Blockchain and cryptocurrencies are some of the most popular topics in both technology and business media recently, thanks in part to the run of Bitcoin up to $10,000+ levels, more than doubling where it was just a few months ago. But Bitcoin and other so-called cryptocurrencies are only one application of blockchain and there are new ones developing all the time.
What is “blockchain?” Even if you can somehow understand the cryptocurrencies because of their similarity with physical currency analogs such as coins and notes, or the digital equivalents of your e-banking account summary, not everyone will be able to explain the difference between cryptocurrency and blockchain technology.
Meanwhile, the world of blockchain is also evolving and does not stand still. In this column, I will share some key milestones in the development of this advanced technology by going through what I consider the three key stages of blockchain evolution so far.
Blockchain 1.0 – Bitcoin and its infrastructure
The first blockchain implementation to gain traction was Bitcoin. I call this stage “blockchain 1.0.” As many people know now, the creator of Bitcoin is Satoshi Nakamoto. This is not a name, but a pseudonym, and it is not known whether one person or a whole team of mathematicians, cryptographers, and programmers are behind the development of the original Bitcoin conceptual whitepaper that launched a global phenomenon.
Once on the scene, Bitcoin began to develop quite rapidly compared with other technologies. The volume of the Bitcoin market is today nearing $200 billion and continues to increase. Cryptocurrencies such as Bitcoin but also others are used by thousands of organizations and millions of people around the world.
A few years after the appearance of Bitcoin, the blockchain concept began to progress independently of the idea of cryptocurrency. This non-currency implementation, otherwise known as a distributed ledger, has attracted the attention of bankers, lawyers, accountants, and governments because it could rapidly change their economic models and modes of operation. Distributed ledgers are ideally suited to record any digital transaction (signing a contract, sending and receiving money, keeping medical records, buying and selling stocks, and the list goes on). One of the key features of distributed ledger technology is ‘immutability’ – the fact that tampering with or erasing a transaction is impossible due to its advanced encryption technology.
It is expected that by the end of 2017 about 15% of the world’s banks will already be working with the blockchain in this new capacity. At this point, I think it is safe to say that 100% of large and medium-sized banks are either part of a consortium (such as R3) or have at least an internal working group or person responsible for blockchain. I know these people are out there because I meet the occasional lone banker at a blockchain conference who says he or she is in charge of blockchain at their institution.
When you think about it, that could in retrospect be a very weighty responsibility. To my mind, such a person is like an executive in the 1990s who was responsible for a firm’s Internet strategy. On the one hand, if they didn’t adopt it fast enough, their firm probably faced short-term irrelevance and long-term oblivion; on the other hand, even if the firm fully embraced the potential of the Internet, at the time it might have been stuck with over-sized JPEGs, browser incompatibilities, slow-loading sites, unavailability of payment processing online, and other mundane issues of early adoption of the web. I believe blockchain will follow a similar progression, and we’ll come to see blockchain 1.0 was a kind of like the Internet up to the mid- to late-1990s.
Blockchain 2.0 – smart contracts
Ethereum, conceived by Vitalik Buterin, is the second generation of the blockchain. I refer to this stage as Blockchain 2.0. It introduced a novelty – smart contracts that allow you to conduct transactions, conclude deals and perform many other tasks without intermediaries. The first person who suggested the idea of smart contracts was Nick Szabo, but practical implementation of the idea was carried out by Buterin and the other creators of Ethereum.
There are two ways to look at smart contracts. One is as a computer program that is guaranteed (by the system) to run in an expected way. Unlike your own computer, which may run programs for you locally, the Etherreum smart contracts run on a distributed network of computers. Everybody can see the execution and results. The more complex way to look at smart contracts is in their use cases. A smart contract could be used for many different things, such as a computer algorithm that is designed to conclude or maintain commercial agreements using blockchain technology. I’ll get to some examples momentarily, but first a short explanation of why smart contracts are the future of commerce.
The technology is, like Bitcoin, based on cryptography, which makes it possible to provide better security for counterparties than conventionally written contracts. For example, execution is automatic. Also, the use of smart contracts implies the absence of intermediaries, such as lawyers and notaries specializing in legal support of the transaction. Advantages of the technology include the shortening the time for the conclusion of the transaction, the high level of security (via immutability, mentioned above) for the participants in the contract, and the absence of the need for all participants in the transaction to be present in one place for signing (everything can be done online through a unique digital signature).
One example of the implementation of the technology of smart contracts is the possibility of creating a securities market without the participation of the stock exchange or the clearinghouse. Market participants will be able to conclude deals with each other independently through decentralized peer-to-peer exchanges, without the services of such financial intermediaries.
A second example is an e-voting platform on blockchain using smart contracts. If built, such a system would make physical polling stations obsolete, eliminate the manual counting of votes and processing ballots, and streamline other procedures used in the course of ordinary voting. Everyone would see all the results with full transparency. It would also be protected from hacking due to the strong security provided by blockchain.
Thousands of different technology projects are now made possible with Ethereum and its model of smart contracts. That’s a great thing, but it is not the end of the blockchain’s evolution.
Blockchain 3.0 – decentralized data storage and improved smart contracts
If blockchain has a weakness, it is that it can’t store large amounts of data on the blockchain itself. The amount of new data created daily, in the form of digital information such as media and company records and scientific research, nearly defies explanation. At 2.5 exabytes per day in 2016, that’s the equivalent of storing 530 million average-size mp3 songs or requiring the storage of five million laptops with 500-gigabyte hard drives. Every day.
That’s why I believe that the next frontier in the evolution of the blockchain is transforming it into an environment for storing data combined with the preservation and development of the possibilities of smart contracts. But I just said you can’t store large amounts of data on the blockchain, so what gives? I’m talking about a blockchain as a decentralized guide to where the data is stored, like the Internet’s naming registry, which points a URL to a server where the web pages are stored. As with the directory of website addresses, a network of storage addresses will be kept and access to the directory — but not necessarily the data itself — will be available to all participants of the system. This is what blockchain is designed for to some extents: relatively small blocks of data that point to other records in the system. The blockchain is a recordkeeper, but it doesn’t need to be the record itself except in some specific use cases such as a unit of cryptocurrency. So where do we put all that data?
Today, cloud-based storage is provided by centralized server farms owned by big companies such as Google, Amazon, and others. And many blockchain companies are using such services because they have no other choice. But there is another choice. It is already out there, on devices owned by you and me: our computers, tablets, and mobile phones. While many of us are acquainted with the idea of a device filling, what do we normally do? We go out an buy another, bigger device, then generally put the old one in a drawer, sell it, or throw it away. What if instead you could use that storage again, or use storage you bought but don’t really need, to contribute to a global shared network? That is the promise of the next generation of blockchain-based storage solutions.
Imagine if data could be distributed over that entire free file space of the users of the system, a kind of sharing economy model whereby the users provide the storage to each other rather than getting it from a large centralized repository. I believed in this idea so much that I co-founded a blockchain project, the Genaro Network, to take back this lost storage capacity and release it to people who need it, bypassing centralized services. I am sure that the blockchain ecosystem is ideally suited for this new type of decentralized data warehouse.
Genaro is not the only player in this space. Other examples of the idea already exist, such as the projects Storj, Sia, Madesafe and IPFS, to name several. In general, they work well, and there’s certainly a large and global market for storage globally that can’t be served by just one project. Each implementation is different.
For example, some work on the basis of an older, Bitcoin-style blockchain. Accordingly, to add the function of smart contracts, developers of these services have to turn to third-party solutions like Ethereum.
Other solutions that can be considered as having some functionality of the Bitcoin blockchain and some features similar to Ethereum are nonetheless Turing-incomplete. In other words, while they have some ability to control permissions and access, they are not able to run sophisticated algorithms.
It is therefore impossible for developers today to create “native” blockchain-applications without a complex mix of different technologies, what programmers used to call a kludge.
That’s where the Genaro Network project comes in. It is the first Turing-complete public chain that also has an integrated system of decentralized storage so that developers can have a one-stop solution to deploy smart contracts with native storage capabilities.
As mentioned above, we at the Genaro project believe that the most rational way to get rid of centralized data storage is to use the file space of the hard drives of system participants rather than going to centralized servers. In this case, several problems are solved at once.
- First, the net infrastructure costs for energy spent on storage will be reduced. This is because specialized servers consume a significant amount of electricity, while many of our devices run 24 hours a day anyway with their storage wasted yet still drawing energy;
- Second, decentralized storage technology increases the security of information storage. Data is encrypted and split into many pieces and is redundantly distributed throughout the network, which makes it practically impossible for unauthorized use by intruders. Getting personal information from its users is almost impossible so today’s massive losses of user data from credit card companies and other intermediaries will be a thing of the past;
- Third, when you put your data into such a system, new value can be unlocked. For example, smart contracts will allow you to create services and applications without using third-party solutions, saving money, and if you want, your data can be utilized by others generating revenue for you. At the same time, providers of storage will also be compensated, allowing you to get back some of the lost value of unused storage space.
That is the opportunity afforded by Genaro’s vision for a new system of blockchain 3.0. And hacking such a service,
A Blockchain 3.0 Use Case
I would like to give an example of the capabilities of blockchain 3.0.
When you have decentralized storage, it also makes sense to have decentralized applications. These are called DAPPs for short, and they, too, make possible a shift from the world of large corporations as intermediaries to a platform for the creation and provision of services for joint consumption by the participants themselves. That’s a complicated way of saying the sharing economy, a concept which is increasingly gaining popularity but which has itself been co-opted by large companies intent on capitalizing on our limited assets for their own gain while making us feel like we are doing something good for the world.
What do I mean by that? Today the media holds up Uber and Airbnb as examples of the sharing economy, but these are not truly peer-to-peer sharing, they are extraction economies created by large companies who act as a central intermediary controlling access to our assets. For this, those companies take a huge cut of any transactions as their service fee.
Imagine instead if people wanting to share cars, houses, or practically anything could find and contract directly with each other. To do this with today’s blockchain 1.0 or blockchain 2.0 technologies is not possible. You need the additional ability to store, search, and retrieve data about the participants in the system as well as things like the availability of the assets. Once found through the native data capabilities of Genaro’s advanced public blockchain, smart contracts are then automatically created and concluded between the parties directly. In other words, based on the blockchain 3.0 paradigm, you can develop projects such as decentralized or services for sharing apartments and cars directly between two or more individuals with no intermediaries or central authorities.
Genaro itself is not an intermediary, it is a platform, so the vast majority of the benefits go to the users of the network themselves. There are costs for providing the network, and everything in the network is given a value and then transacted in a near perfect market of supply and demand.
Until now, the blockchain was not seriously considered (with some exceptions) as a tool for working with files and Big Data. But now this idea is becoming more popular, and most importantly, real. The technology is here now.
While we’ll still have the technologies of blockchain 1.0 and blockchain 2.0 co-existing with blockchain 3.0, this latest paradigm will be the most powerful. I believe that the future of the blockchain is combining their respective strengths with the power of data. Some refer to data as the new oil: It runs our modern world, and accessing it securely and efficiently is how to find and add value. A combined system of decentralized storage and advanced smart contracts, such as those provided by Genaro, is the best way to return the power of data to those people who create it, including you.
Thanks for reading! I would love to read your feedback, comments, and questions. Please either leave a message in this post or get in touch with me by direct message. This is part of an ongoing series I am developing on the blockchain. You can read my previous post, Tokenomics 101, for another take on some of the themes raised herein. Please connect or follow me to see my future articles in your newsfeed!
About the writer
Jason Inch is a Shanghai and Singapore-based writer and independent economist. He has written several books about China’s economy, sustainability, and social enterprise, and is now working on a book about blockchain. More information: http://chinafourpointzero.com
He is also the strategic lead and a co-founder of Genaro Network.
About Genaro Network
Genaro Network is the first Turing-complete public chain with a decentralized storage network, providing blockchain developers a one-stop solution to deploy smart contracts and store data simultaneously. Meanwhile, Genaro provides everyone with a trustworthy internet and a sharing community. As the creator of the blockchain 3.0 concept, Genaro aims to contribute to blockchain infrastructure technology development. Through the Genaro Hub and Accelerator, we aim to foster thousands of DAPPS, to move applications from “Cloud” to “Blockchain” and thereby create a global blockchain ecosystem.
Find more information at https://genaro.network