We keep reading and hearing about Bitcoin and Crypto movement all over the news and even on the train while heading home. I think there has been enough coverage in the mainstream media about the new concept of cryptocurrencies from Bitcoin to Altcoin to s**tcoins. When talking to friends and acquaintances, I feel most of them don’t really know what the concept of decentralization, blockchain, cryptocurrency really mean.
What is a Blockchain?
A blockchain is a ledger that is distributed publicly among the participants in its network. To make it easier, Blockchain is like a spreadsheet, statement, or sets of data anyone on the same network can verify and have access too. Every participant has a copy of that spreadsheet and is responsible to keep the data on it up to date. However, to make it easy to understand and digest for the audience I have oversimplified the concepts with the technologies which are more familiar to the public.
So as mentioned all the members of the blockchain network have the autonomy to access it. Some members might use that autonomy to download the blockchain to their own computer to participate in maintaining the network. When blockchain is downloaded and maintained on a computer it becomes a “node”. Members running a node have a copy of the blockchain network. This copy gets updated actively along with every copy on other nodes. So the data gets updates from all the participants and not only one individual or entity. Any changes on the blockchain ledgers are made with the general consensus of node keepers. When consensus is reached among the participants the newly updated data is added to the blockchain network.
Blockchain network has been designed in a way to be open to anyone who has a computer and the decision making is decentralized to avoid single decision-making authority. No central authority has the power to make a decision and enforce rules. Participants of the blockchain network are incentivized to maintain their participation and behave in a manner which is not harmful to other users of the network.
What is Decentralization?
The word decentralization has been used over and over on the blockchain network. In order to understand the meaning of decentralization, I’d like to explain what centralization means first. Centralization is basically the concentration of control or power of any activity or organization under a single authority. So decentralization is when we transfer the control or power to multi-authority. For example companies like Apple to Google have a CEO and a board of executives. The decision-making processes have been made in a way that CEO and the executives to have the final word when it comes to deciding to split the company or company’s certain division. If the company that makes the keyboard for apple computers decide they no longer wanted to be part of Apple they really do not have the choice to break off their ties with Apple on their own.
Some experts divide decentralization/centralization into three forms:
– Architectural – How many physical computers is a network made up of? How many of those computers can it tolerate breaking down at any single time?
– Political – How many Individuals or Organizations ultimately control the computers that the network is made up of?
– Logical – If you cut or split the network into pieces will each section continue to fully operate as an independent entity?
In the case of Blockchain networks, they are politically decentralized because there is no single authority has control over them. They are architecturally decentralized too because there is no infrastructural point of failure as each node keeps a copy of the blockchain. But blockchain is logically centralized because the network behaves like one computer despite being spread apart on all the participating nodes in the network.
Political and architectural decentralization allows blockchain to be:
- Less likely to fail because they rely on many separate participants.
- Harder to get hacked and attacked because networks are spread across many computers.
- Harder to overthrow or take advantage of in a way that only a select part of the platform benefits.
If one node or even 100 nodes on the blockchain stop working the network survives if there is at least one node is up and running. This characteristic makes the blockchain very secure against any possible attack.
Bitcoin, When did these all started?
The concept of blockchain was first fully actualized by Satoshi Nakamoto in Bitcoin Whitepaper. However, the underlying concepts and technologies is a result from years of research across cryptography, computing, and economics.
As explained earlier centralization or control by a single authority is a common form of governance in today’s world. We trust central authorities, like banks, governments, and other institutions to maintain a form of system in order. There are many examples where this given trust to a central authority was broken and taken advantage of that authority. The recent scandal of VW defeat devices, stolen credit card information of Target customers, governments have taken away the rights of their citizen, are only a few examples of how centralized systems can break the trust.
The problem with the centralized system came bolder during the global financial crisis in 2008. On October 31, 2008, an unidentified individual or group of individuals who called themselves Satoshi Nakamoto published the Bitcoin whitepaper titled Bitcoin: a peer to peer electronic cash system. This paper described a peer to peer electronic cash system, which was a combination of Cryptography, computer science, and game theory in its design. Satoshi’s invention allowed the participant to digitally do a transaction with another participant without relying on an intermediary such as bank or payment processor to verify and process the payment. If you live in New York and you want to pay your friend who has provided some services for your website remotely you have to wire the funds from your bank account (which controlled by your bank) to his bank account ( which is controlled by his bank) or you send funds via a third party like Western Union and rely on the speed of the process which usually takes more than 2 business days.
Since Bitcoin enables participants to transact peer to peer it attracted the attention of the public. Tech crowd where drawn to the blockchain, the underlying technology on which Bitcoin operates. The decentralized ledger keeping activity between two participants is stored on the blockchain permanently with verification. This verification comes in the form of cryptographic functions and timestamps. Transactions can be verified on many nodes (computers) and make the blockchain decentralized and transparent.
As Tech industry started to pay more attention to Bitcoin codebase and white paper, contributors to the bitcoin community like Vitalik Buterin saw some limitation and challenges in the design of Bitcoin and began designing an open source protocol known as Ethereum in late 2013.
I have covered some very basics of decentralization and blockchain and just scratched the surface. There are still many technical topics to be covered to fully understand the whole ecosystem of this technology. I suggest that you educate yourself about this new era in depth in order to fully understand the philosophy behind it better. Tradeview enabled the access to the trading of cryptocurrencies in the form of CFD as a new line of product to its clients in Dec 2017. Tradeview keeps the innovation at the heart of its strategy to ensure the long-term growth.
Tradeview Director – Middle East and North Africa