Every decade since the 1970s has seen the advent of a disruptive computing paradigm. The first was the mainframe which showed up in the 1970s. Next was the personal computer revolution of the 1980s. Followed by the advent of the internet in the 1990s. While the 2000s saw the proliferation of mobile devices in what came to be known as the mobile revolution. At the moment, the world is experiencing the breakout and steady growth of blockchain technology.
The impact of these technologies falls under three core areas: computation, storage and communication – three processes the world runs on. The advent of PCs disrupted computation. The internet revolutionized communication. Now, blockchain is poised to disrupt storage. As blockchain continues to evolve into what is looking like a seamless economic layer of the web, a new paradigm is arising: the internet of value.
For centuries, we have relied on financial institutions to process payments and facilitate commerce. It is almost impractical to do business in the twenty-first century without the involvement of central intermediaries or trusted third parties processing payments and facilitating commerce. Since commerce appeared on the internet, we have come to rely almost entirely on financial institutions to facilitate electronic payments and enhance e-commerce. While this system has worked well over the years, it still suffers from inherent downsides:
- The existence of a central server provides a point of attack for unscrupulous elements.
- Merchants sometimes ask for more information than they actually need.
- Third parties charge transaction costs to facilitate transactions.
- The addition of third parties to the transaction overlay introduces latency (delay).
In 2008, a silver lining appeared on the horizon of the financial industry: a peer-to-peer electronic cash system published in a white paper under the alias Satoshi Nakamoto. The white paper proposed a system void of these downsides. It promised to eliminate the need for third parties by using a system called blockchain. The following year after the white paper was published, Bitcoin launched as the first peer-to-peer digital cash system. More than a decade after, thousands of cryptocurrencies have followed and the crypto economy has become a fiery cauldron in the fin-tech space.
Blockchain was not only a breakthrough in digital cash, but it was also an important innovation in computer science. For the first time ever, currencies would be minted not by a central intermediary but by a peer-to-peer network maintained by algorithmic self-policing.
The advent of blockchain is redefining the role of traditional intermediaries. Although blockchain might not entirely eradicate the need for central intermediaries (at least for now), it has greatly alleviated the problem that has made them indispensable to commerce.
Since cryptocurrencies are still in their infancy, the terminology used to describe aspects of the technology can be sometimes confusing. I’ll use the first digital cash system (bitcoin) to point out key facts. You see, although most of the time bitcoin is used to refer to the cryptocurrency bitcoin (BTC or btc), it can also mean the protocol it runs on and the blockchain network that supports it. These three parts are the main constituents of any cryptocurrency.
The first layer is the decentralized ledger that stores records of transactions in an indelible way – the blockchain, a giant ledger that can be accessed by anyone on the network yet controlled by no single group or organization. The second layer is the software protocol that defines how assets are transferred while the overlay is the cryptocurrency itself.
We’ve seen the first coming of blockchain as cryptocurrencies. We are currently experiencing the second coming of blockchain in the form of smart contracts. But there’s yet a third coming: applications of blockchain beyond the frontiers of finance and markets.
Abraham Jimoh is a tech enthusiast with an almost maniacal interest in emerging technologies with disruptive potential.