Behind the Blockchain curtain - Part 1

Last week, whilst on annual leave from my day job, I decided to volunteer to help a friend Steve Vallas out at the first ever Australian Blockchain Week, run by Blockchain Australia. 

I decided I wanted to tie a little bow around what was an incredible week of learnings so I’m writing this blog for myself to consolidate what I now think I know of certain topics, themes and everything in between. But if you decide you want to read on, maybe it might help demystify some terms like DeFi and provide just a little bit of insight into this new technology ecosystem. 

I’m a newbie to this space but I’ve also laid the foundations for my knowledge, particularly over the last 4-8 months. I made my first crypto investment during Melbourne’s hard lockdown in August last year and my regular content consumption has found itself skewing more in favour of hearing about these things called NFTs (non-fungible tokens) and what the world of the internet might look like in the coming years. 

What is web 3.0? 

It’s a ‘media wank' term. Well, that wasn’t what I was expecting from Wikipedia but hey… Okay, let’s try this link instead. 

To me, I consider Web 3.0 an umbrella term that covers across many different areas that are enabled by blockchain. Examples being DeFi (decentralised finance), NFTs (non-fungible tokens), DApps (decentralised apps) and cryptocurrencies. 

For context: 

Web 2.0 = the rise of social media, smart phones and cloud computing. 

Web 1.0 = the early days of desktop browser internet access (shoutout dogpile.com), the start of e-commerce (remember when you used to freak about putting your credit card details ‘into the internet’) and some memorable early chat services like ICQ and MSN Messenger. 

What’s a blockchain? 

The engine powering the items above I listed under the Web 3.0 umbrella. A blockchain is immutable, no going back, and tinkering with outcomes. It’s signed, sealed, delivered and immutable. The first blockchain was Bitcoin. 

Put another way, blockchains can keep commitments. Bitcoin’s commitment is there will only ever be 21 million Bitcoins, no one individual or organisation can change that. The commitment is built into the code. 

Here’s what Wiki says about blockchains. 

Probably my favourite analogy from what I heard last week about what a blockchain is was from Piper Alderman’s Michael Bacina,

“It’s kind of like a google sheet that everyone has access to but it’s jammed on track changes forever”

Bitcoin

The most powerful brand in the space. And, under the web 3.0 umbrella, often the most polarising. 

What is it? Well, if you ask my Dad over a glass of Shiraz, he’ll tell you “it’s artificial”. 

If you ask a “Bitcoin Maxi” (short for Bitcoin Maximalist), they’ll roll off many reasons why Bitcoin (BTC) is the only cryptocurrency you should bother with. For a Bitcoin Maxi, it’s Bitcoin and everything else is a sh**coin. 

Personally, I liked the framing of Ari Paul on Kevin Rose’s Modern Finance podcast,

"Email was internet native communication. Bitcoin is internet native money.” 

BTC was created by Satoshi Nakamoto who most believe is a pseudonymous person or group of people. 

As I write this, Twitter tells me this week marks a decade since the world last heard from Satoshi. Who’s Satoshi? Probably more likely we find out who shot Tupac or Biggie. 

Bitcoin gets the most attention and it’s no wonder why. It was first to the party, it has true scarcity - particularly when comparing to plenty of the Altcoins (apologies Maxis' “sh**coins”) and the gains it has had in its short 12 year history are actually hard to comprehend. 

There’s generally a battlefield of views of #Bitcoin on Twitter on a daily basis. The Bitcoin bears want it to go to zero and the Maxis’ band together and have created internet slang terms like “HODL” - short for holding for the long term, “Stacking Sats” - short for regularly accumulating small amounts of Bitcoin and “Diamond Hands” - short for holding their position no matter what. 

Cryptocurrencies 

Bitcoin is one and easily the biggest one. Ethereum is the Robin to Bitcoin’s Batman although their respective communities are not as in sync as the dynamic duo of my childhood. 

Here’s a basic definition. 

I find it hard to explain due to the volume of cryptocurrencies on the market. It’s the wild wild west right now. Just download an app like “CoinGecko” and watch the wild swings. There are groups popping up everywhere on apps like Discord, Reddit and Telegram where people are making big gains speculating on different cryptocurrencies (Bitcoin and Altcoins). 

It’s easy to get sucked into the vortex of the volatile crypto market but it’s not just about the speculative nature of these coins/tokens, there’s a race on to become a platform of significance over the coming decades. 

Many cryptocurrencies are not just in the business of trying to create another form of digital money. They are building out decentralised platforms that can be built on top of, and the price to play on the respective platforms are not traditional dollars but rather ‘tokens’ that are native to each platform. 

Let’s rewind to my ‘Timezone’ days. I would trade my AUD dollars for Timezone tokens to play Daytona 500, shoot hoops on the basketball game and play that ‘bowl the heavy sized brown tennis ball up the lane into one of five circles' game (horrible description Greg, moving on). Well, to play on these new Web 3.0 platforms being built, you need to redeem their version of the Timezone tokens. 

Ethereum is the largest player in terms of a utility platform with its own native token “ETH” but there are others with similar objectives to build something that will last. Examples being Polkadot, Binance and Cardano. 

Two cryptocurrencies that I met representatives of last week at Blockchain Week were Algorand and Synthetix. There’s a recorded session featuring Jason Lee from Algorand Foundation titled "Building the Borderless Economy with Algorand" and a session with Synthetix co-founder titled "A conversation Kain Warwick". The recordings can be found here.

DeFi 

Decentralised Finance. Let’s revisit Ari Paul’s quote again but extend it; 

“Email was internet native communication. Bitcoin is internet native money. DeFi is internet native banking and finance.” 

The way I’m viewing DeFi for now from a simple perspective is building banking functions such as lending and interest on top of what is already more established - the storing of, and transfer of cryptocurrencies over decentralised networks. 

A term I came across with DeFi (amongst many others) was ‘staking’. Think of it in a traditional sense as earning dividends on your shares or earning interest on your bank deposits. 

Let’s look at a tangible example of staking. BTC Markets CEO, Caroline Bowler last week announced that BTC Markets, one of Australia’s biggest digital currency exchanges, would be offering staking on cryptocurrency Alogrand (ALGO). 

BTC Markets define staking as, “a method used to support the operations of a blockchain network, through buying and holding crypto in your account. In return for doing this, you will automatically receive more crypto as payment from the blockchain network. These payments are known as ‘crypto rewards’.” 

Today, for ‘staking’ your ALGO on BTC Markets, your estimated annual percentage yield (APY) would be 6.06%. 

Adrian Manning, one of many interesting speakers last week broke down the mindset shift of centralised v. decentralised finance as follows; 

“In terms of finance, you use the internet to connect to your banks. But you’re connecting to a singular bank. The idea is the trust model. If the bank was corrupt or got hacked or was malicious in some way, they could change your balance. Your balance gets modified because there’s a singular actor governing all your banking. 

“In a decentralised system, opposed to the trust model, you don’t really have these singular actors anymore. Instead of having a bank, you now have a distributed set of computers. There’s no one individual running your money but they’re following a singular set of rules,” Manning stated in the "Building the Decentralised Future" session. 

This is a massive shift. Personally, I trust my bank here in Australia. Maybe trust is the wrong word. I feel ‘secure’ with my bank here in Australia. Of course, I know they get the best outcomes, you’re playing against the house at the casino but whenever something has gone wrong I can contact the bank and more often than not, have the issue rectified. 

Now, the above is going to sound in the realms of a “get off my lawn” moment from Clint Eastwood in Gran Torino for many of the characters I spent the week with at Blockchain Week. 

But it’s a huge shift to go from a world where I’ve grown up trusting my money is safe with banks to a world where I trust my money with lines of computer code enforced by randoms in front of a computer from all across the world. 

Why do I feel this way? And why do I guess 90% of my family and friends would feel the same way? 

Because DeFi has a branding issue. 

Banks have spent billions of dollars annually for decades upon decades on advertising and infiltrating our lives through every media platform possible. Whether you want to admit it or not, they have established brands. 

It’s obviously very early in the DeFi journey but it feels to me there is some ground to be covered before the average Australian is choosing decentralised over centralised. Having said that, money/crypto talks. I think it’s a “dip my toe in the water” strategy like Bitcoin has been for many individuals. 

I’m sure if my worldview was shaped by an upbringing in a country with a less stable government and banking infrastructure, my opinion could be quite the polar opposite and that’s what I think makes this new wave of technology even more fascinating. Geopolitics is nearly always referenced when decentralisation is put on the agenda. 

I can’t wait to try to explain and pitch my Dad on the concept of DeFi with Bitcoin being met with such resistance. 

Summary 

I didn’t cover a few other blockchain related topics I heard plenty about last week like NFTs, smart contracts, regulation and the Metaverse (say what…). Part two soon. 

There is so much to digest and rabbit holes everywhere to go down. You really do need to unlearn so many things you already know to wrap your head around new concepts, especially when many of these new concepts involve money. 

It’s exciting and scary all at the same time. The genie is out of the bottle.