Decentralization, security, privacy, and immutability of transactions were essential to the success of blockchain for exchanging cryptocurrencies. In 2008, Satoshi Nakamoto, a still unknown person or persons, published a white paper on bitcoin, the first successful cryptocurrency, as a peer-to-peer electronic cash system than can be exchanged on blockchain without the involvement of a financial institution.
After turbulent beginnings, bitcoin scaled rapidly with substantial gains in value from nearly $0 per unit in 2009 to over $6,000 as of this writing. As a new currency bitcoin has several unique features, most notably the fact that it’s not pegged to traditional standards such as gold or monetary policy set by a central bank. Bitcoin’s value is driven by demand in a distributed network outside traditional banking and financial assemblies. Previous attempts at creating cryptocurrencies never scaled due to the absence of the self-propagating and decentralized substrate made possible by blockchain. Since the advent of bitcoin, other cryptocurrencies emerged, each with varying degrees of success that collectively represent a newcurrency market with a market cap of about $750 billion today. In the bitcoin implementation of blockchain, special nodes known as miners assume functions that are conventionally performed by financial institutions, conducting a series of complex computational tasks to validate transactions. Miners compete on the network and are paid fees for successful validation of transactions in blocks that are sequentially added to the chain.
Satoshi Nakamoto's original paper
is a must read for those with a serious interest in blockchain and cryptocurrencies
The success of bitcoin has inspired a dynamic debate as stakeholders aim to identify new use cases for the underlying technology. Among the many advantages of blockchain, decentralization is the key feature that can accommodate new ways of handling any digital asset: from health data to data generated as part of the complex series of events in supply chain management. Conducting transactions on blockchain can be facilitated by not only miners, but also highly customizable smart contracts. After satisfying a set of pre-programmed rules, smart contracts automatically execute legally-binding agreements that can obviate the need for human-guided judicial interpretation.
Despite the great potential, the key benefit of blockchain, i.e., decentralization, is ironically the feature that poses the most significant barrier to developing sensible business models for use case beyond cryptocurrencies. Given that the largest gains in efficiency are through decentralization and delegation of transactional functions to miners and auto-executable smart contracts in a distributed network, having an entity impose a business model onto the chain can create unnecessary central control, defeating the purpose of using blockchain. Resolution of this paradox has been the focus of new business models with modified blockchain implementations such as private networks and proprietary smart contracts. To date, none of these implantations have enjoyed the success of truly decentralized configurations. Blockchain is far from being a suitable substrate when the value proposition is derived from proprietary governance over transactions or ownership of the technological foundation. Successful online retail companies with standard proprietary platforms can manage an hourly load of millions of transactions with impressive precision and scalability. There are limited incentives for such companies to decentralize activities by moving transactions from their central control to blockchain, countering their value as branded business entities.