So let’s now look at three pillars that has been developed over the years that resulted in emergence of blockchain. In other words, these three ingredients have mixed and cooked together to create a delicious soup for us, the people.

What are those three ingredients you ask? The internet (the web) itself, cryptography and last but not least consensus mechanism.

Let’s discuss these three main issues in this post:

Internet

Internet is the infrastructure that connects people and machines.

internet
Image by Gordon Johnson from Pixabay

A single central authority is mainly required for logistics purposes. You need one data point to coordinate activities. Eliminating this single centralized unit and distributing this power among many independent points requires, above anything else, an almost instant communication among those points.

The internet has enabled that infrastructure. Ability to coordinate instantly, overcoming all the physical boundaries. In other words, even if Einstein would have thought about blockchain technology, that would not be possible at that time.

Blockchain technologies, after all are codes written by people. They are kept in servers, and be accessed and maintained by everyone. How? Well, through the internet of course.

Internet, available to each and every person, has demolished all the barriers to entry. With blockchain technology (particularly public blockchains) it is imperative that everyone has access to the system as long as they have an internet connection. Why it is imperative? If you are building a system that is distributed then you need to make sure that everybody trusts this system. How? By making the system visible to everyone. Plus, ensuring that all these transactions are verifiable by anyone who would like to do so.

Blockchain allows everyone to be a user and a verifier of the system. Not only that but it also allows any machine to be a part (‘node’ in tech speak) of the system and collaborate. All of this was possible with the help of internet being the main infrastructure.

Internet or world-wide-web, whichever you want to call it, has developed since the 70’s and when we start the new millennium has become mature enough to be the major backbone of modern civilization and technologies.

Cryptography

Now, blockchain technology is transparent. That is great. However, financial independence means people and their holdings have certain privacy.

cryptography
Image by Pete 😀  from Pixabay

Why is privacy important? Well, this is a topic that requires another post, in fact even a book, but let’s keep one thing in mind: Independence means free of censorship. How are you going to ensure that a user’s financial holdings would not be confiscated if those in power do not like that person’s political views? That sounds like a remote idea but ask to those that live under oppressive (or suppressive) regimes.

So how are you going to ensure that people are possessed of certain assets in the digital world, without revealing their identity? With cryptography of course.

We are not going to get into the details of cryptography in this post. Just bear in mind, this is an area that has been around for decades, and by the time we have come to the new millennium it was well researched and quite advanced area. So this was the second pillar of blockchain technologies.

Consensus mechanism

The real secret part of the recipe here is the consensus mechanism.

So you have internet - which connects users and machines. You have cryptography, which allows users (without revealing their identity) to be on the internet and perform certain activities in a secure way. But one critical part was missing.

Digital technologies, while bringing many advantages to our life, had one drawback. That drawback was the fact that anything digital could be easily copied and reproduces without any major effort. This prevents scarcity in digital goods. Why do we need scarcity? If something can be produced infinitely then that ‘thing’ would have no value? For an asset to be valuable, it has to be finite, in other words there has to be some scarcity around that asset.

Now, you can create scarcity if there is one single authority. You can create digital USD and copy it million times but as long as it was approved and verified by US Fed and by banks authorized by the financial system, that copy would have no value at all. So that authority defines the amount and ensures that everybody adheres to the rules.

How are you going to replicate that if your core value is ‘eliminate the need for a central authority or intermediary’?. If you are going to distribute the power to thousands of machines that are independent of each other, how are you going to make sure that they move along in a coordinated way and reach a decision?

consensus_mechanism
Image by Gerd Altmann from Pixabay

The secret recipe that Satoshi Nakamoto has brought to the table, the real innovation was the consensus mechanism. Consensus mechanism, allows machines to maintain the blockchain system on their own.

Details of consensus mechanism is a discussion for another day, but was it successful? Well, Bitcoin system has been in effect since Jan 3rd, 2009 and we have not seen any downtime in the system. It has been working like a clockwork for more than 12 years. Will it continue like this? We will see all together.

Last word

Satoshi Nakamoto, the inventor of Bitcoin blockchain, used internet, bring in all the developments in cryptography and then created a consensus mechanism that allows independent machines to work in harmony. By bringing three ingredients, that is internet, cryptography and consensus mechanism, they created a revolutionary mechanism that has potential to change how we do things going forward. We are lucky to witness the birth of this technology and will all see how it will evolve over time.

This piece is first published in BlockchainIST Center on June 15th, 2021.

None of the views expressed in this article should be considered as investment advice