What is blockchain? The Complete WIRED Guide
At this stage, When you say “blockchain” you will get two reactions: roll your eyes and dismiss it or get excited about the possibility of quick money. But it doesn’t have to be either/or. The system that powers Bitcoin can take power away from central banks, build trust in supply chains, and manage ownership in the super universe, but it can also become meaningless between chaos and hype, a technology finding a use case.
The original blockchain is the decentralized ledger behind bitcoin digital currency. The ledger consists of linked batches of transactions called blocks, with an identical copy stored on each block. 60,000 computers make up the Bitcoin network. Every change to the ledger is cryptographically signed to prove that the person transferring the bitcoins is the real owner. No one can spend money twice because once a transaction is written to the ledger, every node in the network will know about it.
The end result: No Bitcoin user has to trust anyone else because no one can cheat the system.
Other digital currencies have imitated this basic idea, often attempting to solve perceived problems with Bitcoin by building cryptocurrencies on top of new blockchains. But some people think that the real innovation is not digital currency but cryptographically secure, decentralized ledger, they believe that blockchain can usher in a new era of online services that would be uncensorable; transparent tracking of the origin of fish, minerals and Rolex watches; and securely digitize voting, contracts and with the introduction of inverseeverything else.
Immutable ledgers also have benefits in business. Big banks are experimenting with private blockchains to increase transaction efficiency while maintaining trust, corporations are monitoring compliance internally, and retailers are cleaning up supply chains. But with a few notable exceptions, these use cases are still limited trials or tribulations rather than a real transition to enterprise use of blockchain.
And no surprise. Everything that touches the crypto world has chaos. The value of bitcoin has increased from $5,600 in 2020 to $48,000 in 2021 before falling to $13,600 in 2022; whether it’s skyrocketing or spiraling monthly, though its value is certainly much higher than many people predicted just a few years ago.
Some cryptocurrencies turned out to be just a little pyramid scheme, while hackers succeeded stolen millions from cryptocurrency traders. Even stablecoins pegged to the dollar have stumbled, as have those backed by industry giants—Facebook’s Libra To be Turn off in 2022 after years of failure. Meanwhile, ideas like ICOs and NFTs raked in millions of dollars for some and collapsed amid accusations of fraud before disappearing from the limelight.
And then scandals like FTX fight. This crypto exchange collapsed in November 2022, with billions of customer funds lost and triggered a fraud criminal investigation that led to the arrest of co-founder Sam Bankman- Fried.
Even before the FTX scandal, the crypto industry was in a crisis of confidence, with Collapsed values spark layoffs at industry leaders like Coinbase. Some might argue that this is the end of an idea that never really worked out, but it could be getting harder and harder in the face of cryptocurrencies and the distributed ledgers that keep them stable and secure. find some real purpose.
It is too early to say which tests, if any, will succeed: decentralized money or corporate compliance? Automated secure contracts or supply chain tracking? Digital voting or virtual art in the metaverse? Private corporate ledger or public decentralized blockchain? But the idea of creating a tamper-proof database caught the attention of everyone from anarchist technicians to serious bankers.
The Bitcoin software was initially released to the public in January 2009. It is open source, meaning anyone can test the code and reuse it.
And many people have. At first, blockchain enthusiasts were only looking to improve Bitcoin. Litecoin, another virtual currency based on the Bitcoin software, seeks to provide faster transactions. One of the first projects to reuse blockchain not just for currency is Namecoina “.bit” domain name registration system that evades government censorship.
Namecoin tries to solve this problem by storing .bit domain registrations in a blockchain, which theoretically makes it impossible for anyone without the encryption key to change the registration information. To seize a .bit domain, the government would have to find the person responsible for the site and force them to hand over the keys. Other coins, also known as altcoins, are less serious in nature—notably the popular meme-based coin DogeCoin.
In 2013, a startup called Ethereum published a paper outlining an idea that promised to make it easier for programmers to create their own blockchain-based software without having to start. from scratch or rely on the original Bitcoin software.
That made a shift away from currency-only apps. Two years later, Ethereum revealed its platform for “smart contracts,” software applications that could enforce agreements without human intervention. For example, you can create a smart contract to bet on tomorrow’s weather. You and your gambling partner will upload the contract to the Ethereum network and then deposit a small digital currency that the software will essentially hold in an escrow account. The next day, the software checks the weather and sends the winners their earnings. Several “predictions markets” have been built on top of the platform, allowing people to bet on more interesting outcomes, such as which political party will win an election.
As long as the software is written correctly, there is no need to trust anyone in these transactions. But that turned out to be a big if. In 2016, one hacker done with approximately $50 million in Ethereum’s custom currency for a democratized investment system in which investors pool their funds and vote on how to invest. A coding bug has allowed an unidentified person to earn virtual currency. Lesson: It’s hard to remove humans from transactions, with or without blockchain.
The boom and bust of ICOs
And then came ICO gold rush. Ethereum and other blockchain-based projects have raised funds through a controversial activity known as the “initial coin offering.” During an ICO, the creators of new digital currencies sell a certain amount of coins, usually before they have completed the software and technology that underpin it.
The idea is that investors can get in early while funding developers to perfect the technology. The problem is that these services have traditionally operated outside the regulatory framework to protect investors.