Out of the Ether Comes the Blockchain
Blockchain, Crypto and transparency as a cornered resource.
Hi friends đđ»,
Welcome to another episode On Todayâs Episode (sorry weâre not talking about movies, no pun intended:). Today weâll be talking about the Blockchain.
A few weeks ago, Sazi posted something about blockchain that seemed too optimistic at the time. He persuaded me on a 2-hour long conversation to express how technology was fundamentally changing industries. Since then, $DOGE went up by 13,000% since the turn of the year, Bitcoin ($BTC) and Ethereum($ETH) both went as high as $62,741 and $2,205 respectively to create record highs.
The first real question that made me realise how the blockchain could touch me personally came while I drank a glass of Glenfiddich. On the tall cinnamon coloured bottle was written that the whisky had aged 18 years and was built by expert distillers. But I just couldnât help but question: How am I sure that I am drinking the ârealâ Glenfiddich with the batch number stated on the bottle? Can I confirm that there are no two duplicates of this whiskey? How am I sure that the ingredients were sourced in a way that made them safe for consumption?
Do I really believe that the answer to all these questions laid in this brand that maybe just had better-than-average workmanship in its distillation process?
This deep dive gave me some answers that make the blockchain so appealing. It makes transparency a cornered resource for brands.
The more I read and explored, the more out of depth I felt. I wonât have all the answers or provide as many technical details, but hopefully, weâll learn something together.Â
Now, letâs get to it!
Enter the blockchain
The blockchain has been having a lot of misconceptions since it entered mainstream media. To better describe what the blockchain is, itâs best to describe what the blockchain isnât. Mckinsey in a 2018 interview discussing what the blockchain is identified five myths that people and institutions have about the blockchain.
Blockchain is bitcoin. A blockchain is only software. Itâs just technology like the internet or like the algorithm powering the Google search engine. On its own, it is not effective but building solutions on top of it makes its potential come to life. Blockchain and Bitcoin are terms that have become very synonymous with each other but the truth is without blockchain, bitcoins would have no value. Bitcoin is just one of the vast implementations of blockchain technology. Blockchain can be configured for many more applications as seen by DApps (the âdâ means distributed).
Blockchain is better than traditional databases. Well, some critics argue that the blockchain doesnât pose a significant advantage over traditional databases like the PostgreSQL relational database and in some other cases are just terrible databases. True, itâs much hungrier in terms of energy use and many cases have higher storage costs. What they however fail to note is that the blockchain has what is called public verifiability that gives it integrity and transparency. This means that if I buy 1000BTC (please Iâm very open to receiving BTCđ ), there is a record on the ledger/book that shows my address as the owner and this is backed by the copies of information present on the other computers on the network. You can try it yourself by typing this text in the image and it will return the hash in the gif below. The generated hash is case sensitive so be careful.
Blockchain is immutable. You canât edit or change the details of the data you put in the blockchain; you can only add/append to it. This is possible because each block has the data of the previous one connected to it and the one before it and on and on. Such that, if I put all the words of this essay on the blockchain, the content is âhashedâ (think of a hash like a fingerprint to unlock your phone) and is validated to prove that it is mine. So anywhere in the world that you input this essay, it will give you the same hash and not even me can change it as the data has already been signed and validated. The only way to take control is to simultaneously take over half the nodes (read: connected computers) in a blockchain network, itâs very difficult. This is what it means to be immutable.
Blockchain is 100% secure. Nothing in this world has 100% efficiency. Not Elon muskâs Tesla cars, Covid vaccines and not the blockchain. It is dependent on the algorithm, known as cryptography, that is built on it to ensure security.Â
Blockchain is a âtruth machineâ. The blockchain is only as good as the data thatâs placed in it. It can verify the author of that data but doesnât check the validity of the information. So, if I put my wrong date of birth into it, it doesnât know what the right one should be except thereâs a gold standard of information used to verify that.
So now that we know whatâs not a blockchain, we can dive deeper into what it is. Blockchain is the tech.
Bitcoin is merely the first mainstream manifestation of its potential.
âMarc Kenigsberg
The blockchain is simply a digital ledger. You remember those big books accountants or bankers use to record transactions of debit or credit or the ones our parents or organizations used to record data of membership or identity, yes, the blockchain on a very basic level is similar to that.Â
Florence Anusionwu of BitcoinAfrica defines the blockchain as:Â
âA decentralized, distributed and immutable public digital ledger that is used to record transactions across many computers. The data recorded in the past or present cannot be altered without the alteration of all subsequent blocks.â
Blockchains are decentralised in the sense that participants on the network are given powers from a central body which in turn dominates other participants. I think of this in the manner of the school system. The principal has the greatest power and power flows from him to the teachers and department heads. Of course, the power level is different but power exists within a relatively fewer set of people.
It is distributed in the sense that everyone is an equal participant in the network. This means that no one has a boss, supervisor or any other person to answer. Counter to the centralised system of government, in this system there is no âcentreâ. It is a more radicalised approach than a decentralised one.
In simpler terms, the blockchain is a permanent digital ledger for almost any kind of data whether itâs your birth certificate or a copy of your new song it contains is shared with all the participants of the network and they all retain the exact copy of whatever information is potentially available.
For example, when you register the title of your land on the blockchain, there will never be a question of your ownership. You no longer need Omonile (i.e traditional landowners) to ensure the veracity of the land once itâs on the blockchain and so it prevents theft, invasion and the need for putting not for sale signposts like the one below.
This application is already being developed in Nigeria. A company called HouseAfrica has developed Africaâs first blockchain-based land and property registry, reducing the time it takes banks, lawyers and other stakeholders to query and register land titles.
The benefits of blockchain extend far beyond the bull rush for bitcoin. In East Africa, a company called Wala uses blockchain to give formerly unbanked people access to banking via their smartphones. This allows them for the first time to participate in the modern economy. Xend Finance in Nigeria is bringing decentralized finance (DeFi) to the world of credit unions.
Another use case that can be seen is in education. Just four days ago, the Ethiopian government signed an agreement with IOHK, the company behind the Cardano blockchain. The deal involves providing IDs for 5 million students across 3,500 schools which will be used to store educational records and track their academic performance in school.
But with the blockchain coming into being and impacting our lives, what is it replacing and how did it get here?
The Old Order of Change: The Internet
In the beginning, before the internet, there was Web1. The early 1990s was known for the development of the worldwide web protocol which revolutionized information. The web was built on open protocols such as SMTP for the transmission of emails, HTTP for hypertext and websites, SMS for messaging, IRC for chat, and FTP for file transfer. However, there were some problems encountered with using applications developed for Web1. One of the major reasons for the lack of development with Web1 applications had to do with the state. What computer science experts (and chemical engineers) refer to as state relates to the remembered information by a system from preceding events or user interactions. This means that the system didnât remember the status of who is who, who owned what, and who had the right to do what.
Web 2.0 apps changed this through what we now know as the Internet. It revolutionised how we handled information by decreasing the gap between creators and consumers. It brought us social media, eCommerce, cloud computing and much more.
Imagine if I were to write this essay in SMTP or tried creating my website using HTTP, I would still be figuring out how things worked because the UI was too hard and technical to operate with.
But with this newfound connectivity still brought challenges. Substack could decide to close down my newsletter or even worse shut down and donât give me access to get the previous content I had written. Hero wars, a mobile game I very much enjoy, could close up shop and the hundreds of dollars Iâve spent on the game could just go up in smoke.
A theme I see here is the flow of control. We still need to ask for the value we created from these centralised institutions that host them. It could be a Twitter following, Substack newsletters etc. which fundamentally raises the issue of trust. Can I trust twitter enough with my data to know that itâs not selling it to Al-Qaeda? Can I trust that my data stored on their servers won't get destroyed, damaged or corrupted? Can I move my data in the same state as it is in one app that makes it interoperable across the web?
Removing the middleman
The world is going decentralised as we know it. In some of the industries like publishing, music, art, the value is going back to the direct creators. Substack writers are earning 10x their previous compensations in jobs, music artists still with record labels are now getting better deals while those that have gone independent are seeing success with hosting their music on Spotify, Apple music etc.
Still, these artists face the same possible outcomes that come with web 2 applications. What is valuable about Facebook and Twitter is only the unique data they have that is stored and hosted on their servers; it is the data that we as users have provided.
Supporters believe that the blockchain is a world-altering technology that will have the same impact as the internet in the â90s because it is fundamentally changing how we think about identity.
In an age where everyone has strange pronouns and their LinkedIn or Twitter bio is filled with he/him or they/them pronoun, we are now reasserting and demanding respect for who we are. It is part of the reasons that makes the blockchain so appealing, it finally gives independence to everyone participating in the network with financial incentives layered into it. This theme is what is referred to as âSelf-Sovereigntyâ in crypto circles.
And the blockchain fixes this as Packy McCormick pointed out in his prescient piece on The value chain of the open metaverse (emphasis mine).
â...itâs about moving the money around to the people who create and the people who consume, and to the people who maintain and improve the network itself...itâs about attaching each userâs data and money directly to them (Self-Sovereign Identity), creating a public record that they own what they own (blockchain), and letting them take it with them, and profit from it, wherever they go on the web (Interoperability).â
The Bitcoin blockchain was the first blockchain that made it possible to protect userâs data on a public record while letting them take it wherever they go on the web without the need of intermediaries. Bitcoin has done to finance what the internet did to publishing.
A nine-page whitepaper released in 2009 has become the 10th most valuable asset with a market capitalization of $660B. In April 2021, it became the fastest asset to reach a $1 trillion market cap.Â
To understand why bitcoin is gaining so much traction, we have to go back to understand what we understand as money.
Bitcoin to the moonđđ
When people hear cryptocurrency, they think of bitcoin. The more exposed audience could mention two or three others like Ethereum, Litecoin, Doge among others. But with all these coins, people sceptically refer to them with comments around notoriety and even some claiming it to be one big Ponzi scam. The last point can be valid in some cases most common in smaller networks of nodes.
People with this fear have staked interest in protecting the only real estate they have that only benefits them. But first, itâs good to explain how bitcoin has unseated fiat and token currency to be one of the most valuable assets in the world.
What is Money?
There are two prominent kinds of money that we use:
Commodity money. This is the type that anyone can produce for himself. Here we have gold, silver etc
Token money. This is also called fiat currency. It is the kind of paper money we use today and is backed by government regulation. Here you have the US Dollar, Nigerian Naira.
According to Investopedia, money must have five inherent qualities, which are fungible, durable, portable, recognisable and stable.
A key property is fungibility. Money that is fungible means that it can be substituted for something of equal value. $1 in the US is the same as the one in Norway or Israel. $1 is $1.Â
So money is nothing unless it is backed by the central regulatory authority to its customer, and thus a payment made in money is, in fact, the transfer of an original promise of value from one person to another.
Bitcoin however is digital money, and it was created in 2009 by the person/group named Satoshi Nakamoto. Bitcoin is a purely mathematics-based system, and the prices of Bitcoin are derived from pure free-market dynamics of demand and supply.
Gold, the US dollar and bitcoin have a couple of things in common. They are all essentially, commodities. Assets that can be converted and traded for products. Yet they are also considered currencies, because of how they are used. Desire, trust, and the market give them value.
Unlike the fiat and commodity currencies backed by a central government, Bitcoin is backed in part by the scarcity that results from the limited supply of coins; the mathematical âproofsâ people must solve to earn new coins; and the number of nodes participating in the network which compels people to make the network secure. There is no need for trust or faith in bitcoin as âtrustâ is already baked into the algorithm.
With Bitcoin, you have a true Peer-to-Peer (P2P) network without having to be controlled by any third party.
Unfortunately, bitcoin, the project that introduced blockchain technology, has hogged the limelight, diverting attention from many more innovative solutions of the blockchain.
But what happens when we use the bitcoin in a manner that automates transactions such that the coin can, in effect, trade itself according to instructions embedded in a contract? Endless possibilities.
Smart contracts vs Social contracts
What governs our relationship with institutions is based on trust. Trust that whenever we interact with institutions like our banks, social media platforms or even the government that we'll get the data we need as requested. Let's do a thought exercise, why do you continue to use GTBank or any other bank you use? Do they offer you services that are comparatively different from others? Is there nothing else other than coloured bank logos you can use to differentiate them?Â
source: Blockchain: The Next Everything
For instance, right now, I use Upwork to get some freelance jobs and when Upwork wants to pay me they either do a direct wire transfer or some other payment means. So, I must depend on Upwork's bank to tell an intermediary bank of some sort (e.g., clearing banks) that the money they are sending to me is legitimate. It might take several days for the money to reach my account, normally they say it's 12-15 working days. During this time, my money is in limbo and I donât know where or what's happening to it. Each step of this process is opaque but yet has a fee because the money passes through several intermediaries between Upwork sending my money and me receiving it. I am in effect paying for âtrustâ that my money will get to me.
This basis of trust is what forms what we refer to as the social contract. The social contract is the implicit agreement among people that results in the organization of society. In this contract, the individuals surrender liberty in return for protection and governance.
The internet encyclopaedia of philosophy calls it "âŠan incomplete picture of our moral and political lives, and may in fact camouflage some of how the contract is itself parasitical upon the subjugations of classes of persons."
For a long time, our industries, politics, music, finances, and arts have been shaped by centralized thinking because we give ourselves over to authority figures or institutions to tell us what is right or wrong. We request validation from these central authorities, and they dispense it as they see fit. For instance, we look to banks to confirm the value of our transactions, or to museums to affirm the value and provenance of art.
The blockchainâs certainty that fraud can't happen leads people to say that blockchain is âtrustless,â meaning the mechanical nature of the system design makes trust unnecessary. This new form of contract is called Smart contracts.Â
Smart contracts are automated contracts that remove the need for "trust" with institutions by removing the bureaucracies found in the social contract. Since the blockchain on which it is built is immutable, the smart contracts are "trustworthy" because once the contracts are formed, no one can change them and its conditions are binding in a way that enforces transparency.
For instance, think of the amount of foreign aid entering Nigeria. A smart contract could be formed where the payment of the use of the money is kept in an escrow and then track the processes agreed upon to ensure that they are used for the right things and then notify the donor when the government meets certain conditions. So, with smart contracts, you remove the opacity of the social contract, have lower payment fees and simple peer-to-peer interactions in their purest form.
It is with smart contracts that we get a clearer picture of how blockchains can achieve real growth in African economies. Some of the use cases which I have identified include:
More accurate and transparent greenhouse gas emission tracking such as carbon.
Better tracking and monitoring the upstream activities of companies in the Niger Delta.
Certifying ownership of a forest, water and land rights, to prevent unwanted incursion thus reducing the multiple infractions of bandits, thieves and militants.
Tracking the use of funds that are donated as foreign aid, for example for environmental purposes, to show whether they are properly used according
to the contract agreed upon.
The Next ChainâŠ
I would be lying to claim that Iâve learnt all that I need to learn about the blockchain. I couldnât even dive into Decentralised Autonomous Organisations (a new way to operate without the traditional top-down hierarchy, using blockchain to decentralize ownership and control), DeFi (which, as the name implies, is attempting to build a new financial system without central financial institutions), NFTs, altcoins, DApps (Distributed Apps) and many of the other ways smart people are using the blockchain to create innovative solutions.
The future isn't binary. In finance, for instance, we need regulators to be more open to the pros than be worried about what they need to protectâ a centralised financial system. On the other hand, crypto volatility only makes it harder for adaption to happen on a large scale. There's concentration risk across a few wallets (there are now under 100k addresses that hold over $1 million worth of Bitcoin), the geographic risk with mining crypto in China, the regulatory risk with increased scrutiny & there's the market risk - which hinges on a single shallow Elon Musk tweet.
It would be tragic if history remembers this period as the lost era of tech-driven innovation. It is in this light that we must remember that the blockchain is still a young technology and to make the dream of the blockchain a reality, we should have a clear vision of what we want it to become.
I have gone a little down the rabbit hole and I come out much learned and hopeful of the promise of the blockchain. We can only hope that just as bitcoin has taken off, more distributed applications can come up to also give back power to the end-users where value is created.
Many thanks to Osakpolor Obaseki for repeatedly explaining the differences between a distributed and decentralised blockchain and also his numerous contributions to this piece.đđœ
If you enjoyed this piece, please try to share it with your friends, Boss, journalist, co-worker and anyone else that can benefit from this piece.
Also, if youâre an early-stage startup in Africa in the seed or pre-seed stage that wants to share your story to a wider audience and also bag some extra deals :), Iâd love to hear about what youâre working on. You reach out to me on kamsonwani@yahoo.com or Twitter: @gerald_wan
What did you love about today's essay? Your feedback helps me make this great. Good, Meh, Great?
Thanks for reading and see you on the next episode,
Kamso.