Bitcoin introduced to the world the concept of a blockchain. Since the early days of blockchain, the buzz around a decentralized transparent society has grown so much we all know the disruptive changes it could bring to society, but that’s about it, just the possibility, the what if, the theory. Even after 10 years of its introduction, we are still in the very early stages of this technology and I will try to explain what has happened so far in the industry.
It’s too early
A lot of what is being developed right now is the backbone of what this technology will bring to the masses in the future. Is not ready for mass adoption, just yet, but that doesn’t mean that we shouldn’t consider current development as important and significant. I would like to compare the development that is currently happening with the development from the 70’s when few companies were developing the foundations for the internet. The differences are radical though. The internet around that time was being developed privately. Only some people around the world where working on the early stages of the internet. Now, thousands of people are working on developing the new layer for the digital age and so that’s why we need to understand that, if things took time back then figuring out a system than came out to be centralized (even if the original plans for the internet were decentralized) taking the task of decentralizing industries will maybe take twice as time, but having a lot of developers on board, a lot of blockchains with different and innovative proposals is helping speeding up the process. Cryptocurrencies and blockchain are evolving publicly, and that’s why we get to see such early stages of the game.
There’s 3 types of coins/tokens so far
We have cryptocurrencies that focus in payments, being a store of value and therefore could be considered to fit more smoothly under current regulations. Cryptocurrencies like Bitcoin, Ethereum, Monero, Zcash, etc, all seem to address this functionality with each one having a certain distinctive quality. The emission for these coins is also another factor that characterize them. They are usually released to the public to mine and be part of the rewards so they act as a global protocol. The majority of them had a premine to sustain the short term birth of the coin but then the rest is purely determined by the community that adopts the protocol. This is the main difference with tokens, that are emitted by a company and are completely minted from the beginning, or if not, at least created solely by the company. So I think that cryptocurrencies have a long term future in the whole blockchain ecosystem because of their nature.
And then we have utility tokens that provide a benefit, access and a function in their ecosystem. Whether is the ability to play a game, secure identities, storage data or access a platform, they all have one thing in common: to fuel the ecosystem they are being part of. They, currently, only speculate in the long term value of their networks because they rely in supply and demand principles to become sustainable in the long run, but because most of utility tokens are issued by startups, they could be considered as utility tokens, sometimes as securities because of their ability of staking and other not so common principles found in today’s common assets so their regulatory frame is quite tricky. They represent a new innovative way for businesses to fuel their own ecosystems so I think that’s pretty innovative in its own way.
Types of blockchains: an overview
We have 3 different blockchains as of now, public blockchains, federated blockchains and private blockchains. Public blockchains can rely on proof of work or proof of stake algorithms to secure the network and reach a consensus among participants. Anyone can participate in the network and that’s why they are called permisionless blockchains. There’s other blends of algorithms that are innovative in their own way like the proof of importance from NEM, ramifications like delegated proof of stake from Steem Lisk, leased proof of stake like Waves and NXT, proof of activity, DAG and the list goes on. The main algos, PoW and PoS were inherited from Bitcoin and Peercoin, so subsequently, other blockchains that forked from their protocols have this consensus mechanism. Other algos came as an alternative to this two main ones.
Now federated blockchains don’t allow anyone to participate in the process of verifying transactions. These blockchains are formed by selected participants and are currently used in the banking sector such as the case of R3 and B3i. These are blockchains that only focus in reducing costs and making operations easier, they aren’t disruptive, they can be seen as just an upgrade to current systems.
Private blockchains are a little more open, if they want. While participating in the consensus is still private, the transparency of it could be displayed to the public, but in some cases this could be restricted to a certain extent, desired by the private company that runs the blockchain. They don’t rely in incentive mechanisms like public blockchains, they are very alike to federated blockchains but instead of being used only in the banking sector, they can be used in any private company that decides to embrace the technology. Some people say or speculate that federated and private blockchains could suffer the same consequence as intranets in the 90’s because they kinda exclude you from the globalisation opportunities open blockchains bring to the table.
Decentralization is the key component for disruption
Governments and businesses have mainly operated with centralized systems so far relying on a middleman for everything. This is seen across the board of industries, but with the decentralization blockchain and cryptocurrencies bring to the masses, it creates new opportunities for businesses as it restructures costs, efficiency and transparency. So decentralization is what can eradicate the need of a middleman, and that alone, signifies a whole new economical opportunity for everyone. People might already be bored or annoyed when everyone talks about decentralize this decentralize that, but really, understanding the scope of the importance of it, is understanding the long term value it brings to the world and even then, we still can’t calculate all the benefits cryptocurrencies and blockchain will bring to the future.
The regulatory framework is still obscure but is improving slowly
Regulations vary from country to country, and in the United States, even from state to state. Some governments regulate based on fear, others on speculation, others to restrain the technology, other’s to embrace it. If we need a consensus, it definitely is the one regarding the regulatory aspects of blockchain and cryptocurrencies. Regulations are what stopping the technology to be embrace by the masses, but at the same time is what it can kill the embracement in the first place. That from a government perspective, but from within, blockchain protocols are always constantly in debate in what to do best for the whole ecosystem. Look at Bitcoin’s journey of forks, from bitcoin cash, gold, Bitcoin SV; or the latest controversy with Constantinople and the Progpow proposal for Ethereum. Governing a blockchain is not an easy task, and is a risky aspect to consider.
All in all, this was not meant to be a complete and detailed insight into the current blockchain state, but is merely my opinion from what I have learned since I became aware of the technology. The constant evolution and change in the space might be overwhelming but we all need to understand one thing: most projects are attempting to change the world, and that is enough to support them.
Sources
https://blockchainhub.net/blockchains-and-distributed-ledger-technologies-in-general/
https://www.r3.com/
https://www.insurancejournal.com/news/international/2017/02/06/440629.htm
https://101blockchains.com/consensus-algorithms-blockchain/#6