Blockchain Bubble or Revolution: The Present and Future of Blockchain and Cryptocurrencies

by Neel Mehta

Crypto is useful any time there’s an inefficient system that needs a purely technical solution: streamlining international payments, fixing broken supply chains, and so on.

The technologies designed to decentralize power have turned out to give those with power even more.

But we don’t think cryptocurrencies and blockchains are a bubble in the long run because they definitely have value, and they will definitely change the world — just not in the ways they were intended to.

Fortunately, there’s a way out: because hexadecimal often looks a lot like decimal, technologists often put the tag “0x” at the front of a hexadecimal number.)

If you open an image file in a text editor, you’ll see hex.

Hex code

And, of course, Bitcoin loves hexadecimal, especially for hashes: Bitcoin uses hex to encode block hashes[985] and transaction hashes.

For an extra-compact representation of a number, you can use base-64, which uses 64 digits: the 10 Arabic numerals, the 26 uppercase letters, the 26 lowercase letters, and the special characters “+” and “/”.

The problem with base-64 is that it’s not very human-readable.

Characters O o 0 and I l 1

Satoshi developed the base-58 number system to solve these problems.

To make it more human readable

Bitcoin uses base-58 quite often; it’s the standard format for private keys, public keys, and addresses.

Or, more succinctly, inflation happens when the money supply grows faster than the economy’s output.

So, when the central bank (or the Bitcoin software) creates more money, that doesn’t always lead to inflation — inflation only happens if they make money faster than the economy grows.

A better way to think about money demand is this: how much of your wealth would you like to keep as money (cash or checking accounts) instead of as investments (like stocks, bonds, and Bitcoin)?

Money demand boils down to tradeoffs. To think about these tradeoffs, it’s useful to think about how easy it is to spend, or liquidate, assets.

Cash is the most liquid of all assets: you can spend it anywhere instantly.

More liquid assets pay you less interest or returns, while less liquid assets are more profitable to hold; stocks yield more returns than bonds, which yield more returns than cash.

This is for a reason: liquidity is convenient, and investors would only give up that convenience if they got some money in exchange. This is known as liquidity preference theory.

Liquidity is good, and the more liquidity you give up, the more money you expect. With this definition, we can reformulate money demand like so: money demand is how much people want to hold liquid assets.

(This is an example of opportunity cost: the real interest rate is the opportunity cost of holding cash, since every dollar bill you hold is one less dollar you could have earned interest on. When the real interest rate goes down, the opportunity cost of holding cash goes down.)

Throughout Satoshi's writings, this distrust of financial institutions is the most consistent theme. It seems that this is the main reason he created Bitcoin.

Archival node A type of full node that includes not just the entire blockchain but also historical snapshots of the cryptocurrency, such as how many coins each address had at any point in time.

ASIC-resistance A feature of a mining algorithm, such as Ethereum’s, that gives ASICs no edge over general-purpose computers.

ASIC-resistance is desirable because it makes mining more accessible to individuals and hobbyists.

Bitcoin Core The official version of the Bitcoin software. It includes a wallet, software for full nodes, and a transaction validation engine.

Blockchain A decentralized ledger that stores an immutable history of past transactions. Cryptocurrencies are all built around a blockchain, but you can track the movement of any asset, digital or physical, on a blockchain. “Putting something on a blockchain” just means tracking its movement using a blockchain.

DApp Decentralized application (rhymes with “tap”); an app built with smart contracts. DApps’ code is open-source and lives entirely on the blockchain. Compared to conventional centralized apps like Airbnb, Facebook, and Uber, DApps are more resilient (they don’t fail if the company that made it goes out of business) and more transparent (decisions are made entirely by machines, not humans).

Distributed ledger A data structure that logs past transactions and isn’t controlled by any one entity. Anyone can store a copy of the ledger and add their own entries if others approve.

EVM The Ethereum Virtual Machine. Runs the code behind smart contracts. Each miner runs a copy of the EVM on their computers, since they need to execute smart contracts to mine blocks.

Gas A measure of the computing effort needed to run an Ethereum smart contract. Bigger, more complex smart contracts require more gas. When you use a smart contract, you pay miners a small fee for each unit of gas the smart contract consumed.

GPU The Graphics Processing Unit, a special computer chip normally used to draw images on the screen. Computer graphics require a lot of math, so the GPU is good at running many complex math operations simultaneously.

Cryptocurrency mining also happens to require a lot of complex math operations, so GPUs are quite good at mining — better than CPUs but still weaker than ASICs.

Halving When a cryptocurrency’s block reward is cut in half, usually once every few years. Because of halving, block rewards slow down and eventually stop, causing the supply of cryptocoins to plateau.

Hardware wallet A device that stores private keys and lets you authorize cryptocurrency transactions without ever putting your private key on your computer. This way, a hacker can’t get your private key even if they can see everything on your computer. A form of cold storage.

Hash A (hopefully unique) fingerprint of a piece of data. Hashes are concise ways to refer to digital objects.

Node A phone or computer that runs the Bitcoin software. To buy or sell Bitcoin, you need to run a node.

NFTs aren’t interchangeable (or “fungible”), while normal tokens and cryptocoins are: one bitcoin is the exact same as any other bitcoin, but a token representing a digital sword is very different than a token representing a digital dragon.

Proof-of-stake (PoS) A new mining scheme where miners put up their money as collateral; miners with more money at stake are more likely to be chosen to mine the next block.

Proof-of-work (PoW) A mining scheme where miners that put in the most work (i.e. make the most hashes) are more likely to win.

Smart contract A piece of code that lives on the blockchain and can move cryptocoins and tokens around based on certain rules.

For instance, a poker smart contract could take in some coins from each player, compare everyone’s hands at the end of the round, and automatically pay out the winner. Governed by code, not the legal system, as normal contracts are. Most commonly used in Ethereum.

Tangle A blockchain competitor that stores transactions not in a list but in a spaghetti-like data structure.

The DAO A famous attempt to create a DAO, The DAO was an Ethereum project that was a sort of crowdsourced, automated venture capital firm. People would invest money in The DAO and vote on projects to fund — and smart contracts would ensure that the DAO automatically invested in whatever got the most votes.

This highlights the problem with DAOs: when code is law, bugs and hacks can’t be fixed or worked around.

Token A virtual item, tracked on a blockchain, that represents the ownership of some asset. You could represent land, stocks, oil barrels, or any other asset with tokens.

Turing-complete A programming language or platform that can do any possible computation, given enough time and hard drive space. Most smart contract platforms, such as Ethereum, are Turing-complete; that is, you can do any kind of computation in a smart contract.[1188]

ETC: Ethereum Classic The older version of Ethereum. Ethereum Classic suffered a major hack in 2016, when $50 million was stolen from a decentralized venture capital organization known as the DAO. Most ETC users decided to make a hard fork of ETC that rolled back the theft; this new cryptocurrency became known as just Ethereum (ETH).

ETH: Ethereum Perhaps the most famous and important cryptocurrency after Bitcoin, Ethereum offers smart contracts that let developers build decentralized apps (DApps) on the blockchain.

Each time you use a smart contract, you pay a small fee for each action the smart contract takes. This fee is paid in ether (ETH), which can be bought and sold like a normal cryptocurrency.

LINK: Chainlink Chainlink is a specialized service, known as an “oracle,” that lets smart contracts access data about the real world (weather, stock prices, etc.) in a decentralized way.

NEO An Ethereum competitor backed by the Chinese government. (Meanwhile, Ethereum is run by a governing body made of many Western tech and finance companies.[1214])