Looking at the world with its huge size, doing many kinds of things that need to be verified, approved, or trusted, a blockchain-like system to help in that makes a lot of sense. It is very efficient though it costs us energy and other factors to approve higher than a centralized one, that cost may be worth paying because it’s really hard to imagine a centralized system being able to do that.
Now, how you can do a blockchain without even mining a coin?
So, most blockchains in the very beginning needed a bitcoin, and in order for them both to work, you had to have miners doing computation so that the blockchain works.
There are alternative methods to ensure the veracity of a blockchain without doing huge computational cycles. All these things are being experimented with alternative blockchain systems, there were even attempts to bridge different blockchain systems together.
For example: if you have a network of blockchains then there is more work on making smart contracts. Hence, there are ways of trying to overcome the deficiencies of slow decentralization.
There are lightning networks that do some of the computation on another network that’s in parallel.
Now, let’s see how blockchain works in real life? One can see how it scales up or it doesn’t scale up But in the next 10 years there are lots of pilot programs where they’re fixing things to use blockchain effectively.
- It’s the kind of technology similar to plumbing or electrical wiring where you aren’t going to see it.
- Its encryption is used every day but most of us don’t even see it.
- It’s one of those enabling technology that works behind the scenes and does its job.
A blockchain will be very much like encryption in the sense that when it works it will not be visible it’ll just be working there, and it is not a consumer-facing technology. Hence, in the next 10 years, there will be more applications of blockchain but you’re not going to see it unless you’re really looking for it as to the future of bitcoin. The truth is no one knows whether bitcoin will continue to rise or fall, but blockchain seems to be a technology that will be useful in a way that encryption has been useful.
Its infrastructural necessity is useful in particular cases where we want to pay the price of decentralizing a system. sometimes you’re not going to want to pay the price but there will be many applications that will need something that’s decentralized and we’re willing to pay that price in order to have that kind of distributed trust. So that’s what is ahead for blockchain.