Participation is hard now, but soon, it will be everywhere
Blockchains can be a little overwhelming for those of us that aren’t cryptography nerds, so this article is assembled approximately as follows and you are encouraged the jump in wherever you feel comfortable.
- A brief history of cryptocurrencies
- An explanation of blockchain and its incentive structures
- Ethereum and the cool things it can do
- Why everyone is about to get involved
A brief history of cryptocurrencies
Decentralized (meaning non-centrally-controlled) currency has been a concept at least since Wei Dai’s “B-Money” paper in 1998 — it’s motivations and concepts (no threat of violence, no government control) are still relevant today. Cryptocurrencies didn’t really reach prominence until 2009 when Bitcoin was released by its mysterious creator, who has since been revealed. It’s early applications were often less than pure, but that has changed quickly. Prices fluctuated a lot in the early years, mostly driven by incompetent exchanges and fears of regulation, but it’s growing prominence has lead to more investment and decreased volatility.
What is the blockchain?
A blockchain is a public, verifiable ledger of all transactions that occur on the network. It uses consensus and cryptography to ensure that all participants can modify the ledger and that no one breaks any accounting rules.
Whenever a transaction occurs on the block chain, a group of participants called “miners” each maintain the entire history of transactions and utilize that history to confirm or reject the transaction so no one can double-spend or overdraw. The cryptography aspect of these systems makes this process computationally complex and verifiably correct. When a node has completed the work to verify a set of transactions (a “block”), it announces that to the network. When a majority of nodes agree it is correct (a much more computationally simple process), that block is added to the block chain and the node that first verified the block is awarded in some amount of cryptocurrency for doing the work.
This system incentivizes a decentralized network that provides a secure, decentralized, immutable ledger. The applications of which extend well-beyond currency transactions.
A lot more applications have been opened up by a new cryptocurrency called Ethereum that features Turing Complete contracts.
What is Ethereum?
A brief history
The Ethereum documentation marks the release of their yellow paper in 2014, with a pre-sale in July of that year. Since then, the Ethereum network itself has overtaken Bitcoin in the number of nodes (Bitcoin 5154, Ethereum 6415), but is still trailing Bitcoin by about a factor of 10 in volume and market capitalization (as of Sept 2016).
The power of programmable contracts
When your transaction can be bound by any arbitrary rules, these network can be utilized to fairly enforce any logic you want. This effectively removes the need for trust in most transactions. We can essentially codify any legal terms for things like micro-payments, escrow, lotteries, voting, prediction markets, auctions, gambling, or pyramid schemes. Those are just the simple examples (here are a bunch more).
Complex examples of “distributed apps” enabled by the block chain would be:
- Digital asset tracking
- Self-governed organizations
- Secure decentralized health records
- Decentralized judicial/arbitration systems
- Supply chain management
The developer support behind Ethereum is getting noticed, and recently Coinbase (one of the leading cryptocurrency exchanges) added Ethereum support.
Why am I not using this already?
Early days for the community
There are a few teams like the Ethereum foundation sponsoring development and ConsenSys who is blogging a ton and building tools like Truffle to develop the ecosystem, but it’s definitely still pretty young.
The community is mostly cryptographically oriented tech people, so to a layperson, there’s lots of unintelligible jargon out there.
Participation in the network currently requires you to run complicated software, not yet suitable for non-servers. Network nodes also need to maintain the entire block chain, which is approaching 90Gb, so network nodes currently need to have fairly substantial compute and storage capabilities.
Good news, It’s about to become easy
Blockchain technology will soon become available on any networked device. It will be built into your browser, your phone, and many more devices like smart meters. This is all being enabled by the development of a “light client” (thank you Zsolt Felföldi)!
Ethereum based contracts will be everywhere and agreeing to them will be a breeze. Real micro-payments will become a reality and they will be embedded in everything. Instead of paying 2.9% + 30¢, a monetary transaction will cost a fraction of a penny. You’ll be able to pay $0.10 to read an article on The Wall Street Journal or to watch another cat video on YouTube without commercials. The coffee shop wifi will charge you for your bandwidth usage. Spotify will offer a pay as you go plan, and bill you a variable rate for every song. Taco trucks will accept cryptocurrencies from your phone.
The technology isn’t quite there yet, but it’s super close.
Must Win spent the last couple of weeks working on a simple smart contract enabled micropayment solution proof of concept. It’s called TinyPay. We learned a lot while building it and are excited to share what we learned. Feel free to play with it, or view the source.
Must Win would love to help develop your next “DApp”. If you’re looking for help understanding or utilizing block chain tech, reach out to email@example.com and reference this post.
Mike Ihbe is a founding partner of The Must Win All Star Web & Mobile Consultancy.
Mike is an expert in a wide array of technologies and has loads of experience managing fast-moving dev teams, designing systems, and scaling large applications. When not on the job, he can be found cooking delicious meals on ski slopes in exotic locales.