The current article you are reading is Part 1.
Please see below for other articles contained in this series of Blockchain Basics.
- Blockchain Basics: The Blockchain Trilemma (Part 4)
- Blockchain Basics: Consensus Algorithm (Part 3)
- Blockchain Basics: Cryptocurrency and Blockchain Technology (Part 2)
- Blockchain Basics: Different Types of Networks (Part 1)
Blockchain technology was all the rage ~2 years ago in the Philippines but due to an epic market collapse that led to many cryptocurrencies losing most (if not all) of their value, the hype has since vacated the building.
For Pinoys serious about learning how blockchain technology works and how its implementation will benefit society in the future, the market “cleansing” event that began in earnest during early 2018 to burst the blockchain bubble has actually been wonderful news.
Now that the bulk of price speculators (e.g., “get rich quick” gamblers) are long gone, it’s time to get back to basics:
Learning and building.
Before we get into the details as to why blockchain technology is such a big deal and why we as Pinoys should care about learning more about it, let’s first take a look at a well established system that has already been in place for many years now in the Philippines.
When it comes to public transportation, the Manila Metro Rail Transit System (MRT) is a major centralized transit network that has been serving the people of Metro Manila since it first began operations in 1999.
The MRT is a centralized network because it’s owned (Department of Transportation) and operated (Metro Rail Transit Corporate and Department of Transportation) by defined entities.
In a given day, the MRT can carry over 500,000 people. In very simple terms, the MRT is basically a mass transport system that is designed to move each of its passengers from Point A to Point B.
The following is a list of all the active MRT stations found on Line 3.
Now, it’s debatable whether or not the MRT is “efficient” or “fast”, but for all intents and purposes, we can say that Pinoys rely on this transport system because it’s very affordable.
As the following image will show, though, during rush hour on weekdays, the wait time to get onboard a MRT train can be exceedingly long.
Further, if say a MRT train breaks down during operations, it’s prone to creating bottlenecks, which can result in operations grinding to a complete halt, at least until the issue is resolved.
In other words, all MRT passengers are completely dependent on the MRT network (trains, staff, facilities, etc.) being able to function smoothly.
This is the world of a centralized network, one that most Pinoys are familiar with.
Next, let’s take a look at another type of transportation network which has become very popular over the last decade in the Philippines, Grab.
Although Grab is still a centralized network like the MRT (it’s also owned by a defined entity, in this case Grab Holdings, based in Singapore), it’s different in the sense that it’s distributed.
Grab currently operates in 9 countries, 240 cities and metropolitan areas, and employs over 6,000 people.
Unlike the MRT that can only service passengers from fixed stations (as shown previously), Grab employs and deploys its drivers throughout the country, and is thus able to cover a much greater radius.
Moreover, compared to non-distributed networks like the MRT, individual bottlenecks and maintenance issues are much less of a concern with a distributed network such as Grab.
For example, if you book a ride using the Grab app on your smartphone and your driver cancels, you can simply search again and find another one. Because Grab is a distributed network, there are usually lots of drivers to choose from.
However, it’s worth noting again that Grab is still a centralized network. For example, if there is ever a dispute between its drivers (i.e., Grab employees) and the parent company itself (i.e., Grab Holdings), it’s still possible for the network to be disrupted (temporary or otherwise) until a compromise can be reached.
This is the world of a distributed network, one that most Pinoys are familiar with.
Now, let’s move on from our previous examples of analyzing transportation networks (centralized, distributed) and take a look at a third type of network, a decentralized one.
Particularly, let’s examine an example of a decentralized network that has become very popular in recent years.
What is Bitcoin?
At the most basic level, this is what Bitcoin is:
It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
The above definition might seem tough to digest at first, especially for someone who doesn’t have much experience dealing with decentralized networks in their day-to-day life, so let’s try to tackle things piece by piece, one by one.
Remember in the previous examples when we said that should the MRT ever run into a serious operational issue that it could adversely impact the entire network for all its passengers until it was resolved? Or, how Grab and its distributed network could still be disrupted should the parent company and its drivers ever not agree on certain conditions/terms?
Well, when it comes to Bitcoin, one of the key selling points for its usage as a digital currency/medium of exchange/store of value, is that the entire network has no SINGLE owner; instead, there are many, many, many owners.
So many in fact, it might just be better to call these owners network participants.
In other words, the Bitcoin network is decentralized; it operates in a “trustless” (you don’t know me and I don’t need to know you in order for us to work together as a team and function properly) environment where there is no central/single point of failure. There are also no middlemen or supervisors who you need to seek approval from in order to process a transaction on the Bitcoin network.
Yes, although it’s true that Bitcoin can still be disrupted (it has forked several times already in its “short” history), for all intents and purposes, there is no SINGLE entity in place that pulls all the levers and strings (which is what you would find in a centralized network).
Bitcoin aims to be more of a democracy where anyone is free and able to download the entire Bitcoin software/public ledger and run it (i.e., host a node) on their computer.
Furthermore, Bitcoin is anywhere and everywhere, for most people, as long as you have an internet connection (but as will be shown in the following section, this isn’t even a requirement for the network to continue working).
For instance, Bitcoin currently has over 10,000 reachable nodes (as of April 12, 2020 on a 24-hour chart), spread out across the globe.
Not only is Bitcoin decentralized, but as shown in the image above, it’s also a widely distributed peer-to-peer network.
If a Bitcoin node goes down, it’s no big deal because there are several thousands of other nodes readily available to pick up the slack and keep the network chugging along just fine.
Even under a more extreme scenario, the Bitcoin network would likely just keep on keeping on:
Liz: So, are you saying, in the hypothetical scenario of the United States’ power grid blacking out because of an EMP attack, the Bitcoin network would continue to function in the rest of the world?
Antonio: Yes, that is precisely the case. Also, what most people do not know, is that you do not actually need access to the Internet to perform a Bitcoin transaction. Although the Internet makes it far easier and quicker, Bitcoin would still be able to function the same way it does now.
If the power grid went down in the US, people would still be able to transact, it will just be a little more difficult. The reality is that you can send a Bitcoin transaction through radio frequency, Morse code, and even by smoke signal if you really needed to, and it would be treated in exactly the same manner as an Internet based transaction. Even better is that we now have the Blockstream satellite available.
In addition, without a single administrator or central server in place, Bitcoin becomes a lot tougher (if not impossible) for governments to outright ban or shut down entirely.
Perhaps, at this stage of its lifecycle, Bitcoin has already become globally indispensable?
In summary, what we have discussed so far are the following types of networks:
- Centralized and Non-Distributed (MRT)
- Decentralized and Distributed (Bitcoin)
- Centralized and Distributed (Grab)
In the case of Bitcoin, this is the world of a decentralized network, one that most Pinoys are NOT familiar with.
Thanks for reading. Salamat po.
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Disclaimer: Cryptocurrencies are EXTREMELY volatile! These assets are also very speculative in nature, and no one should ever buy any without first conducting their own thorough research + due diligence. Never put any more capital at risk than you can comfortably afford to lose all of!
As ALWAYS, proceed most carefully, and if you have any questions, please consult a professional financial advisor.