~/topics/A Mellow Introduction to the Blockchain Universe
Updated Mar 24, 2021
🐇 A Mellow Introduction to the Blockchain Universe
A Mellow Introduction to the Blockchain Universe
In 2020, I decided to quit my tech job to pursue other (tech) dreams.
Whenever someone asks me what I’m up to these days, the blockchain comes up.
Most people (both technical and not) at this point heard the term, but nobody is sure of exactly what the blockchain is.
This presentation is my best attempt at communicating what the big deal is, what is going on in the digital world, and what the future might bring.
The primary topic is blockchain.
The secondary topic is how blockchain is leveraged in practice to build communities, projects, organizations that were not possible without it.
- Bitcoin (& shitcoins)
- Smart Contracts
Where and When are we now?
Looking at our lives now +/- 5 or 10 years, gives us an idea of where things are going.
To better understand the impact of technology, we need to zoom out further.
Comparing our lives to lives to 10, 100, 1000 years ago provides valuable insights.
(Statements in the next set of slides are very generic for simplicity, they don’t accurately describe the state of the whole world)
Where and When are we now?
Access to information and knowledge
1000 y.a. - Most people would never leave the village they were born in. A tiny number of humans has access to books, scrolls, teachers.
100 y.a. - Books are a commodity, access to schools, libraries is widespread, documentaries teach us about the world and history.
10 y.a. - Broadband internet gives everyone access to more information than they could consume in 100 lifetimes.
Now - Constant information overload, sources of informations are competing for our attention (sadly, the more wealthy/powerful the source, the stronger influence it will have on our collective mind).
Where and When are we now?
Communication technology and social circles
1000 y.a. - Most people would never speak with anyone outside their family and village. A tiny number of humans have access to “fast” communication technologies (e.g., messenger pigeon).
100 y.a. - Letters can be exchanged around the world, telephone networks are starting to become widespread.
10 y.a. - Talk to anyone in the world at anytime via telephone, email, SMS. First instances of shared online spaces (e.g., multiplayer videogames).
Now - Hundreds of commodity instantaneous communication options, allowing us to work, trade, summon a car, book a hotel. Some people start to live their lives entirely online.
Where and When are we now?
Enterprise and Business
1000 y.a. - Most people inherit their parent’s skills and social status. A tiny number of humans can finance business ventures, like conquer a territory, build a cathedral, or estabilish a trade route.
100 y.a. - Banks finance small and large ventures through loans. While far from being fair or perfect, a large number of people can start a business and elevate their social status.
10 y.a. - A teenager with a laptop can start a business and become the richest person on the planet (not saying it’s easy or common – just that it is possible).
Now - Any sufficiently good, achievable and profitable idea will materialize into a company. Non-commercial ideas are just as common, but they are really hard to find.
Where and When are we now?
Countless more examples are possible. Drawing these arcs can help put things in context.
For example, it seems like we are not doing great in terms of equality (megacorporations owning everything, large subsets of the population being born at a disadvantage, etc.).
But compared to the past, we can see progress. Progress is not necessarily good or bad (for example, we’re no longer at the whims of a king, but we are killing forests and oceans).
Technology, little by little, is affecting this change. (Agriculture, the printing press, the telegraph, the steam engine, batteries, the internet, …).
Where and When are we now?
Blockchain in context
Blockchain is a nascent technology.
It’s going to move us “forward” along in various dimensions (collaboration, communication, access to work and wealth, and more).
The upside and downsides are yet to be seen and felt.
Predicting the impact of one technology is hard enough. Predicting the impact of multiple interactive technologies is impossible. (A.I., gene editing, quantum computers, just to name a few)
The next 10 years will be interesting. What lies beyond is anyone’s guess.
“Blockchain will play a role in the future” is a boring and obvious prediction for anyone paying attention.
History of Blockchain
Bitcoin, the game
Bitcoin is the first blockchain to enter the mainstream discourse.
Born as a sort of “game” for coders:
- Here is a (virtual) mountain
- In the mountain is a rich vein of (virtual) gold
- The programmers that can dig faster can extract the most gold
- Everyone can make small amounts by certifying other player’s gold
Virtual gold is worthless. People mine for fun and bragging rights.
A game unlikey any game before: it belongs to everyone, not a company. Nobody can change the rules, cheat. Every player has equal access.
Decentralized and autonomous. The game exist and continues as long as anyone is playing.
History of Blockchain
Bitcoin, the currency
Virtual gold is useless, it can’t be used to pay bills and buy groceries.
A shame, because it’s very convenient to use: it can be transferred anywhere in the world instantly, securely and without fees. A great improvement over wire transfers.
People see the potential, and start buying virtual gold for actual money. They can sell this instant money transfer service for a small fee.
A small network forms of people willing to trade real money (“FIAT currency”) with Bitcoin.
Most likely, this started with criminals (often at the forefront of technical innovation): buy a gun or drugs or launder money. Instantaneous and safe, no paper trail.
The network grows over time, it becomes easier to hire and pay for work over the internet. Bypassing the whole banking system (and tax agencies).
The more people use it, the more legitimacy it gains. The more legitimacy it gains, the more people use it.
It becomes a de-facto standard for online person-to-person payments. Because for individuals, it’s better than dealing with banks and international currency conversion fees.
History of Blockchain
Bitcoin, the new gold
Investors, traders, financial speculators realize that more demand for it will increase its price.
Buy some and wait for it’s value to rise, not unlike any other Wall Street security.
Investments, buzz and attention do in fact drive the price up. Which leads to even more buzz, attention and investment, which drives the price up even higher.
As of today, still not widely accepted by businesses (could be due to tax code uncertainty). But a lot of banks and institutions have bought billions worth of Bitcoin. Just to sit on it and watch it grow (expecting more institutions to do the same).
Regarded as “the new gold”. A store of value, better than putting money under the mattress. Easier to store and liquidate than actual gold.
“Should I invest in Bitcoin?”
I personally do not recommend it, on ethical grounds.
It’s very likely going to make you money.
But it also has severe negative consequences.
- Making rich corporations and governments richer
- Financing giant waste of electricity and CO2 emissions
History of Blockchain
Bitcoin and shitcoins – Magic internet money
A decentralized currency that nobody can control.
A fast, convenient, secure way to store and transfer money.
It’s value is entirely dependent on public opinion and future expectations. Just like anything else: company stock, country bonds, cars, wine, collectibles, …
Anyone can create their own currency. Many have tried. Most predictably turned into shitcoins (just like Bitcoin, except worthless).
Stablecoins are a special class of coins whose value is fixed with respect to a given real-world currency.
For example one
DAI or one
USDC are worth 1 dollar.
These make it easy to pay someone $100 via blockchain without being at the mercy of token price volatility.
History of Blockchain
Single purpose chains
Bitcoin and other internet currencies are example of blockchains.
A distributed computer system with set rules that exist only if people participate in it.
Bitcoin (and similar) are examples of single-purpose blockchains. They only do one thing and one thing only: keep track of who has how much money.
Similar to a lightweight bank, offering a free checking account to anyone that wants it. Operated completely openly and transparently, not owned by anyone.
History of Blockchain
General purpose chains & Ethereum
A public e-bank, free and open to anyone that wants to use it, is quite nice.
There are more things that can be done in a similar open, transparent fashion.
Ethereum is the first general-purpose blockchain.
Like a decentralized computer that belongs to everyone.
Drawing a parallel with the smartphone world, which over the last 10 years changed our lives in very significant ways.
Bitcoin is like Venmo: an app that does exactly one thing. You would probably not buy a $700 smartphone just to use Venmo.
Ethereum is like the iPhone: it’s a platform, if you buy into it, you have access to hundreds of applications that can change the way you live. Unlike phone apps, these dApps (d for decentralized) are things similar to Bitcoin: they interconnect large number of people without intermediaries.
Blockchain is like the smartphone: an ecosystem of technologies interconnected among themselves and intertwined with our lives. From work to dating to transportation to arts.
Smartphone apps allowed us to interact with the internet everywhere and at all times. We use smartphones for work, entertainment, learning, health, and a million other things.
In 10 years smartphone has gone from not existing to taking multiple hours of our day, everyday. Most of us don’t even remember how it feels to live disconnected from the virtual world.
Blockchain apps work on smartphones and inside browsers, they look like regular apps. But under the surface they are alike.
History of Blockchain
Web 2 + Web 3
Web 2.0 is the constellation of systems and services we use in form of smartphone apps, web browser applications, social networks, online movies and music, personal communication, and more.
There are 2 kinds of interaction on the internet:
- Human interacting with company. Company provides a service and human pays (in money or personal information). Example: Amazon, Google, Netflix, The New York Times, Uber, …
- Human interacting with other humans, while the company watches. Example: Facebook, WhatsApp, TikTok, Reddit, Tinder, …
The web 3 opens the door to infinite new ways for humans to interact, transact, share information that were not possible before.
Current internet services are built to squeeze value out of humans.
The blockchain allows us to trade value with eachother directly, without a (by definition, money driven) company to mediate all our interactions.
This opens great possibilities (as well as some terrifying ones).
The last part of this document has many examples. The next section has vocabulary and concepts to understand those examples.
P2P / Decentralized
In P2P systems humans collaborate directly with each-other like a school of fish, outside of a commercial platform.
For example, Napster and BitTorrent were early P2P systems where swarms of humans congregated for the purpose of pirating movies, music and videogames.
These systems are usually zero-trust: you don’t need to know or trust any other human involved. The system has built in mechanisms to protect you from everyone else, and vice versa.
Being able to transact directly but safely, instantaneously with anyone on the internet, is a native capability of various blockchains.
(Staying safe and/or anonymous is far from easy. But that’s a different story)
Wallets / Identities
Your virtual wallets store your currencies, coupons, medals, certificates, proof of work done, receipts, trophies, and more stuff that.
Wallets work similarly to account for online services. For example your bank checking account, your Facebook account, your email account, your credit card account, etc.
The platforms actually own your account, you are just allowed to use it. They can revoke/ban your access, delete your account.
Wallets are different, they belong to you. Just like the money in your own physical wallet.
Your wallets are your identities. You can create as many as you want, they are free and live on your computer or phone.
Every transaction and interaction on the blockchain is public. For example, every single Bitcoin ever bought, sold, split, in the last 10 years can be publicly tracked.
While movements of funds is public, the ownership of wallets is secret.
Consider the following Bitcoin transaction:
Transaction: 2033401382301293 Amount: 0.0017 BTC (~$100) From: 0x03FF4ABC39458A To: 0xAAF349CD23AEEF
This information is public,
To are two wallet addresses.
But I have no idea who owns these wallets. It could be a grandma in China, or a fisherman in Italy, or a banker in New York.
Because creating new wallets is instantaneous, free and easy, it’s common to create a new wallet to perform a single transaction and never reuse it ever again.
Each phisical person can decide to “fragment” their identity over multiple wallets as necessary. For example:
- One or more identity for online games
- One “professional” identity
- One identity for cryptocurrency trading and gambling
- Multiple throwaway identities for online purchases
If a person takes the appropriate precautions, then nobody can link these identities and figure out they all belong to one person.
Your wallet stores amounts of various currencies you own.
Like currency in a bank account, you can add and subtract when you give or receive from others.
These are called fungible tokens. They represent money, or voting power, or points.
Other tokens are indivisible. For example, your university diploma is a single unit, it doesn’t make sense to give “half” of it to someone. Similar for the title of your car, or the medal for track running you won.
These atomic units are called non fungible tokens (NFT). NFT represent one indivisible “thing”. They can be transferred from wallet to wallet but not split. They can be copied, but the copy is not the original, it’s a copy. They can be destroyed but not modified.
NFT creation, destruction, transfers are publicly tracked like everything else on the blockchain.
Humans are not the only thing on the blockchain. Robots are among us!
A smart contract is a special wallet controlled by a program, rather than a human.
Examples of smart contracts:
Swap: a swap contract can trade one currency with another.
If I own
DAI (stablecoin worth $1) and want to buy Bitcoin, I send
100 DAI ($100) to a swap contract that will send me back $100 worth of Bitcoin. Utilizing the contract has a fee. For example, it may add 1% conversion fee, which goes to the owner of the contract.
Online Store: If I purchase something from an online store, I send the payment to the store contract. When the funds are received, the contract may give me back a receipt NFT, certifying I did pay for the item.
Escrow: if I am purchasing a rare collectible NFT from someone, we may do so safely via an escrow contract. I send the contract my money. The other person sends the NFT. At this point the contract wallet owns both my money and the collectible. If both parties agree to proceed with the swap, then the contract performs the exchange safely. There’s no risk of the seller running away with my money.
These are just some simple examples, there are millions of contracts that do all sorts of things. From gambling to insurance to games. It’s a whole universe.
Contracts enable safe interaction between untrusted parties. And open possibilities that were not available before.
DAO (Decentralized Autonomous Organization) is a new kind of organization made possible by blockchain and smart contracts.
Being able to safely do “business” with anonymous strangers on the internet allows creating company structures that were not possible before. And it can also be used among friends, or within a family to better organize finances and responsibilities.
A traditional company (say, a bakery): Owner owns equipment, property, reaps profits, makes decisions, hires and pays people.
DAO bakery: no owner or employees. Members of the DAO agree to perform a given task in exchange for shares of future profits. Decisions such as wether to hire more help, or buy a given tool, are made through voting by members. Payments and voting power are awared automatically based on seniority and amount of work contributed.
The DAO smart contract can be set up in many different ways. These contract take care of running the business, and people can focus on doing their job.
Of course, disputes will arise, but any good DAO has ways of dealing with it.
This may sound completely crazy (and it may be for a bakery) but it works wonderfully in practice, as we’ll see later.
DAOs are not just for business. They can help a family manage special vacation funds. Or help roommates keep a treasury to pay for bills and rent.
Anywhere there are humans dealing with money, decisions, a DAO can help navigate by setting clear rules that are automatically enforced.
Web3 and dApp Examples
Imagine going back 20 years and explaining to someone the app store.
You can give example of things you can do from your phone such as:
- Summon a car for a ride to the airport
- Buy groceries or food and get it delivered
- See what your friends are up to
- Watch movies and play any song in the world
- Send money to your friends
- Invite your friends to a party
- … and a lot more
It’s a cornucopia of things you can now do that were not possible (or not as easy before).
The following examples are similar. Just examples The possibilities are endless and we’re just starting to scratch the surface of what is possible.
Examples are real, or inspired from similar existing dApps.
Whenever I get a haircut from John, I mint and give him a NFT as recognition of my happy customer experience (with a picture of the cut)
John can collect haircut NFTs from clients into a wallet, and put them on his website. New clients will see this gallery and gain insight into John’s reputation. Similar to Yelp reviews, but not bound to Yelp or any other company.
Few years go by, John is now a world renown hair stylist, and it’s impossible to get an appointment with him. Some wealthy instagram influencer wants to show off they managed to get their hair cut by John.
In this case, John may issue an NFT to each customer. That customer now has a certificate proving John (“the John”) cut his hair. He can show this off on Instagram for bragging rights, and nobody can dispute the authenticity of the NFT.
Digital art NFT
A digital artist, Pablo has no control over how many times her art gets copied and shared on the internet.
But if the original work came with an NFT certificate, only one person in the world truly “owns” it.
NFT can embed license (for example, Pablo can embed a clause that forbid commercial use).
Furthermore, Pablo may set this up in a way that he/she get a 3% cut of all future sales. As ownership changes hands and moves from wallet to wallet, 3% of sales always automatically flow back to the artist.
Digital arts market are adopting this paradigm quickly. Non-digital art is also starting to see the value, as it can protect from forgeries, discourage stealing, etc.
Anna would like to be a full-time music producer. She already has a little following, but donations and music gigs are not enough to pay the bills and she cannot afford to dedicate herself full-time to her music.
She creates a smart contract to finance her next album, with the following rules:
- Anyone that donates will be rewarded with a supporter NFT and the album, once it’s released
- Each month, she can withdraw at most $400 from the fund, to pay for living expenses
- Once the album is released, she will receive the rest of the money
- If the album is not released within one year, all the money left in the pot goes back to the fans
This is similar to crowdfunding on platform such as GoFundMe, but there’s no intermediaries. The artist and the follower have greater degrees of freedom.
Furthermore, Anna could structure the funding in a way that gives the initial “investors” a share of future revenue from the album.
For example, Sam contributed $1000 out of the total $4000 in the fund. Anna designated 10% of all sales to go back to the funders. In this example, Sam will receive 2.5% of all future album profits.
Doing a wager with your friends is easy: “I bet you $100 the Bulls win tonight”. This is possible because the person you’re betting against is known and trusted (and yet, in some cases they may still not pay up).
Blockchain allows securely gambling with anyone on the internet. Before the game start, all parties need to put money on the table (i.e. give them to a smart contract which act as bookie).
After the event (whatever that is), a trusted third party tells the contract what is the outcome. Money automatically flows into the wallets of the winners.
Cara and Steve want to create a rewards program for their daughter, Suzie. At the end of the semester, Suzie will get $50 for each ‘A’, $30 for each ‘B’.
The parents pre-fund the contract so Suzie can see the money and get motivated by trying to unlock it.
This is easy enough to do in a family without blockchain.
The blockchain allows extending this model to non-trusted people that live on the other side of the planet.
Sure enough, there are DAOs where thousands of people get paid everyday by strangers for studying!
This is a new way to do philanthropy, and invest in the future. It’s easier and nice for donors to see their money go directly to student, rather than making a donation to a non-profit that promises to help kids study.
The same model works for cleaning up trash on trails and beaches. And many many other cases of direct money-for-task funding which would be hard or require a company or non-profit to exist.
Web developers Guild
Rick is a web developer. He has made hundreds of websites for various clients. To make a living, Rick has two options:
- work for a company (steady paycheck, good infrastructure, no creative control)
- work as freelance (uncertain paycheck, lots of overhead, complete creative control)
A third option exist: join a guild! A guild is a DAO, a group of people that work together leveraging smart contracts and blockchain.
The guild rules may be as follows:
- The guild takes 5% of all contracts (the funds are used for internal improvement, and distributed as shares to all participants at the end of the year)
- The account manager takes 5% of the contract
- The project manager takes 10% of the contract
- The remaining 80% of each contract are divided among contributors to a project
Account manager bring new clients to the guild. Project managers coordinate and talk with clients and developers to figure out contract price, specification, timelines.
Rick sees the project details, and together with Jodie, they provide a quote to the client and decide to split the bounty 50/50.
The client accepts, and puts the money into an escrow contract.
As milestones of the projects are completed, money is unlocked and flows to account manager, project manager, Rick and Jodie.
This is an example of a company that is not really a company, it does not exist legally, it can be distributed all over the world. Anyone has complete freedom to work on what they want, with whoever they want, and name their own price.
It may sound crazy, but the blockchain takes away all the untrustworthiness from personal interactions. Allowing everyone to just do what they want without worrying about getting screwed over.
As a member of multiple guilds myself: this is fantastic.
Easier for software people, due to the nature of our work. But hundreds of Guild DAOs exist for the most disparate purposes, from lawyers to musicians to writers. Each one with different rules that make sense for members.
How content production (movies, shows, documentaries) works today: a studio finances production, everyone working is paid a salary. Then the studio sells the license to a distributor (Netflix, Warner Bros, HBO, …).
Artists and creatives only receive a tiny fraction of what the studio reaps. Studios only receive a tiny fraction of what the distributor reaps.
Content production DAOs are turning this upside down. Imagine the following for a documentary.
A DAO is created by a Fey, who steps up as producer (as creating a DAO is free). Fey raises a small amount of money by selling shares of the future content. Writers write a script, editors review it, they all get awarded some shares. Filming starts, funds are used to cover expenses. Everyone participating, from cameraman to director to actors get rewarded in shares. Editors put the final touches.
Finally, the documentary is ready for release.
The DAO now need to make one final decision, they could sell this to a distributor, or try to monetize directly on YouTube.
Whichever way they go, everyone involved will receive a share of profits proportional to their contribution.
This kind of ‘Decentralized Netflix’ is already a reality. There are multiple groups of content creators that work this way. Every day they can decide wether to buy into and contribute to a project, depending on what is the potential payoff.
The money flows directly from consumer of content to the people that created it.
This model is being successfully used to write books, create online courses, film movies, record albums, and more.
YouTube is a giant money making machine. Content is user generated. Google runs the platform and gives some small amounts of profits back to creators.
New generations of platform take Google out of the equation. People pay cents to watch a video, money is distributed to thousands of many individuals around the world that host the content. But mostly it flows back to the content creators.
Let me know what you think!
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