Navigating Blockchain
An insightful journey into the unknown
Welcome on board our series of articles related to blockchain-based technology and development. This series will serves as a crash course on all the new and exciting (sometimes confusing) concepts regarding blockchain.
As with most things in life, blockchain is built on a foundation of trust. If you want to set sail on the ocean, whether for a sundown cruise or a long voyage, you need trust. You need to trust the boat (and in effect the builders of the boat) to keep you afloat. You need to trust the sailor and crew to know what they are doing. You need to trust the knots and ropes that hold the sails. The same goes for blockchain.
We have developed a metaphor (figure 1) to help make these ideas more tangible and less like technical jargon. We will use this metaphor throughout our series. The key concepts we will cover are: Decentralised networks, smart contracts, NFTs, tokens, swaps pools, blockchain-based investments, Decentralised autonomous organisations (DAO) and what the Yknot team brings to the table.
But before we can talk about the boat, knots, and hidden treasures, we start our discussion with the ocean that lies ahead: Decentralised networks..
1. Decentralisation
Blockchain technology, cryptos, smart contracts and NFTs all rely on the concept of decentralisation. Before defining decentralisation, let us take a step back and start with centralisation.
What is centralisation?
Our daily interactions with the world is by the most part centralised. Only a few have the authority to make decisions that have a direct impact on us. Take for example our entire financial and legal system, which is mostly controlled by the government, authorised banks, and law firms. In some organisations, decisions are made by only a few members of the board. Giants like Google and Facebook, used by billions around the world, have the power to decide what they want their users to see.
Centralisation relies heavily on a trusted intermediary. The public wants to know these companies and organisations have their best interest in mind. This is not always the case, which gave rise to a fleet of anti-trust lawsuits. Companies like eBay and Amazon act as trusted intermediaries that ensure goods are distributed between sellers and buyers.
Governments have historically cooperated with these trusted intermediaries, (also called “choke points”), in our global economy to avoid unwanted outcomes such as tax evasion, and money-laundering through reporting on suspicious activity [1]. Banks and other organisations need to file reports and disclose information to governing bodies about these suspicious activities.
On the other side of the pendulum we have decentralisation. Decentralisation and decentralised networks can be compared to the ocean – it offers endless possibility and freedom of choice.
Decentralisation puts the power in the hands of many; distributing the power among all the members of the community (or network). Bitcoin is an example where there is no need for a centralised bank or any intermediary because all the transactions are visible to all the parties involved and the blockchain keeps the transaction history, which allows anyone in the network to trace back any transaction to its origin.
Figure 2 is an illustration of the difference between a centralised network architecture and a distributed network architecture. In a centralised network, all the nodes need to communicate through (and are governed by) a single trusted node. Decentralisation removes the need for a trusted intermediary or central authority, to achieve the same functionality with the same amount of certainty (trust).
With the introduction of blockchain, trustless networks have been made possible, since parties can transact directly with each, even though they do not know (trust) each other. The absence of a trusted (centralised) intermediary means faster reconciliation between the transacting parties.
In the context of blockchain-based technology, “trustless” points towards the idea that people (strangers) can transact with one another even if they don’t trust or know each other – all because the blockchain-based network establishes a culture of trust in the system, therefore trustworthy. And so a trustworthy network enables you to buy, invest and sell with peace of mind, knowing that the system is absolutely reliable.
Trustworthy solutions that allow for trustless transactions.
If decentralisation is new to you, you may still have a lot of questions as to how this really works and proof of the trustworthiness of blockchain-based solutions. Blockchain and decentralisation rely on cryptography which brings authoritativeness behind all the interactions in the network. Cryptography and network security aim to provide the trust and security needed to build our trust in the system. In the next article we will explore cryptography.
** The rest of the series will be published on medium.com and on our website.
References:
[1] J. Maupin, “Mapping the Global Legal Landscape of Blockchain and Other Distributed Ledger Technologies”, Cigionline.org, 2017. [Online]. Available: https://www.cigionline.org/static/documents/documents/Paper%20no.149.pdf. [Accessed: 10- Jun- 2021].
