Towards distributed consensus | The Financial Express

Towards distributed consensus

Though there is some scepticism about cryptocurrencies, blockchain’s potential for the Web3 world can’t be ignored

Towards distributed consensus
There is enormous confusion, myth, hype, and unease—all in equal measure—about the power, potential, and risks of crypto and blockchain.

By Srivatsa Krishna

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Did people come for the tech and stay for the money? Or did they come for the money and stay for the tech? This is the chicken-and-egg question often asked of crypto. There is enormous confusion, myth, hype, and unease—all in equal measure—about the power, potential, and risks of crypto and blockchain.

For the past many eons, software has been subservient to hardware, which, in turn, was subservient to company management or organization. The entire blockchain revolution sits on the premise that software rules and hardware is subservient to it. And this software is run based on a distributed consensus which is at the heart of blockchain technology. So, it is not any one individual who controls the system that enables blockchain protocols to be written, run, and enforced. Such large community ownership and decentralised consensus, combined with genuine open access, is what is powering the creation of the next-generation internet ecosystem.

It is often mistakenly believed that blockchains are just distributed ledgers and that Bitcoins are largely used for evading taxes or for money laundering. However, blockchains, especially the modern ones such as Ethereum, allow one to code and compute on them; calling it just a distributed ledger is missing the woods for the trees. In a sense, blockchain is not just a protocol, but also an enforceable computer code, guarded by millions.

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If you think about the development of the internet ecosystem, it was modular, and every layer was distinctly defined, unlike the computing ecosystem that was vertically integrated, such as Apple or Microsoft. The power of blockchain rests on the fact that it is something like a Lego or a building block, where each piece of code leads to a large, open community using its genius to build atop it, and that service itself is a reusable code, on which others can build.

What is astonishing and remarkable about blockchain as a technology is that it is without any owner and yet enforces ownership. It enforces all common notions of property rights, such as the right to use, right to exclude, right to include, etc, for digital data, using smart contracts that are perpetual, autonomous algorithms.

Founded on blockchain are two broad movements, namely crypto and Web3. These are not technologies; they are communities and movements enabling the creation of applications that run on blockchain. Blockchain, pretty much like the technologies that preceded it, has an infrastructure layer and an applications layer. What makes this fascinating is both are co-evolving on an open-source basis—the genius of millions of individuals, without any organisational or even national boundaries hindering them, are combining to create something that is available in the public domain for the genius of others to exploit and take forward. This is yet another unique feature of the blockchain where re-composable software is being created for both the infrastructure and application layers, enabling the technology to work seamlessly.

Web1 was largely static, with websites giving information, and email was its killer application then. Web2 was dynamic and interactive. One used Web2 to shop, socialise, travel, pay fees, etc, but ownership was with Big Tech firms that have been milking our data for commercial ends even as they give free and valuable services. Our data is fodder for them. Now comes Web3, where individuals do not just control their own data and property rights around it but also can get paid for it. So, for example, if Facebook uses your data—name, gender, address, interests, shopping record, etc—and sends micro-targeted advertisements to you, they will need to legally pay, say, 20-30% of whatever they make from selling your personal information to other companies. Blockchain and Web3 will make this possible seamlessly, and this will be a tremendous attraction that will entice more people towards using Web3 apps.

Now coming to Bitcoin, this is one of the earliest applications of blockchain technology, and is also a piece of code and concerns money. If you want to hire a graphic designer sitting in Croatia who can do astonishing designs, but you have no way of paying him except going through complicated routes and expensive fees for banks or intermediaries like PayPal, the best way to do it is using Bitcoin. It is easy and convenient for several people to do peer-to-peer transactions without the need for a central legal authority. Of course, Bitcoin itself has a wallet which needs to be first loaded with your preferred currency.

Bitcoin is a cryptocurrency that can be spent and is maintained in the immutable, non-repudiable ledger telling everyone who’s paying whom, how much, and when. There are thousands of other blockchains with varying levels of quality, flexibility, features, and security. Bitcoin has ruled supreme for it has never been hacked so far and has been the proof of concept for the world on the promise of blockchain.

In the process of executing such complex transactions, this blockchain-based application requires enormous energy for miners to create and validate code. However, September 15, 2022, is a landmark date—for the first time, Ethereum is cutting down energy consumption by 99% through a new protocol called the Merge. In Bitcoin, miners race to solve mathematical puzzles to verify transactions (called Proof-of-Work), whereas in Ethereum Merge, these are replaced by Proof-of-Stake where “validators” deposit 32 ETH or around $50,000 to validate transactions. They are like guardians and get paid for it, as in the case of Bitcoin.

Proof-of-Stake makes Ethereum much more akin to a financial asset and may likely invite securities regulation. Whether Merge will succeed or not will be clear in the next few weeks and months, but it is the first-ever major upgrade to one of the two global operating systems of the crypto universe, with both benefits and drawbacks.

In conclusion, while there is still significant unease surrounding crypto, especially its financial core—Bitcoin and Ethereum—the underlying technology that powers this and Web3, namely blockchain, is here to stay. The internet came into being in October 1969, but it took three decades to get mainstreamed. Likewise, blockchain, crypto, and Web3 came into our lives in 2008, but their puissant promise to change the world will unfold in the decades ahead.

The author is is an IAS officer
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