Blockchain 101: The Simplest Guide You Will Ever Read(velotio.com)
velotio.com
Blockchain 101: The Simplest Guide You Will Ever Read
https://www.velotio.com/engineering-blog/introduction-to-blockchain-and-how-bitcoin-works
41 comments
Exactly, at its core blockchain is very simple.
What I would really like to see is a paper/article/study where Blockchain based solution is demonstrably superior, or ideally the only solution, when compared to traditional, AKA non-blockchain based, solution. I have yet to see one of those.
What I would really like to see is a paper/article/study where Blockchain based solution is demonstrably superior, or ideally the only solution, when compared to traditional, AKA non-blockchain based, solution. I have yet to see one of those.
> I have yet to see one of those
That's because a lot of the supposed benefits are ideological, as opposed to technological. You end up having to sacrifice a superior technological solution for one which better aligns with some specific ideological goal (eg: decentralization, non-state money, censorship-resilience). Really though, for any serious use case, efficacy trumps ideology every time.
That's because a lot of the supposed benefits are ideological, as opposed to technological. You end up having to sacrifice a superior technological solution for one which better aligns with some specific ideological goal (eg: decentralization, non-state money, censorship-resilience). Really though, for any serious use case, efficacy trumps ideology every time.
> Really though, for any serious use case, efficacy trumps ideology every time.
What's that mean? If efficacy trumps ideology, then why do cryptos exist?
What's that mean? If efficacy trumps ideology, then why do cryptos exist?
Just because something exists does not negate the existence of the tradeoff. For example, not a single nation dropped their paper fiat money for cryptocurrencies as their primary exchange medium. That's because the advantage is ideological.
Cryptocurrencies are superior to fiat money only if you accept the ideological basis for them. The advantage of fiat money now massively outweighs the advantages offered by crypto by orders of magnitude. For now, having actual cash in my hand trumps having tokens in a wallet in at least 99% of cases. You can't buy airline tickets with bitcoins, but with USD, or EUR, or any other fiat, you can. Even if you could buy one or two, with fiat you can buy any.
Cryptocurrencies are superior to fiat money only if you accept the ideological basis for them. The advantage of fiat money now massively outweighs the advantages offered by crypto by orders of magnitude. For now, having actual cash in my hand trumps having tokens in a wallet in at least 99% of cases. You can't buy airline tickets with bitcoins, but with USD, or EUR, or any other fiat, you can. Even if you could buy one or two, with fiat you can buy any.
Ethereum is a totally open source, globally decentralized compute infrastructure that executes programs. To say that it gets its value purely from ideology doesn't seem right at all. That is a tangible, valuable development in computer science that is being leveraged more and more.
Ethereum has one ten-thousandth of the power of a Raspberry Pi 4 compute module. We had efficient distributed computing long before Ethereum. Ethereum absolutely is something that appeals only to those on the economic right, for those willing to sacrifice all but the tiniest amount of computing power in service of libertarian ideology.
> that is being leveraged more and more.
That is what I’m asking, being leveraged to do what exactly.
Abstract doesn’t work for me, I’m asking for real world use case.
> globally decentralized compute infrastructure that executes programs
What is the benefit of this? Who needs this, and where does this add value over not-this? Where does this provide a superior solution over a solution based on not-this?
That is my question above, that is yet to be answered.
Think a pitch deck: What is it, What is the Problem, What is the solution, How is the technology solving the problem, Why now, Competition and so on ...
I'd love to see the pitch deck of Etherium, or any blockchain technology really..
That is what I’m asking, being leveraged to do what exactly.
Abstract doesn’t work for me, I’m asking for real world use case.
> globally decentralized compute infrastructure that executes programs
What is the benefit of this? Who needs this, and where does this add value over not-this? Where does this provide a superior solution over a solution based on not-this?
That is my question above, that is yet to be answered.
Think a pitch deck: What is it, What is the Problem, What is the solution, How is the technology solving the problem, Why now, Competition and so on ...
I'd love to see the pitch deck of Etherium, or any blockchain technology really..
You can think of these programs like event-based lambdas that are immutable, publicly visible, and you don’t have to pay for the compute or storage (the user pays via fees per usage).
For money, they are solving the problem of user accounts being integrated top to bottom. For example, on a blockchain I can perform a Flash Loan. I can instantly take out and pay back a loan of a sum I would usually never have access to with zero collateral down. I can have zero dollars in my bank account but instantly borrow $1,000,000 (literally), spend that $1,000,000, and pay it back with interest, keeping any profit. The transaction does not get executed unless it is automatically verified that the lender has the funds, and the resulting sum after the transaction is complete will be enough to pay back the interest on the loan. Then the virtual machine executes it. It is instant, and requires no collateral because it is paid back as part of the transaction.
They are also solving problems for financial exchanges. Most exchanges are centralized and opaque. A small group makes the rules, and they make rules that favor some firms over others (special order types, data feeds). A decentralized exchange like Uniswapv2 is completely visible and has no requirement for maintenance by a single group. And in the end, the entire exchange is just another smart-contract. The potential for integration with the other programs running on the chain is huge.
These are two of the strongest use cases I've seen come out of cryptocurrencies. Consensus without centralized authority, immutable lambda execution paid for directly by the user, transparency, deep integration (wallets, other contracts). These things combine to produce value. This is less something you have a pitch deck for and more like an open standard. Rather than a chain of firms each with their own APIs, managing their own infrastructure, the function served by a whole company is replaced by a series of lambdas anyone can see in their entirety. This is so fundamentally different to how we think about tech companies today that I think our culture is still processing it.
For money, they are solving the problem of user accounts being integrated top to bottom. For example, on a blockchain I can perform a Flash Loan. I can instantly take out and pay back a loan of a sum I would usually never have access to with zero collateral down. I can have zero dollars in my bank account but instantly borrow $1,000,000 (literally), spend that $1,000,000, and pay it back with interest, keeping any profit. The transaction does not get executed unless it is automatically verified that the lender has the funds, and the resulting sum after the transaction is complete will be enough to pay back the interest on the loan. Then the virtual machine executes it. It is instant, and requires no collateral because it is paid back as part of the transaction.
They are also solving problems for financial exchanges. Most exchanges are centralized and opaque. A small group makes the rules, and they make rules that favor some firms over others (special order types, data feeds). A decentralized exchange like Uniswapv2 is completely visible and has no requirement for maintenance by a single group. And in the end, the entire exchange is just another smart-contract. The potential for integration with the other programs running on the chain is huge.
These are two of the strongest use cases I've seen come out of cryptocurrencies. Consensus without centralized authority, immutable lambda execution paid for directly by the user, transparency, deep integration (wallets, other contracts). These things combine to produce value. This is less something you have a pitch deck for and more like an open standard. Rather than a chain of firms each with their own APIs, managing their own infrastructure, the function served by a whole company is replaced by a series of lambdas anyone can see in their entirety. This is so fundamentally different to how we think about tech companies today that I think our culture is still processing it.
That's all fine and dandy until you have to spend $40 per transaction, whereas a $40 old computer can run billions of transaction-like operations for free. Eth is a bad example since seeing value in it requires you to focus on the abstract and ignore the real problems it has.
You can already use services like DyDx, Axie Infinity, ImmutableX for free, and they all run on Ethereum. They are Layer 2's that use Ethereum for security. There's a ton of amazing technical innovation going on here, dismissing it is like dismissing the internet because "You have to pay $50 to buy 50 internet hours on a CD and dialup is soo slow".
> Cryptocurrencies are superior to fiat money only if you accept the ideological basis for them.
Hmm, ask the people who depend on the Turkish Lira, Argentine Peso, Venezuelan Bolivar, Lebanese pound, etc. if the ideological basis of cryptocurrencies delivers enough utility for them.
Hmm, ask the people who depend on the Turkish Lira, Argentine Peso, Venezuelan Bolivar, Lebanese pound, etc. if the ideological basis of cryptocurrencies delivers enough utility for them.
My experience with countries that have poor trust in the local currency is that they use US dollars instead, not cryptocurrency. I'm not sure what that says about ideology.
It says that an asset was trustworthy until it failed to be trustworthy.
The issue with local currencies isn't trust, it's if you can use them to buy your food or not.
Yeah, I would call that trusting the notes to retain their value by lunch time. It’s confidence in the currency and ultimately the central bank/government. If you don’t have confidence in it, you don’t want it.
Right, but the alternative has never been a crypto, it's always just a more stable fiat.
> the alternative has never been a crypto
Cryptos have only existed for ~12 years.
> it's always just a more stable fiat.
What happens when there are no longer any stable fiats in the world? Do you see whats happening with negative interests rates across the developed world? Debt grows perpetually, the cost of borrowing is zero, and everyone thinks this is normal.
Central bank fiat currency is simply an idea that is doomed to fail eventually.
Cryptos have only existed for ~12 years.
> it's always just a more stable fiat.
What happens when there are no longer any stable fiats in the world? Do you see whats happening with negative interests rates across the developed world? Debt grows perpetually, the cost of borrowing is zero, and everyone thinks this is normal.
Central bank fiat currency is simply an idea that is doomed to fail eventually.
Can you buy food in Venezuela with Ethereum or crypto? Somewhat difficult in a nation which has sporadic problems with blackouts. In situations like this people generally start using a more stable fiat like the USD in place of their local one.
you can buy airplane tickets at travala.com
There's many in decentralized finance.
I work for a company called Balancer. On it you can invest in/create an index fund of your favorite currencies, then traders use it to arbitrage and pay you fees for doing so. So instead of having an index fund you pay someone else to maintain, you get paid for it.
Or take Alchemix - You can get a loan that pays itself back over time, rather than you pay interest. Can think of it like a term deposit account where you get the payout up front instead of at the end.
Or Pool Together - a no loss lottery - you can use it as a savings account which is used to generate yield, then that yield is paid out as a prize every week.
Even just providing liquidity and earning a good return on that, or using something like Aave to get leverage, are things that very few people have access to in traditional finance.
There's a rabbithole of super interesting innovation going on in Decentralized Finance right now that you'll never hear about from mainstream publications because it's so hard to comprehend + explain for most people. This will go mainstream over the next decade.
I work for a company called Balancer. On it you can invest in/create an index fund of your favorite currencies, then traders use it to arbitrage and pay you fees for doing so. So instead of having an index fund you pay someone else to maintain, you get paid for it.
Or take Alchemix - You can get a loan that pays itself back over time, rather than you pay interest. Can think of it like a term deposit account where you get the payout up front instead of at the end.
Or Pool Together - a no loss lottery - you can use it as a savings account which is used to generate yield, then that yield is paid out as a prize every week.
Even just providing liquidity and earning a good return on that, or using something like Aave to get leverage, are things that very few people have access to in traditional finance.
There's a rabbithole of super interesting innovation going on in Decentralized Finance right now that you'll never hear about from mainstream publications because it's so hard to comprehend + explain for most people. This will go mainstream over the next decade.
None of those sound impossible or worse without a blockchain.
Alchemix and Pook Together sound like scams.
Alchemix and Pook Together sound like scams.
Please let me know where I can do these things outside of blockchain based systems?
You can literally read the source code of these apps if you're skeptical. Almost everything in this world is open source.
You can literally read the source code of these apps if you're skeptical. Almost everything in this world is open source.
You run a random database? The fact nobody has thought to run that particular type of scam ( the Alchemix one for instance) with MySQL instead of a blockchain doesn't mean it can only possibly run on a blockchain.
Lol you're so close to getting why blockchains are useful. You have all the pieces but haven't put them together in your mind yet.
Hint: It's not about literal storage of bytes, it's about trust.
Why does alchemix have billions of dollars invested in it while your MySQL version would have precisely 0 investors?
Hint: It's not about literal storage of bytes, it's about trust.
Why does alchemix have billions of dollars invested in it while your MySQL version would have precisely 0 investors?
I recall Energy Footprint of Blockchain Consensus Mechanisms
Beyond Proof-of-Work [1] showing Polkadot comparative to visa in energy efficiency, and Tezos and Hedera significantly more energy efficient than visa, and Eth. 2.0 optimistically more energy efficient than visa.
Platform | Per transaction (kW h/tx)
Eth. 2.0 | 0.00009 – 0.00286 (High throughput projection)
Eth. 2.0 | 0.01823 – 0.55713 (Low throughput projection)
Algorand | 0.00017 – 0.00534
Cardano | 0.01239 – 0.37854
Polkadot | 0.00378 – 0.11556
Tezos | 0.00036 – 0.01096
Hedera | 0.00002 – 0.00004
Bitcoin | 360.39300 – 3691.40700
VisaNet | 0.00358
> Blockchain is fundamentally a very simple technology
The merkle tree part is fairly simple, agreed.
The decentralized consensus part is anything but.
The merkle tree part is fairly simple, agreed.
The decentralized consensus part is anything but.
The algorithm behind it is complex, but for any technical administrator or technical developer, they will never come in contact with it. Based on that, for 99% of people who are not developing blockchains from scratch, but using something like Hyperledger Burrow or another existing blockchain, it's not a visible complexity. One that can be summed up as "there's an algorithm under-the-hood which will ensure consensus, see the documentation appendix 1 to find out more".
And it is not easy really! But none of these fancy "Simplest Guide" seems care about the details. I finally started to spend some time to learn how Ethereum actually works (not conceptually or principally) last weekend. While I can compile the Sol file and "deploy" the contract. I don't even know at this point what JSON-RPC call looks like if I want to invoke the contract on the testnet, nor I figured out how to transfer money between addresses with only JSON-RPC call, not coding up a new contract.
> Note: Ethereum smart contract is the code that is deployed over Ethereum blockchain. It is written as a transaction on the block so no one can alter the logic. This is also known as Code is Law.
By bringing up Ethereum smart contracts and not Bitcoin smart contracts, the article implies that Bitcoin does not support smart contracts. But it has done so since its launch in 2009. The term "smart contract" was coined by Nick Szabo. From Wikipedia:
> Smart contracts were first proposed in the early 1990s by Nick Szabo, who coined the term, using it to refer to "a set of promises, specified in digital form, including protocols within which the parties perform on these promises".
https://en.wikipedia.org/wiki/Smart_contract
Bitcoin implements smart contracts in part through "Script," the custom Forth-like language:
https://en.bitcoin.it/wiki/Script
No doubt for marketing purposes, the myth that "Bitcoin doesn't do smart contracts" continues to be propagated. Reading the two Wikipedia articles clearly demonstrates the fallacy of this idea.
By bringing up Ethereum smart contracts and not Bitcoin smart contracts, the article implies that Bitcoin does not support smart contracts. But it has done so since its launch in 2009. The term "smart contract" was coined by Nick Szabo. From Wikipedia:
> Smart contracts were first proposed in the early 1990s by Nick Szabo, who coined the term, using it to refer to "a set of promises, specified in digital form, including protocols within which the parties perform on these promises".
https://en.wikipedia.org/wiki/Smart_contract
Bitcoin implements smart contracts in part through "Script," the custom Forth-like language:
https://en.bitcoin.it/wiki/Script
No doubt for marketing purposes, the myth that "Bitcoin doesn't do smart contracts" continues to be propagated. Reading the two Wikipedia articles clearly demonstrates the fallacy of this idea.
It seems like there are always massive difficulties with coming up with use cases for blockchain that central authorities/legal frameworks don't already solve perfectly fine or better.
> "What if one wins the bet saying 10000$ and at the time of payment, he doesn't respond."
Why not contact the next bidder, or redo the auction?
> "online games like tic-tac-toe, where both players will deposit `X` amount in the smart contract"
> No one controls your game
> There is no way one can cheat
> No frauds, the winner always gets a reward.
Are these actually issues in real life? Online gambling has been a successful business for decades.
> "What if one wins the bet saying 10000$ and at the time of payment, he doesn't respond."
Why not contact the next bidder, or redo the auction?
> "online games like tic-tac-toe, where both players will deposit `X` amount in the smart contract"
> No one controls your game
> There is no way one can cheat
> No frauds, the winner always gets a reward.
Are these actually issues in real life? Online gambling has been a successful business for decades.
Essentially, the application of the blockchain is preventing centralized authorities from doing thing you don't like or circumvent centralized authorities effort to stop your activities (centralized authorities can't reduce the value of bitcoins by printing and, currently, centralized can't stop criminal transactions using bitcoins - but stay tuned).
Centralized authorities have plenty of problems. The Fed supported financial markets over the last twenty years using "quantitative easing", printing money, and that money has tended to go to the wealthiest sector.
But bitcoin tends to help not "the little guy" but a sufficiently powerful medium-sized-guy who aims to be even more unfettered than large financial capital is now.
Centralized authorities have plenty of problems. The Fed supported financial markets over the last twenty years using "quantitative easing", printing money, and that money has tended to go to the wealthiest sector.
But bitcoin tends to help not "the little guy" but a sufficiently powerful medium-sized-guy who aims to be even more unfettered than large financial capital is now.
I actually meant central authority in the software sense, not in the government sense. I'm talking about blockchain as a technology, not necessarily bitcoin. Though of course bitcoin is a pretty successful implementation of blockchain.
It's not like bitcoin can't be regulated by governments.
It's not like bitcoin can't be regulated by governments.
Sorry, didn't realize your usage.
That said, I think there's a relationship between the "blockchain as application" question and the "bitcoin as economic/political system" question.
Without the cryptographic and consensus parts, blockchain is just a ledger and obviously could be more easily. The only advantage that a ledger coming from a blockchain has over a conventional ledger is that you know the blockchain was (probably) obtained with this ongoing voting/consensus protocol and the main impact is you know the result is correct and wasn't imposed by some central authority.
That said, I think there's a relationship between the "blockchain as application" question and the "bitcoin as economic/political system" question.
Without the cryptographic and consensus parts, blockchain is just a ledger and obviously could be more easily. The only advantage that a ledger coming from a blockchain has over a conventional ledger is that you know the blockchain was (probably) obtained with this ongoing voting/consensus protocol and the main impact is you know the result is correct and wasn't imposed by some central authority.
Why is it that these garbage Bitcoin blogposts that read like they were written by GPT and contain no insightful information shoot right up to the front page? Is Velotio expecting that someone reading this would come away with a positive impression of their company?
Tbh, the simplest guide is likely the original Bitcoin paper. Pretty easy read and goes into the exact details of what the Blockchain and BTC is.
I really liked this video by 3Blue1Brown explaining how blockchain works: https://youtube.com/watch?v=bBC-nXj3Ng4
Things that I didn't realize until I watched the video:
* "Mining" bitcoin means processing transactions for other people. Miners do time consuming operations to process transactions.
I had never heard of 3Blue1Brown before someone showed me that video, but he has a bunch of other good math videos. I liked the one about pi showing up in weird places.
Things that I didn't realize until I watched the video:
* "Mining" bitcoin means processing transactions for other people. Miners do time consuming operations to process transactions.
I had never heard of 3Blue1Brown before someone showed me that video, but he has a bunch of other good math videos. I liked the one about pi showing up in weird places.
Specifically, he doesn't have any incentive to hype up Bitcoin to get you to buy it, at least as far as I know.
The lesson that really made me finally understand how blockchains work was Anders Brownworth's "Blockchain Demo"[1]. He builds up a blockchain through interactive steps starting from a hash function, to mining, to coinbase transactions. Highly recommend.
[1] https://andersbrownworth.com/blockchain/
[1] https://andersbrownworth.com/blockchain/
Blockchain is fundamentally a very simple technology, but the market for it is based on making it sound like some panacea for every problem. Obfuscating the technology, and convincing the reader that "this is really complicated, but I can dumb it down for you" is a sure fire way to get them to trust you as "the expert" when you try to pitch them on some distributed ledger. The fact that all these articles come out of consulting firms (this one too) just drives that point home even further.
The goal isn't to show you what blockchain is. The goal is to convince you the writer knows a lot about this complex, spooky but oh so lucrative technology. And that the writer can help you use it for $50,000 USD base consulting fee, extra for non-standard features. It's worth it, trust me. You can put Powered by Blockchain on your website!