Last week, I ran a short hour-long session in a college Skills Workshop titled 'Introduction to Blockchain Technology'.
In this week's post, I want to share the recording with you. Over the course of the hour, we discuss
- Origins of Cryptocurrencies
- Evolution of the Internet
- Crypto Waves
- Regulatory Environment
- Additional Resources to learn more
Credit to AirTree Ventures for the slide deck I used to guide the introductory session.
Some small corrections
- Bitcoin Whitepaper: When Bitcoin's whitepaper was first published in Oct 2008, not 2009
- US Inflation: Inflation in the US is currently around 5.4%, which is more or less what I said. To add to that, Australia's inflation was officially 3.8% in June 2021, however is likely to be much higher now.
- Ascribing Value to Currencies: The US dollar is no longer backed by gold. When I made the point that 'people ascribe value to the US dollar because it is backed by gold', I meant to follow up by saying that the USD is no longer backed by gold as of the Bretton Woods accord in 1971
- Adding Blocks to the Chain: Blocks are not minted onto the blockchain, they are hashed. Hashing is the process of writing into a block
This correction is slightly longer, so I'm taking it out of the list form.
A key issue with consensus mechanisms is known as the Byzantine General's problem, which 'describes the difficulty decentralised parties have in arriving at a consensus without relying on a trusted central party. In a network where no member can verify the identity of other members, who can members collectively agree on a certain truth?'
Nodes in a decentralised system must agree on certain rules in order to assess transactions before they are added to the blockchain. However, these nodes are decentralised, and operating all around the world. The work-around ensures that a network only requires a majority of good actors. If 51% of the network can verify a transaction, the threat of bad actors can be subverted.
A key threat to distributed systems is a 'double spend attack', whereby the same unit of a digital currency is fraudulently spent more than one time. While I can't spend the same $10 bank note twice, it's much harder to prevent the same double spending of a digital asset.
Tied in with this is the Sybil Attack, in which a bad actor forges identities to reach the majority threshold. Bitcoin's solution, alluded to in the presentation, is the Proof-of-Work system, whereby each identity on the network must undertake a non-arbitrary and equal amount of computational tasks by solving hash functions. This makes it very difficult to forge identities on the network.
The challenge with PoW systems is that they require high energy consumption. While several protocols are transitioning towards Proof-of-Stake systems which are less energy-intensive. However, PoS is not free from challenges. They are quite difficult to scale. The high volume of transactions and users have created bottlenecks for the largest systems such as Ethereum, causing high transaction fees. Newer protocols such as Solana and Cardano are attempting to solve this issue.