If you haven’t noticed, revolution is in the air. That is, a blockchain revolution.

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Blockchain is changing the way the world does business. Blockchain technology speeds up and reduces the cost of transactions, and boosts financial inclusion by providing more opportunities by allowing easy access to financial services because of the many advantages it offers, the first of which is keeping data secure.

According to a survey by Blockdata, 81 of the top 100 companies use blockchain technology. Walt Disney was among the early adopters of blockchain. Paypal now allows trading of Bitcoin and other cryptocurrencies on its platform. Microsoft has started blockchain operations, and Amazon moved to distributed ledger technology and blockchain in 2019. The market value of the blockchain industry currently stands at close to $6 billion, and is expected to reach $67.4 billion by 2026.

What is a Blockchain?

A blockchain is a ledger of transactions distributed amongst network participants, a decentralized, peer-to-peer operation. Blockchain relies on the participation of many individuals across a global network. If we know one thing about humankind, we are inherently selfish. Incentives (typically financial ones) motivate us when spending our time and resources.

To garner individual participation, blockchain offers incentives. Without people to validate transactions and store the ledger history, Bitcoin (bitcomp) would be useless. It would stand still in time.

Thankfully, this is not the case. Many blockchains use a Proof of Work (PoW) consensus algorithm that uses complex computational work to validate the network. Such a mechanism depends on individual actors as “miners” and “nodes.”BITCOMP

Blockchain Miners

Blockchain miners are the backbone of all PoW blockchains, responsible for gathering transactions, packaging them into a “block,” performing the needed PoW, and publishing them to a distributed ledger. We know these blocks as the blockchain, and the rewards for miners are a set amount of cryptocurrency that they receive for their efforts and a transaction fee sometimes.

For example, in 2022, miners will get 6.25 bitcoins for their activity. In 2024, the PoW platform will reward them with 3.125 bitcoins. The miner who solves the puzzle first receives the reward. The mining process takes approximately 10 minutes for every machine on the network, and the puzzle adjusts every 2016 blocks.

As in any business, the revenue must exceed the costs. There are two keys areas to keeping costs lower:

• Efficient Hardware

Powerful equipment is required for mining. The more computing power, the more Bitcoin mined.

• Electricity Expenses

Electricity costs vary from state to state. Having efficient hardware and keeping an eye on electricity costs are two important ways to lower costs.

Blockchain Nodes

Nodes are also critical to the integrity of a blockchain. They are responsible for broadcasting new transactions, validating blocks, sharing them with the network, and storing the ledger history on their local systems. A blockchain does not function without peer-to-peer participation as nodes.

Here’s the catch: nodes are not traditionally rewarded for their contributions to a blockchain. Unlike mining, there aren’t incentives to being a node. It costs time and energy, which means good actors are less likely to take part in blockchain node duties in the long term. Regardless, trustworthy nodes are critical to the decentralization of a network.

Ponzi Scheme or Strategic Community Bootstrapping?

With all-new forms of enterprise, you find opportunities along with the possibility of fraudulent behavior.

In a CNBC interview, “Black Swan” author Nassim Nicholas Taleb called bitcoin a “gimmick” and a “game,” likening it to a Ponzi scheme. Taleb called it a “gimmick” that’s too volatile to be a currency and an unsafe hedge against inflation.

Taleb isn’t alone. The United States Security and Exchange Commission’s (SEC) Office of Investor Education and Advocacy issued an investor alert to warn individual investors about fraudulent investment schemes that may involve Bitcoin and other virtual currencies.

While there is a reason for vigilance, there are companies whose sole purpose is to bring about the security and decentralization to blockchains. As such, it’s vital to look for a company that will provide support with a community-first mantra that will give:

• An ecosystem for blockchain infrastructure projects around the world to build upon
   
• Democratizing blockchain validation and delegation to maximize community rewards
   
• A long-term solution to liquidity and sustainability concerns

The “Infrastructure DeFi” Vision

The vision of DeFi, or decentralized finance, is to provide a transparent financial system where anyone can take part. It allows unbanked people to access financial and banking services via blockchain technology. DeFi’s goal is to build an open-source, transparent financial services ecosystem available to all investors.

The SEC released a statement entitled, “Defi Risks, Regulations, and Opportunities,” in which they stated, “DeFi presents a panoply of opportunities. The success of DeFi relies on sound infrastructure. However, it also poses important risks and challenges for regulators, investors, and the financial markets. While the potential for profits attracts attention, sometimes overwhelming attention, there is also confusion, often significant, regarding important aspects of this emerging market.”

The SEC statement highlighted two significant hurdles that the community should address:

• A lack of transparency

Currently, the quality of that code can vary drastically, and has a significant impact on investment outcomes and security. According to the SEC statement, “Only a relatively small group of people can read and understand that code, and even highly qualified experts miss flaws or hazards. Suppose DeFi has ambitions for reaching a broad investing pool. In that case, it should not assume that a significant portion of that population can or wants to run their testnet to understand the risks associated with the code upon which their investment prospects rely. It is not reasonable to build a financial system that demands investors also be sophisticated interpreters of complex code.”

• Pseudonymity

“Because of pseudonymity, the blockchain displays the blockchain address that sent or received assets, but not the identity of the person who controls it.”

“Without an efficient method for determining identity, it is very difficult to know if asset prices and trading volumes reflect organic interest or are the product of manipulative trading by, for example, one person using bots to operate multiple wallets, or a group of people trading collusively.”

Joining the Revolution

Deciding to invest in anything new and untested is daunting. It’s critical to find professional support you can trust to guide and educate investors.

While blockchain technology matures rapidly, there are many people behind the scenes making sure that the core infrastructure is safe. One thing is clear; blockchain is here to stay.