The truth about blockchain: A look at the future of blockchain from the TCP/IP journey

Contracts, transactions, and other information records have become important structures in the economic system now, but the downside is that they have not kept pace with the world’s digital transformation, so they are like cars stuck in rush hour, in a dilemma. Blockchain, on the other hand, promises to solve this dilemma.

The truth about blockchain: A look at the future of blockchain from the TCP/IP journey

Foreword: Contracts, transactions and other information records have become important structures in the economic system nowadays, but the drawback is that they have not kept pace with the digital transformation of the world, and thus they are like cars stuck in rush hour, in a dilemma. Blockchain, on the other hand, promises to solve this dilemma.

Contracts and transactions, among others, record important elements of our economic, legal, and political systems, with which assets can be secured and rule boundaries defined, with which the interactions between states, social organizations, and individuals can be managed, and which guide the direction of management and the way society behaves, yet in the process of social development, these critical tools and the institutions that manage them have not kept pace with the digital transformation of the economy process and are stuck in a rut. Hairball Technology Industry Insights believes that in today’s highly digital age, the way in which administrative control is regulated and maintained must change.

The beauty of blockchain: enabling free transactions and interactions
Blockchain, the technology at the heart of Bitcoin and other virtual currencies, promises to solve this problem. As an open, distributed ledger, blockchain is capable of recording transactions between two parties in an efficient, verifiable and permanent manner. So how does blockchain work and can it solve the problem? Hairball Technology summarizes five technical features of blockchain.

Distributed Database

Each party on the blockchain has access to the entire database and its complete history. No one party controls the data or information. Each party can verify the records of its trading partners directly, without intermediaries.

Peer-to-Peer Transmission

Communication occurs directly between peer points, not through a central node. Each node stores the information and forwards it to all other nodes.

Anonymous and transparent

Anyone with access to the system can see each transaction and its associated value. Each node or user on the blockchain has a unique 30+ character alphanumeric address to identify it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.

Irreversibility of records

Once a transaction is entered into the database and the account is updated, the records cannot be changed because they are linked to every transaction record before them (hence the term “chain”). Various computational algorithms and methods are deployed to ensure that the records on the database are permanent, chronological, and available to all others on the network.

Computational Logic

The digital nature of ledgers means that blockchain transactions can be associated with computational logic and are inherently programmable. So users can set up algorithms and rules that automatically trigger transactions between nodes.

One can imagine if the above five advantages that blockchain possesses are not as a result of the general population’s desire to have autonomy without centralized control. A world where contracts are embedded in digital code and stored in a transparent, shared database through blockchain technology and are not controlled by centralized institutions and are not deleted or tampered with.

In this world, every agreement, process, task, and payment would have a digital record and signature that can be identified, verified, stored, and shared, and individuals, organizations, machines, and algorithms would be free to transact and interact with each other with little to no friction. That’s the beauty of blockchain.

Of course, this is an ideal state. Although now we hear every day that blockchain will change traditional business models and will redefine how companies operate and how the economy works. This information makes our blood swell with enthusiasm, but there is always some uncertainty that accompanies the creation of something new. For example, exchanges collapse, or are hacked, and these security issues then arise.

Through the experience of previous technological innovation we can find that for blockchain to become a revolutionary wave like the Internet, all obstacles need to be regulated and governed. Hairball Technology Market Research does not believe that it is a mistake to jump headlong into blockchain innovation without understanding how it should stand in this era.

Although blockchain is a “disruptive” technology that can surpass traditional business models with low-cost solutions, it should take some time to truly transform blockchain-led businesses and companies. As a fundamental technology, it may create a new foundation for our economic and social systems, but it will take decades to fully penetrate the economic and social infrastructure.

Hairball Technology believes that blockchain will gain momentum under the wave as technology and systems change, but the process will be gradual rather than sudden.

The future journey of blockchain from TCP/IP journey
Before discussing the future journey of blockchain, Hairball Technology takes you through the process of technology adoption, especially the typical transformation process of other basic technologies. The following will take the distributed computer network technology (TCP/IP) as an example.

TCP/IP was introduced in 1972 and first gained a single use case as the basis for email for researchers at ARPAnet, the commercial Internet predecessor of the U.S. Department of Defense. Prior to TCP/IP, the telecommunications architecture was based on “circuit switching,” in which a connection between two parties or machines had to be established in advance and maintained throughout the switching process. To ensure that any two nodes could communicate, telecom service providers and equipment manufacturers had invested billions of dollars in building private lines.

The advent of TCP/IP has turned this paradigm on its head. The new protocol transmits information by digitizing it and breaking it down into very small packets, each containing address information. Once released into the network, packets can be routed through any route to reach the recipient. Intelligent sending and receiving nodes at the edge of the network can decompose and reorganize packets and interpret the encoded data. There was no need for dedicated private lines or a large infrastructure. TCP/IP created an open, shared public network without any central authority or party responsible for maintenance and improvement.

At the time, the traditional telecommunications and computing sectors were skeptical of TCP/IP. Few thought that robust data, messaging, voice and video connections could be built on the new architecture, or that the associated systems could be secure and scalable. But in the late 1980s and 1990s, a growing number of companies (such as Sun, NeXT, Hewlett-Packard, and Silicon Graphics) used TCP/IP, in part to create localized, private networks within their organizations. In response, they developed building blocks and tools that extended their use beyond email, gradually replacing more traditional local networking technologies and standards. As organizations adopted these building blocks and tools, they saw dramatic increases in productivity and efficiency.

With the advent of the World Wide Web in the mid-1990s, TCP/IP suddenly entered widespread public use. New technology companies quickly emerged to provide the “plumbing” – the hardware, software and services needed to connect to the now-public network and exchange information. Netscape commercializes browsers, Web servers, and other tools and components that facilitate the development and adoption of Internet services and applications, and Sun drives the development of the application language Java. As information on the Web grew exponentially, Infoseek, Excite, AltaVista, and Yahoo came into being and guided users through it on the platform.

Once this basic infrastructure reached critical mass, a new generation of companies took advantage of low-cost connectivity by creating Internet services that were attractive alternatives to existing businesses. cnet moved news online. Amazon offers more books than any bookstore. Priceline and Expedia make it easier to buy airline tickets and bring unprecedented transparency to the process. The ability of these newcomers to gain widespread reach at relatively low cost puts enormous pressure on traditional businesses such as newspapers and brick-and-mortar retailers.

Relying on widespread Internet connectivity, the next wave of companies are creating novel, transformative applications that fundamentally change the way businesses create and capture value. These companies are built on new peer-to-peer architectures and create value by orchestrating distributed networks of users. Consider how eBay transformed online retail through auctions, Napster transformed the music industry, Skype transformed telecommunications, and Google transformed Web search by using user-generated links to deliver more relevant results.

Ultimately, it took more than 30 years for TCP/IP to go through all the stages – single use, localized use, substitution and transformation – and reshape the economy. Today, more than half of the world’s most valuable publicly traded companies have Internet-driven, platform-based business models. The foundations of our economy have changed. Physical scale and unique intellectual property no longer confer unparalleled advantages; increasingly, economic leaders are businesses that act as “cornerstones,” proactively organizing, influencing, and coordinating a broad network of communities, users, and organizations.

Blockchain, a peer-to-peer network on top of the Internet
The parallels between blockchain and TCP/IP are clear. Just as email supports bilateral messaging, Bitcoin supports bilateral financial transactions. The blockchain is developed and maintained openly, distributed, and shared – just like TCP/IP. Teams of volunteers around the world maintain the core software. Like email, Bitcoin first became popular among an enthusiastic but relatively small group of people.

TCP/IP unlocked new economic value by dramatically reducing connection costs. Similarly, blockchain can dramatically reduce transaction costs, and it has the potential to become the system of record for all transactions. If this happens, the economy will again be fundamentally transformed as new, blockchain-based sources of influence and control emerge.

Consider again the way business works now. Keeping an ongoing record of transactions is a core function of any business. These records track past actions and performance, and guide future planning. They provide a view not only of how the organization operates internally, but also of its relationships externally. Every organization has its own records, and they are private. Many organizations do not have a general ledger of all activities; instead, records are distributed among internal units and functions. The problem is that coordinating transactions between individual and private ledgers is time-consuming and error-prone.

For example, a typical stock transaction can be executed in a matter of microseconds, often without human intervention. However, settlement – the transfer of ownership of shares – can take up to a week. That’s because the parties do not have access to each other’s ledgers and cannot automatically verify that the assets are actually owned and can be transferred.

In a blockchain system, on the other hand, the ledger is replicated in a large number of identical databases, each of which is hosted and maintained by the parties involved. When a change is entered in one replica, all other replicas are updated simultaneously. Thus, as transactions occur, a record of the value and assets exchanged is permanently entered into all ledgers. No third-party intermediaries are required to verify or transfer ownership. If a stock transaction occurs on a blockchain-based system, it will be securely and verifiably settled in seconds.

How long it will take for blockchain to be adopted
If the analogy is to the early days of email, does blockchain have decades to reach its full potential? Hairball Technologies believes the answer is yes. We can’t predict exactly how many years the transition will take, but we can guess which types of applications will get noticed first and how blockchain will eventually become widely accepted. The following Hairball Technology Research Department takes a look at the situation.

Foreign Nature scholars Marco Iansiti and Karim R. Lakhani have developed a framework model for “base technology stage adoption analysis” that divides base technology into four stages, or quadrants, each of which represents a stage of technology development.

In the analysis of the Foundation Technology Stage Adoption Analysis framework model, there are two aspects that influence the way in which the foundation technology and its business use cases evolve. The first is novelty – the degree to which the application is new to the world. The more novel it is, the more effort is needed to ensure that users understand what problem it solves. The second dimension is complexity, expressed by the level of ecosystem coordination involved – the number and diversity of parties that need to work together to create value from the technology. For example, a social network with only one member is of little use; a social network is only valuable if many of your own connections are logged in, which means that other users of the application must be engaged in order to create value for all participants. The same is true for many blockchain applications.

The truth about blockchain: A look at the future of blockchain from the TCP/IP journey

(Framework model of “Basic Technology Phase Adoption Analysis”)

In the model, each phase is defined by the novelty of the applications and the complexity of the coordination effort required to make them viable. Applications with low novelty and complexity are recognized first. TCP/IP technology, introduced at ARPAnet in 1972, is already in the transition phase, but blockchain applications (red) are still in the early stages.

With the above, we can see that the path to blockchain is very similar to TCP/IP, which has paved the way for blockchain. TCP/IP is already ubiquitous and blockchain applications are built on top of digital data, communication and computing infrastructure, which reduces the cost of experimentation and will allow new use cases to emerge quickly.

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