Blockchain, Smart Contracts, Cryptocurrencies, Bitcoin, Ethereum and Ether. They all sound like words of another language to the ears of someone who struggles with making the surround sound on her TV work - that would be me.
Since I work in the Wellington BizDojo each day, it hasn't been hard to miss the overwhelming interest in Blockchain, Ethereum and all the other fun tech phrases that accompany them. One of our largest coworking teams; 3Months are at the forefront of this technology, and Collider hosts the very popular Blockchain Wellington Meetup each month.
From what I can tell some people love this new technology and some people are skeptical about how long it will last. Either way, I figure it's time to try and understand what all the fuss is about.
This is a very simplified but digestible introduction to what Blockchain, Bitcoin and Ethereum are all about - just so you can impress your friends at parties.
The birth of the Blockchain is somewhat of a mystery. It was first created in 2008 by an anonymous group or figure called Satoshi Nakamoto, who then disappeared never to been heard or seen of again, kinda like your left sock.
What "Satoshi Nakamoto" created was the ability for people to log money transactions online via a decentralised database. These transactions are grouped together to create blocks of information (pretty much a financial ledger) and a bunch of these blocks create a chain, wallah! - The Blockchain.
The beauty of having this decentralised database is that it can be accessed by and contributed to by anyone with an internet connection. The Blockchain isn't owned by anyone and the blocks are created through the help of "Miners" all over the world, think super super smart people with fancy computer set ups... potentially wearing hard hats. But we'll come back to them.
In the meantime here's a 2 minute run down on why this Blockchain technology is pretty exciting;
So we've got our decentralised digital ledger (Blockchain) which is great for storing transactions. What is needed now is a form of online currency which can give value to those transactions. This is where we need our new friend, Bitcoin.
Bitcoin is a digital currency so can't be held in your hand or lost down the side of the couch, it exists only online.
There is only 21 Million Bitcoin available and the "real world" price of a Bitcoin changes depending on how many people are participating in it's trade on The Blockchain. Right now, 1 Bitcoin will cost you $3,832.43 NZD, so it's pretty valuable.
You can either buy and sell bitcoin via an online exchange such as "Xapo", or you can earn Bitcoin online by essentially being the smartest person online. So, back to our "Miners", who may or may not wear hard hats. These people are the ones who "mine" or earn Bitcoin.
In order to understand how they mine Bitcoin, it will help to understand how a Bitcoin transaction (which is the same as an online banking transaction) is turned into a Block and added to the Blockchain.
Every 10 minutes, all the Bitcoin transactions that were submitted to the Blockchain during that 10 minute timeframe are compiled and Miners are tasked with encoding them all into a lovely looking Block while also competing to complete a very difficult algorithm.
The first Miner to complete their Block and solve the algorithm wins 12.5 Bitcoin!
It's kind of like a game for super geniuses, but it's really the backbone of what makes the Blockchain so safe and trusted.
Before a Miner is awarded "supreme winner" of being the first person to solve the puzzle and create the new block, all the other Miners have to agree that they're correct. This means if there is an error or something looks dodgy, the other Miners will call foul and that Block will be rejected. This is the end of money fraud as we know it!
The other beauty of these safe and secure transactions is that there is no bank or middleman to facilitate the Bitcoin transaction, making it a universal currency with much lower transaction fees. Sounds like the money of the future if you ask me.
Enjoy this 1.5 minute video on how the Bitcoin can be used and how it will disrupt a lot of industries.
The last thing we need to get our head around is Ethereum. The Blockchain is great, we know that now. But it's pretty limited in what it can do. Since the Blockchain was designed to just record Bitcoin transactions, it can't be programmed to do other cool stuff too. Well luckily Vitalik Buterin realised the potential here and created a whole new platform based on the Blockchain, but cooler.
Etherum and Ether (works like Bitcoin) were created in 2015 and in turn, an innovation playground was born. Etherum allows you to give the information (records, transactions etc) loaded onto the blocks some instructions. These instructions have also been dubbed as "Smart Contracts".
So instead of just creating a transaction that states "I give Sally (5) Ether", you can say I will give Sally 3 Ether but only if she gives 3 of her Ether to Richard by October 1st 2017 and only if Richard is still alive when this happens.
In order for this rather strange transaction to make sense the Smart Contract needs to be coded to include all the variables, such as the ability to register a death notice about Richard... Sorry Rich.
So there you have it. A very brief and simplified introduction to the Blockchain, Bitcoin and Ethereum. If you wish to continue down this path there is still much to learn, and I recommend coming along to the next Wellington Blockchain Meetup, which has a habit of selling out very fast.
Also if you're a developer wanting to know more about how you could code for the Blockchain, come along to this talk by the ICT Graduate School happening this week!
Caitlin is BizDojo Wellington and Collider's MarComs lady, who since writing this piece has mastered the surround sound on her TV. Great success.