By: Raye Hadi

Table of Contents:

1. Introduction

2. Hard Truths

3. Complete Autonomy

4. Authenticity

5. Determinism, Programmability, and Accessibility

6. Conclusion

7. Sources

8. Footnotes

Introduction

Have you ever turned on the news or overheard a conversation talking about blockchain, the technology behind cryptocurrencies such as Bitcoin? If you are unfamiliar with the term, this might have evoked a feeling of skepticism or an association with unfavorable words such as scam, criminal, fraudulent, or wasteful. If not that, then many might think of blockchain as just some buzz word thrown around by crypto bros or computer nerds. However, these are short sighted views that show little effort to understand the true potential of this technology and how it works. 

Blockchain is one of the most transformative innovations of our lifetime. Through blockchain, organic digital property rights were made possible with the launch of Bitcoin in 2009. This was the first instance people could move value digitally, in a peer to peer fashion, without relying on a trusted central intermediary. In essence, this was the first time true digital scarcity was possible. This was accomplished by a person under the pseudonym, Satoshi Nakamoto. Satoshi designed Bitcoin in a way that moved trust and authority from institutions to computational systems. Proof of digital ownership initially insured by the credibility of a trusted entity, could now be insured by a globally distributed network governed by immutable code, cryptographic security, and computational power. The genius behind Satoshi’s creation was the strategic implementation of blockchain using a novel consensus mechanism and hard coded rules. In this system violators are punished while honest participants are rewarded, every transaction is transparently recorded and checked, and there is no single entity able to impose their will over others. Additionally, the network can be employed by anyone as long as they have access to a smart device and an internet connection. This ingenious implementation of blockchain gave birth to the cryptocurrency market we know today as thousands of projects raced to recreate or improve on the foundation laid by Satoshi. Building a decentralized network with bulletproof security and proper incentive structures is nothing trivial. It is from the cryptocurrencies that are not properly built where the term “scam” or “fraud” hold truth. Unfortunately this includes the vast majority of cryptocurrencies as there are ~23 thousand unique tokens today with over 99% falling in the realm of insignificance. Considering this, it is no surprise that over 83% of the industry’s market cap is concentrated in the top 10 tokens, and over half of that is in Bitcoin. Even though blockchain is ubiquitous in cryptocurrencies, there are few who’s implementation does justice to its capabilities. In the case of Bitcoin, I have not met a single person who took the time to read and understand Satoshi’s whitepaper that didn’t come out with the realization of Bitcoin’s significance and the importance of blockchain technology. Through the lens of Bitcoin, understanding the true potential of blockchain is more intuitive than in isolation. And through this lens we can analyze why blockchain is such a pervasive technology and what its significance is going forward.

Hard Truths

Of all the reasons I’ve been given for why people dismiss or disregard blockchain based assets, the most common is something along the lines of “the current system already works fine for me” or “the dollar is already digital”. These are true, defensible statements. I currently use the conventional financial system far more often than blockchain based ones and the majority of those transactions are done with digital dollars through my credit or debit cards. While it is possible for your coffee shop to set up the necessary infrastructure to accept crypto and for you to pay with Bitcoin, Ethereum, or some other token, this process is unappealing to the majority of Americans, including many crypto enthusiasts, and is unsustainable. For starters, networks like Bitcoin and Ethereum (as of now) don’t have the capacity to organically scale to a point where they could efficiently process the daily transaction load of the US economy. With the help of Layer 2 scaling solutions (1*) transactions are processed quicker and fees may be cheaper, but put the entire transaction volume of one large global economy on chain and I guarantee you’ll run into issues. This is due to one reason: blockspace (2*) is scarce. For a blockchain based system to be truly decentralized everyone needs to be able to store a version of the chain to compare with everyone else. This is how consensus is achieved. If you increase blockspace, more blocks contain more transactions (data) and as blocks are added to the chain, storage requirements become exponentially larger. So even though the blockchain is now faster, cheaper, and can process more transactions, you are now vulnerable to a situation where only a few have the capability to store the entire chain and thus consensus is impaired and collusion and centralization are possible. This was the ultimatum that led to the inception of Bitcoin Cash, a forked chain of Bitcoin that chose to sacrifice decentralization for scalability by increasing its blockspace. 

In addition to complications with the transaction load, interacting with these assets is difficult. Safely using blockchain based assets is not intuitive to anyone foreign to the blockchain space as this technology can be complex and requires extra responsibility. If access to your private key(s) is lost through a scam or a simple misplacement, your funds are gone with little to no recourse. Even further, a lack of interoperability (3*) means users cannot move assets between blockchains. So even if your coffee shop has a wallet set up to accept Bitcoin but you’re in a rush and forget you're still on the Ethereum network, once you click send those funds are gone forever. All of these issues sound complicated and I haven’t even gotten into the frustration and expenses of gas fees. Currently, to safely use this technology you have to know how to custody your funds, how to bridge between networks, which wallets can hold which tokens, and a general framework of how the systems work so you can competently troubleshoot any errors you may run into. Most people are unwilling to tackle the learning curve required to confidently understand what they hold and how to securely use it. The majority of people just want their money to work. To some of you this may raise the question, why on earth would anyone put up with all this b*lls**t just to buy some Bitcoin or Ethereum?

Complete Autonomy

The most foundational and likely the most prevalent reason people put in the extra hours necessary to understand blockchain technology and cryptocurrency is complete autonomy. Specifically, autonomy over one’s digital property. Not only are blockchain based systems transparent, but they are trustless, verifiable, and open-sourced (4*). Blockchains like Bitcoin give users the option to self-custody their assets and verify their ownership. Meaning that holders can store their assets however they please and they can prove their ownership to the rest of the network who can also check the validity of a holder’s claim to ownership. However, the level of autonomy fluctuates between blockchains and storage methods and should be thought of as a spectrum rather than a uniform trait. Storage methods like cold storage give users more autonomy over their assets than other methods like hot wallet storage and non-custodial storage. This is because in cold storage, assets are not connected to the internet and custodied by the owner making risk of subverting the owner’s approval to manipulate funds virtually zero. Regarding variance between blockchains, a blockchain like Bitcoin gives users much more autonomy of their funds than a blockchain like Solana. This is something you can judge from the network’s level of decentralization. A more decentralized network means it is less likely for any one entity to be able to manipulate the network in a way that affects a user’s assets. So things like asset confiscation, transaction censorship, or unexpected supply changes are extremely improbable if not impossible, even by the founding team. In the case of Bitcoin, there is no locatable founder and even if changes were proposed that impaired complete autonomy, the network would reject them as they are disadvantageous to the majority of users. This is the beauty of a decentralized system, for changes to be made, the system has to agree to them. In the case of Solana, a founding team still runs the network, introducing upgrades and providing maintenance. Even though the blockchain is open sourced(4*) the network was designed to prioritize scalability over decentralization. This reduces the certainty of complete autonomy as users of the network cannot be 100% confident the network they know today won’t become something that decreases their autonomy in the future. 

Another factor in autonomy, and a key component of a blockchain is digital scarcity. To reiterate, the launch of Bitcoin was the first ever instance of true digital scarcity. The Bitcoin network is hard coded to only ever issue 21 million tokens. This means that ownership as a percentage of the network is finite. To possess complete autonomy over a good, ownership is necessary, and for full ownership to be recognized property rights and scarcity are required. We know from economics 101 that you need high excludability and high rivalry for a good to be considered private. Otherwise it's considered a club, common resource, or a public good and you can’t have complete autonomy over any of those. Private goods are the only type of good that gives the possessor complete control. Associating excludability with property rights and rivalry with scarcity, we can see that scarcity is necessary for complete autonomy over a good. By implementing a blockchain with hard coded rules and using a proof of work consensus mechanism to direct incentives, Bitcoin delivers both property rights and scarcity to its network giving users full autonomy over their digital assets. Because blockchain enables a shift in authority from institutions to computational systems, properties like control, trust, and authority are vested in the software of the network. These qualitative goods are necessary for societal systems and through blockchain they can be transferred to computational systems and as a result complete autonomy over our digital property is possible.

Authenticity

Another reason people invest their time and money in blockchain based systems is their ability to create verifiable authenticity. It is second nature and generally common sense when deciding between two goods, all things equal, to prefer the real thing over the knock off. This is because every person values authenticity as it is an indicator of trustworthiness and usually higher quality. The presence of authenticity creates comfort as people can confidently trust the credibility of the purchase or interaction they are engaging in. But how do you determine if something is genuinely authentic? This is usually done through trust in the entity you’re interacting with. Buying gold from a bank as opposed to a small pawn shop comes with different levels of confidence in the authenticity of the gold. With no prior experience to either, the logical person would choose the bank over the pawn shop as they feel they’re more likely to receive real gold. Currently authenticity in society is just a measure of the confidence and trust people have instilled in the institutions guaranteeing authenticity. We give our trust and our business to reputable institutions and in return they consistently provide reliable services and products that meet our authenticity standards. While this system works well, like any human-oriented system it isn’t foolproof and can be inefficient. 

Some people may not prefer trusting an institution for an authenticity guarantee, but would rather be able to verify authenticity themselves with a 100% success rate. Using blockchain you can create systems that guarantee authenticity at a level of reliability impossible for any human based institution to match. Blockchains can be thought of as a literal chain of blocks, each block holding data. This chain is created because every block is cryptographically hashed (5*) to the previous block. In order for a block to be added to the chain, all nodes validating the network must come to consensus on the validity of that block. If all the included data checks out and the rules of the network were followed, the block will get approved, the block creator gets rewarded, and that block and all its data become the latest addition to the canonical chain. This process is important to understanding the relationship between blockchain and authenticity because it makes changing any already included data an extremely difficult endeavor. 

In the case of Bitcoin, the guarantee of authenticity can only be compromised if the network itself is compromised. Bitcoin is currently the most secure blockchain and an attempt to undermine the network’s rules and security is what is known as a 51% attack. In this attack, an attacker would attempt to change blocks already a part of the chain. For the targeted block, the attacker would first manipulate data they hope to falsify, then because each block is cryptographically hashed to the previous, they would need to create a new hash linked to the previous block. They would also have to do this for the following block as it is linked to the manipulated target block and additionally to every subsequently linked block. The attacker would need to continue recreating blocks at a rate faster than the rest of the network all the way up until the most recent block, continuously expending energy and losing money in the process. Once they overtake the canonical chain, they can display themselves to the network as the legitimate chain and whatever falsifications they made might be accepted by the rest of the network (6*). To successfully carry out this attack, an entity would continuously require billions of dollars worth of hardware and energy for as long as the attack continues, all without being found out or stopped beforehand. This makes every transaction and entry recorded on the Bitcoin chain 100% authentic as long as this highly improbable attack is not being carried out. While not all blockchains may be as secure as Bitcoin, attackers will be met with similar conditions attacking another large chain like Ethereum. The longer these chains stick around, the more confident we can be in their security and the authenticity of their data.

Using blockchain, any user can verify/prove the authenticity of their assets with certitude, but the scope of authenticity goes beyond digital money. Leveraging the blockchain’s security, decentralization, and ability to create digital scarcity, unique digital assets can be created. Minting these assets on the blockchain gives them the same authenticity guarantees as tokens. The most well-known examples of this are NFTs. While many may associate NFTs with the massive bubble in 2021 where athletes like Neymar and artists like Justin Bieber were spending millions on some images of apes, there is much more to consider. NFTs are the best example of the potential of blockchain guaranteed authenticity. This is because you can create unique digital content (in this case JPGs) that are scarce and verifiably authentic. Anyone can go online and screenshot an ape NFT then proceed in claiming how useless the concept is. While I am not justifying the market for million dollar ape images, I would encourage anyone who has screenshotted one of these JPGs to try and sell it. What you’ll find out is that your screenshot is worthless, since it is a knock off. The true owner can go on the Ethereum blockchain and prove their million dollar JPG came from the wallet address of the real creator to anyone who inquires. The Ethereum network has come to consensus on who owns that image and where it originated from and there is nothing anyone but the current owner can do to change that, thus guaranteeing authenticity. However, implementing blockchain secured authenticity to create speculative JPGs is not the pinnacle of NFTs. There is limitless productive potential for digitizing unique scarce items, transforming systems in ways that are much safer and more efficient. Assets such as a deed to a house, a title to a car, or even a digital identity can be minted as NFTs and stored on the blockchain. Blockchain based authenticity can make our systems safer as things like ownership and identity can be easily proved and digital crimes like theft, scams, and identity fraud can be minimized. In terms of efficiency, data stored on the blockchain is organized and searchable, so actions such as data retrieval and storage costs are optimized.

On a network like Ethereum, after issuance, authenticity is not guaranteed by an institution anymore, but by the computational system that is the Ethereum blockchain. Due to the immutable nature of the blockchain, even in the absence of the issuing entity, the recorded data is always present and verifiable. However, it should be noted that transitioning from authenticity providing institutions to blockchain based ones is not a simple process. To bring many of these systems on chain, the issuing institutions such as governments, banks, and corporations would face large infrastructure replacements. On top of that, I would expect most implementations of blockchain guaranteed authenticity to be administered on private blockchains as opposed to a neutral distributed blockchain network like Ethereum. This would inhibit some of the benefits of blockchain based authenticity, but it’s likely institutions will want to stay in control of whatever digital content or assets they issue to users. 

As we become more digital, it is inevitable that we become more reliant on machines with our everyday lives dependent on trusting the integrity of the software and content we interact with. Using the blockchain’s ability to provide authenticity, we can replace trust with verification and establish measures to vet the legitimacy of content or software without relying on a third party’s word. Trust producing mechanisms are crucial for a world where we rely on human-machine collaboration and with advancements like AI we require measures to safeguard our systems. The ability to authenticate our online interactions will be crucial to maintaining a safe web experience, and with the release of Bitcoin we now have the means to develop these safeguards. The use of blockchain in Bitcoin created the first ever instance of organic digital scarcity. This breakthrough is vital to creating the safeguards that will allow us to authenticate our web interactions. Bitcoin solved what is known as the double spend problem: how you can create digital value that can be transferred in a peer to peer fashion without the use of a central intermediary. In all prior attempts to solve this problem, there was always the issue of copying the digital money and spending it twice. When Satoshi combined a blockchain with a network determined by consensus, digital scarcity was made possible and thus so was authentic digital property. Building on this concept, authentic digital identities can be generated that are secure, verifiable, and decentralized. Tying these digital identities to accounts or software will be imperative. 

As AI progresses and our lives become more digital, we will eventually reach the point in our web experiences where it's impossible to distinguish between what is real and what isn’t. A unique digital indicator to prove authenticity that can be verified and used by everyone, but copied by no one, will be extremely useful. Blockchain can provide just that, as unique digital identities can be tied to accounts, software, websites, businesses, etc.. that anyone can verify. If you want to confirm the authenticity of someone’s internet post, you can verify by checking its cryptographically unique hash and record on the blockchain. This same logic can be applied to any digitally native object like websites or software making it easy to distinguish between generative AI content and authentic content. An interesting implementation of this concept is already being carried out by a group of cryptographers called ModulusLabs. ModulusLabs aims to bring AI onto the blockchain in a secure and transparent method. This will give developers and users the ability to verify machine learning models without having to blindly trust that the model does what it advertises itself to do. Innovations like these will become more important as time goes on and I believe we will see many others building similar safeguards to protect our web experiences using blockchain.

In the physical world, authenticity is created through trust and verification is too complex of a process for most to care. In the digital world, verification is the backbone of authenticity, while trust is irrelevant. Before Bitcoin, digital authenticity was not possible, but Satoshi’s implementation of blockchain opened a new door. This concept is vital to any cryptocurrency or blockchain based system. There are many practical use cases of blockchain guaranteed authenticity as we look to improve and protect our web experiences. However, keep in mind authenticity can only be guaranteed on the blockchain for things that are digitally native.

Determinism, Programmability, and Accessibility

The final reason for “why blockchain?” is its deterministic nature and the benefits of accessibility and programmability that come with it. Many blockchain based systems were built on the idea that this technology should be open to everyone regardless of socioeconomic status, geographic location, education, etc. A network like Bitcoin doesn’t discriminate as anyone can employ the network to send or store value. This is a benefit of distributed systems as no one entity has total power, thus the ability to impose prejudice that would disenfranchise a group of users is not possible. The network is governed by consensus that follows a set of hard coded rules that execute in a predictable way. This makes blockchain based systems deterministic, a very important trait that makes these systems so powerful. In a deterministic system, every outcome and action is the inevitable result of the conditions that prompted it. This means that if you replicate the same conditions, you will reach the same outcome every single time. In this system, human bias and manipulation is removed. Bitcoin doesn’t care who you are or what your business is, it only cares about whether you’re sending or receiving bitcoins; that you can pay the transaction fees; and that you’re following the rules of the network. When you take a loan out through Aave on the Ethereum network, it doesn’t care why you want a loan or what your salary is, it only cares that you can provide a 150% collateral to debt ratio and that you can maintain this ratio throughout the duration of your loan while assuming interest. These systems follow hard coded rules that are transparent and verifiable by anyone. Accompanying these rules with a blockchain and consensus mechanism, you can create a global network where violators of the rules are punished and honest participants are rewarded. Since the network is global, no one country can undermine the deterministic nature of the system. A ban or crackdown on Bitcoin or Ethereum doesn’t change the system, it just makes it less accessible to that country’s citizens. Determinism is crucial for a fair playing field and an immutable system, and due to its nature it enhances the efficiency of the systems that administer it. If the same conditions are replicated multiple times and produce different outcomes each time, then achieving objective consensus is impossible. What you get instead is an unreliable and unpredictable system no one wants to use. A distributed system that isn’t deterministic won’t get anything done because if you can’t consistently come to the same outcome for the same inputs, you are likely considering differing extraneous variables each time. In every scenario, there are countless variables and if you don’t have a set method for what to assess and how to assess it, making a decision will become overwhelming and consensus either won’t be achieved or it will take a while to get there. Blockchains like Bitcoin ignore all the noise and only consider quantitative essential factors when coming to consensus on outcomes. This allows the network to agree on the state of the blockchain in the cheapest and fastest way it can. 

When a system is deterministic, you can build on it efficiently and confidently due to predictable outcomes with the assurance of consistency and reliability. The state of the blockchain is what you are left with after the finalization of these outcomes. Because consensus of state can be attained, contracts or commitments can be built on top of the state to achieve automation. This gives blockchain based networks the capacity for programmability. Without determinism, this automation is not possible as you cannot write contracts or make commitments on unknowns. When outcomes are unpredictable and potentially not even obtainable, the state is uncertain. The Ethereum network is the best example of automation on the blockchain as their ambition was to take the foundation of Bitcoin and build a computing platform that supports a programmable economy through smart contracts. Using the state of the Ethereum blockchain as the underlying layer of truth and security, developers can build dapps (decentralized applications) that exist as smart contracts on the Ethereum blockchain. These smart contract applications self-execute once certain conditions are met, thereby providing decentralized programmability. Smart contracts enable dapps to let users borrow/lend, swap tokens, or provide liquidity without any required approval. Programmability makes these systems smart, yielding higher convenience, efficiency, and autonomy to users. Programmability also gives blockchains enormous potential as financial systems or digital industries predicated on user autonomy, accessibility, and efficiency are possible. The sector of decentralized finance (defi) is an operational example of this programmability, with a current TVL of ~$44 billion. This is a sector I only see growing as it enables new behaviors and applications not possible in traditional systems. Additionally, systems in defi are composable allowing developers to freely iterate on each other’s work enabling efficient innovation and allowing dapps to communicate with each other. As regulatory clarity arises, user complexity is abstracted, and more applicable use cases are developed, the determinism of blockchains combined with automation will become a much more prevalent part of our digital experiences. 

Conclusion

Blockchain and cryptocurrency can be a controversial topic, not because the technology is inherently dangerous or fraudulent, but because it enables self-sufficient systems that give control back to the individual. Systems like Bitcoin allow for the removal of trust, and with trust immaterial so are the intermediaries that impose control through it. Blockchain alone is not special. It is from the implementation of blockchain in software that meaningfully directs incentives and behaviors that a significant network is created. Things like immutability, complete autonomy, and authenticity are not inherent traits of blockchain but instead, emergent properties dependent on the rest of the system. Today we see blockchains mainly being used for the application of money. This is because blockchains have no enforceable claim outside their network; all the system can offer in return for security is the monetary asset native to its network. These native tokens are critical, as they are the backbone of incentives that encourage users to act in the best interest of the network. As these systems evolve, we will see more use cases of blockchain based systems outside the realm of money, with the token only a mechanical property essential for security purposes. The structure of these systems will reflect blockchain’s ability to switch systems from top-down structures to bottom-up ones, aligning user behaviors with network ambitions.

Using the blockchain you can remove trust and create verifiable digital scarcity, and by using tokens for incentives you can punish and reward participants autonomously. Implemented correctly, blockchain can provide individuals with true digital sovereignty through systems that cater to the demands and preferences of the users. There are many narratives that reprehend this technology, but anyone who looks closely will quickly realize who is behind these narratives and what they stand to gain, or to be more clear, what they hope to not lose by damaging the reputation of blockchain technology. The technology is not perfect, user experience is complex and sufficient scaling mechanisms are still required. However, there is constant innovation uncovering new solutions to these hurdles with promising chances of deployment in the near future. As tailwinds like these persist, I don’t think it's unreasonable for us to see a distributed blockchain based system establish itself as the world’s default settlement layer in our lifetime. I am not an expert on this technology, so I encourage anyone interested in understanding the significance of blockchain to do their own research. During my own research to understand blockchain, a statement that resonated with me was the claim that the internet was built incorrectly. What this is referring to is that with the creation of the internet, we discovered how to digitally send information in a peer to peer fashion, but we left a void as no one had figured out how to digitally send value in a peer to peer fashion. This void was filled with the likes of Visa, PayPal, Mastercard, etc, but it wasn’t until Bitcoin that the final piece to the puzzle was solved. Bitcoin was the key to unlocking the potential of blockchain technology. These two innovations rely on each other for value as without one the other is effectively meaningless. The potential of blockchain provides optimism for the future and I am excited to see how else this technology will be used to empower individuals and improve lives.

Sources

• https://www.moduluslabs.xyz/

• https://hackernoon.com/beyond-technology-blockchain-as-the-philosophy

• https://www.c-sharpcorner.com/article/smart-contracts-and-importance-of-determinism-on-blockchain/

• https://coinmarketcap.com/

• https://defillama.com/

• https://www.researchgate.net/publication/320303954_Toward_a_Philosophy_of_Blockchain_A_Symposium_Introduction_INTRODUCTION

Footnotes

1*: protocols built on top of parent blockchains that compress transactions making the parent blockchain faster and cheaper (lower fees)

2*: The amount of transactions or data that one block can hold before it is displayed to the rest of the network and, if valid, added to the chain (chain of blocks == blockchain).

3*: the ability for independent blockchains to interact and safely trade assets between them.

4*: All code and information necessary to understand or run the protocol is out on the internet open to anyone that wishes to verify/audit it.

5*: A mathematical function or algorithm that is used to convert inputs into encrypted outputs of a fixed length.

6*: Miners in Bitcoin (and most other blockchains) recognize the longest displayed chain as the correct chain because logically, when the network is running as intended, the longest chain is always the canonical chain.