Welcome to the first in an ongoing series of articles where we will guide you through the maze of mystery that is web3. We’ll start with the very basis of all that is web3: Blockchain, leading on to Cryptocurrencies and NFTs and finally expanding horizons with the Metaverse.

Make sure to subscribe below to be notified of new posts from Skywire on this top and on the latest Strategy, Creative, Technology, Marketing & beyond.

What is Blockchain?

A sequence of blocks, or units of digital information, stored consecutively in a public database.

None the wiser? You’re not alone. The problem in understanding Blockchain stems from the fact that the concept is quite simple and most of us assume it’s something really complex or incomprehensible. Complexities do come in the implementation but these are not something most will ever need to worry about, so we’ll only touch upon them briefly, starting with why it’s called a blockchain.

The block in Blockchain is made up of:

• Data: Depends on the type of blockchain but taking Bitcoin as an example it would be the From, To and Amount.
• A Hash/Timestamp: A unique fingerprint of the block and its contents. If the content of the block were to change, so would the hash.
• The hash of the previous block

That last element is what makes up the chain of blockchain. Knowing the previous block hash means if that is changed everyone would know. This allows for consistency of record-keeping and an audit trail through the linking of blocks. Therefore, data cannot be changed or modified by anyone after its creation. This is the core defining feature of blockchain.

At this point, let’s zoom out from these details and bring in a real-world analogue for the concept, the Google Doc. The very tool I’m using to draft this article shares many similarities with blockchain. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent.

Blockchain is more complicated than a Google Doc, but the analogy is apt because it illustrates the critical ideas of the technology:

• A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single-source-of-truth for the data
• Digital assets are distributed instead of copied or transferred, creating an immutable record of an asset
• The asset is decentralized, allowing full real-time access and transparency to the public
• A transparent ledger of changes preserves the integrity of the document, which creates trust in the asset.
• Blockchain’s inherent security measures and public ledger make it a prime technology for almost every single sector

We’ve brought in one new characteristic of blockchain there: decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning.  Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions.

Existing Uses of blockchain

Many people use the term “The Blockchain” but Blockchain is just an underlying technology and there any many entities that utilise different blockchains, the most popular being Bitcoin and Ethereum. These are both cryptocurrencies, a topic we’ll dive into in more detail in our next article. Some believe blockchain technology has the potential to change nearly every facet of our lives, far beyond crypto’s impact on financial portfolios but Blockchain has struggled to find a purpose, beyond powering cryptocurrencies like Bitcoin.

• Cryptocurrencies: Most cryptocurrencies use blockchain technology to record transactions. Bitcoin was first released as open-source software in 2009 which gives an indication that this technology is not as new as we think.
• Smart contracts: An unchangelable agreement between parties that is written in code. These are just like usual contracts that will let you exchange property, money, shares or anything valuable securely and transparently except you won’t need a middleman to do your deed. Due to the lack of widespread use their legal status is still unclear
• Financial services: Blockchain can streamline banking and lending services, reducing counterparty risk, and decreasing issuance and settlement times.
• Games: Effectively the gamification of cryptocurrency or non-fungible tokens (NFTs).
• Supply chain: Blockchain technology has been used for tracking the origins of gemstones and other precious commodities. Blockchain makes information transparent, solving the difficulty of sustainable development of the fashion industry
• Domain names: There are several different efforts to offer domain name services via the blockchain. These domain names can be controlled by the use of a private key, which purports to allow for uncensorable websites. This would also bypass a registrar's ability to suppress domains used for fraud, abuse, or illegal content.

Concerns with the technology

So does blockchain lead us into a future utopia? Not quite. It does have one big problem. The environmental impact.

Blockchain’s security and usefulness are mainly due to its use of cryptographic proof called Proof of Work (PoW). This is where one party called the prover, proves to others called the verifiers(yes, this all sounds like a Marvel movie), that a certain amount of a specific computational effort has been expended. Verifiers can then confirm the expenditure with only minimal effort on their part. 

The peer-to-peer computer computations by which transactions are validated and verified, Blockchain mining, requires significant energy. In June 2018 the Bank for International Settlements criticized the use of public proof-of-work blockchains for their high energy consumption. In 2021, a study by Cambridge University determined that Bitcoin (at 121 terawatt-hours per year) used more electricity than Argentina (at 121TWh) and the Netherlands (109TWh).[148] According to Digiconomist, one bitcoin transaction required 708 kilowatt-hours of electrical energy, the amount an average U.S. household consumed in 24 days.

Is there a solution? Possibly. Inside the cryptocurrency industry, concern about high energy consumption has led some companies to consider moving from the proof of work blockchain model to the less energy-intensive proof of stake model.

Future?

Businesses and governments around the world are continuing to test and implement blockchain technology, but none of this will happen overnight. If we ever reach a point where government currency is blockchain-based or medical records are converted to a blockchain, it won’t be anytime soon. The future takes a long time to build.

This was the first in an ongoing series of articles where we will guide you through the maze of mystery that is web3. Future articles will be on Cryptocurrencies and NFTs and finally expanding horizons with the Metaverse.

Make sure to subscribe below to be notified of new posts from Skywire on this top and on the latest Strategy, Creative, Technology, Marketing & beyond.