Introduction to Blockchain

Intro to Blockchain

Blockchain is a fairly recent technological innovation. Blockchain at its core is a combination of a data structure and a networking protocol: it was invented in 2008 in the “bitcoin” paper by the pseudonymous author “Satoshi Nakamoto” (Nakamoto, 2008).

Blockchain essentially works by maintaining an ever-expanding linked list that is cryptographically verified to only allow for additional data elements, “blocks”, to be added to the tail-end of the data structure under certain conditions.

In the original Bitcoin, these conditions were to use a consensus protocol which dictated that each member of the network agreed to use the longest network with a valid cryptographic history, and to allow the first member to solve a cryptographic puzzle to add one block. We strongly recommend reading the Bitcoin white paper and paying additional attention and extra research to: Proof of Work. Merkle Trees, Blockchain as a data structure, privacy mechanisms, the consensus protocol, money theory, and the mathematical analysis of the security and health of the network.

Resources

Bitcoin whitepaper Bitcoin hash functions explained

Resources

Bitcoin whitepaper Bitcoin hash functions explained

This system for adding on new blocks is commonly referred to as a “proof of work” system, in which users “mine” for new blocks. This data structure has primarily been used to create a reliable, limited supply of digital currencies known as “Cryptocurrency”.

Proof Of Work

Figure 1: Visualization of Proof of Work (Afreen 2018)

In 2014, a secondary use for Blockchain was created in the “Ethereum” white paper, which outlined a way to support a robust scripting language on top of a Blockchain network (Buterin, 2014).

There is a substantial academic history to the “bitcoin” paper: it is built on top of numerous other papers ranging from a 1991 Blockchain which lacked a detailed consensus protocol and proof of work mechanism, to the cryptographic idea of “Merkle trees” (a cryptographic method to combine cryptographic signatures), to the 2005 “Bit gold” paper by Nick Szabo which included many of the same features as the Satoshi paper (Szabo, 2005).

The Value of Learning Blockchain

The disruptive nature of Blockchain, and its potential is highlighted by the state of the industry. As of May 30th, 2020, the Market Cap of all Cryptocurrency was roughly $280 billion USD (Cryptomarketcap.com). For example, one Blockchain use case that has been widely adopted is online gambling: the current size of the market is ~$4.5 billion USD (Redman, 2017). This is a large, and quickly growing industry; the Cryptocurrency gambling market is growing at roughly 9% annually (Fenech, 2019).

Quickly growing industries typically offer large numbers of opportunities, and Blockchain is no different: many studies estimate that there are roughly 10 jobs in Blockchain for every qualified candidate (Lindquist, 2020).

According to CNBC, studies show that blockchain engineers make between 150k - 175k a year on average. They go on to talk about how the salaries are even on par with those of AI experts (Rodriguez 2018). This shows that blockchain is already a very popular technology with so much room to grow and innovate.

Critical Topics for Innovation and Research Within Blockchain

Many see blockchain as synonymous with cryptocurrency, yet, with its core attributes including security, confidentiality, and integrity, we can create large amounts of data which can be used in social smart contracts leveraging consensus (Giungato 2017). In general, there are so many more uses of blockchain, and smart contracts are one way we can take full advantage of it to improve our society.

Additionally, it can be used to create agreements between buyers and sellers. This can transform the world of online marketplaces, and create trust through the use of a public ledger (Kosowatz 2019). The impact is really unbound because of how many different fields and areas of economics blockchain can truly affect.

Blockchain innovations beyond the well-known use-cases of Cryptocurrency and Decentralized Applications include:

Alternative mechanisms for Blockchain scalability including Sidechains;
Alternative mechanisms for private Blockchain networks, and Leader Election;
Alternative mechanisms for trust, including encrypted Smart Contracts;
Mechanisms for getting real world data onto a Blockchain (referred to as "Oracles");
Mechanisms for increased security and regulatory compliance, including private Blockchains;
Mechanisms for healthy network participation, such as varied incentives and punishments, related to game theory;
Decentralized Cryptocurrency exchanges run by Smart Contracts;
Decentralized autonomous organizations that are capable of running large-scale projects, including hiring and paying employees;
Systems allowing users to make payments using Cryptocurrency for traditional payment systems;
Tokenization of real world assets, including but not limited to "Stablecoins" linked to real world currency;
Alternative mechanisms for network governance (e.g. who updates and maintains the network) including co-op models such as RChain, board/mixed models such as Ethereum, BDFL models such as Python, full decentralization such as Bitcoin, on-chain/Proof of Stake voting such as Tezos, and private models such as Ripple/Libra.

Blockchain Scalability