Evan Galbraith

Reflections on Policy, Technology, & Society

Blockchain for Beginners

Evan Galbraith's Blockchain for Beginners

Evan Galbraith’s Guide to Blockchain by Someone Who Doesn’t Know About Blockchain

If you’re anything like me, you’re hearing more and more news stating: Blockchain is the future; or the price of Bitcoin is fluctuating; or hundreds of new cryptocurrencies are being created; or Initial Coin Offerings (ICOs) are raising billions; and, you’re confident those things are all related and figure it’s probably pretty important but you don’t really know what to make of it.

A few encounters prompted me to dig into what all of these things are, and consider what they mean to ordinary people.

Encounter 1:

A few weeks back at an open talk at the London School of Economics, Shane Hall, the Chief Technology Officer of HP, said that blockchain is going to be as disruptive to society as the internet. I had heard this statement before, about the supposedly disruptive nature of blockchain technology. I knew it has something to do with Bitcoin, but wasn’t really familiar with what it actually means.

Encounter 2:

Last week some friends told me they put money into an Initial Coin Offering (ICO) for a start-up in the blockchain world. Not their life savings, but some real money. They were excited, noting quite a few ICOs have increased in value by a factor of ten. When I asked how it worked, they couldn’t really explain it to me – a friend had done the background research and decided it was a worth a shot as a group investment, but loosely speaking they had purchased some cryptocurrency in order to bid on tokens through an ICO. Somehow that would create value, and they’d own a bunch of these tokens which can be sold for a profit at a later date. That all seems pretty confusing from an investor perspective. But they were excited to be a part of the ICO boom, which raised nearly $6 billion USD in 2017, and has shown very lucrative initial returns for some people.

Encounter 3:

A couple of days later I spoke with a friend who manages an incubation program for start-ups, and who has recently begun meeting with blockchain start-ups. She noted that, unusually for start-ups, they are flush with cash. To give a sloppy overgeneralization of most start-ups: A traditional one would build the foundation of a working business and convince funders/venture capitalists (VC) to pump money in, based on their very early idea and execution, often in the magnitude of tens to hundreds of thousands of dollars (maybe a few million if they’re really kicking ass), for a new idea to initially get off the ground. Then they go through a chaotic circular process of scaling up, followed by more VC funding, followed by scaling up, etc. until they are profitable[i]. This friend has been meeting with blockchain start-ups of 3-4 employees, who have raised over $50 million USD each through ICOs. These companies don’t even necessarily have a functioning market-tested product. Rather, they’ve raised that scale of money based on their conceptual blockchain business models.

At first glance, I had a number of take-aways:

  • I should learn more about this blockchain;
  • As an investor there appears to be tantalizing profits to be made from blockchain;
  • For start-ups there is all sorts of money available to launch a blockchain business idea;
  • This all seems far too good to be true and I’m clearly missing some very important points.

It’s tempting to skip past take-away number 1), and instead excitedly leap straight into take-away 2), or even try to start on my own 3), while ignoring number 4), which, consequently links back to point 1).

After all, if blockchain is going to be as disruptive to society as the introduction of the internet, that’s something I should be a part of – is this a chance to get in at the ground floor of the next Google or Amazon?

But at the same time, I can’t help but wonder, aren’t those kinds of returns too good to be true? And, is it clear how these businesses will monetize their ideas? And, come to think of it, were there any lessons to be learned out of the adoption of the revolutionary internet, and the many companies not called Google or Amazon that no one remembers?

What’s more, what do all these terms mean? How do I disentangle blockchain, bitcoin, cryptocurrencies, ICOs, tokens, and the many other terms linked to this technology being bandied about? And where should I – as a person who doesn’t really know what any of this means – start in making sense of it? It was in this state, as an ordinary person interested by these encounters, along with the corresponding take-away questions they piqued, that I decided to attempt to decipher it.


What is Blockchain?

First, I want to learn about blockchain, and understand why it’s so revolutionary.

Plenty of folks have given descriptions of what blockchain is, in a technical sense. Articles have been written, and basic conceptual and detailed technical videos can give you a detailed rundown. In its most basic sense, a[ii] blockchain is an incredibly secure digital ledger, used to record online transactions between parties. It’s incredibly secure because it’s data is distributed amongst all its users, and it continuously saves and shares snapshots of its data (known as blocks) throughout that entire distributed network. This means that a hacker can’t go back and change blocks without the approval of a majority of participants. And it’s easy to tell when someone tries to change/hack it, because each block has a unique identifier that depends on being linked with the block before it (meaning there is a chain connecting each block). If you change any single piece of data on any block at any point in the chain, all of the unique identifiers tell you they’ve been tampered with. And adding a new block onto the end of the chain is done by randomly picked users, so no central authority ever has a chance to tamper with data entry. 


Why is Blockchain Important?

At first glance this doesn’t sound all that exciting, nor does it seem revolutionary. A database that keeps many versions of records and shares those records seems a bit blasé to be labeled a “revolution”. That is, until you think about how much of our lives are affected by records of data. Your passport, birth certificate, and driver’s license? Your identity is stored as pieces of data. Proof that you own your home? That deed is data. Your medical records? Those are all data. Every single transaction you make for food, clothing, shelter, and enjoyment? Each transaction creates data. Your online activity? All data.

Currently, our governments, banks, companies, and the various entities that we interact with on a daily basis all store data about us. Governments make rules about what can be stored and how it can be shared, and then all of that data is owned by those who have collected it, stored in something akin to digital warehouses, and always exposed to some prospect of security breach. We rely on the biggest holders of our most sacred data to be one step ahead of hackers, and generally they do a pretty good job of that. Sometimes, however, companies fail, or warehouses are broken into, and data is exposed, stolen, or tampered with.

When our data is breached, it can be bad. Ever talked to someone who has experienced identity theft? They can have to deal with the repercussions for years – their bank accounts can be compromised, their credit ratings can plunge, everyday purchases can become a hassle, and even crossing borders can become challenging. The list of inconveniences goes on.

We also assume that in today’s digitalized world it should be easy to sort through all of our data. For example, surely in this day-and-age you’d think we should be able to securely vote online. Or, that a visit to a hospital for an illness would automatically update a GP’s records. But actually, these sorts of tasks are hard share securely but are vastly important, which means that the potential for them to be compromised is not worth the risk.

Blockchain has the potential to completely overhaul all data security and sharing. In today’s digitalized world, that’s pretty significant.

Because analogies are fun, I’ll make a crude one: Think of the world wide web as the onset of language, and consider blockchain as the first permanently recorded writing.

Thousands of years back, language allowed humans to share and learn more effectively than other animals. We could easily pass on information by having conversations, which meant knowledge could be shared through our networks. The exchange of knowledge, however, was limited to in-person interactions. This served us pretty well, but if you ever played the game Telephone as a kid, you also know that a verbally communicated story is also susceptible to alteration.

The introduction of an alphabet to record our language made it possible to pass along knowledge to large audiences. Writing doesn’t depend on face-to-face interactions to transmit knowledge, because it creates a permanent record of an idea that can be passed over vast geographical distances. It also retains its meaning over long timeframes. It is how empires were able to organize themselves and spread their ideas. And it’s why today we still know the details of what the ancient Egyptians believed in and how details of how they organized themselves. Without writing we’d probably have stories that passed on semblances of the existence and history of ancient Egypt, or some version of it, but writing has provided us with snapshots of their lives. Writing meant Egyptians could organize and administrate across a large empire, and pass that information about their empire on to future humans.

To underscore the importance of writing in the spread of ideas, one can also consider the 1440’s, where the inventor of the printing press, Gutenberg, is considered to be the most influential person of the millennium. More so than Charles Darwin and his conceptualization of evolution (#4), Adam Smith’s capitalist visions (#20), or Henry Ford’s introduction of specialization (#29). You can dispute the list all you want, but the point is that we rely on written records for a lot of how we learn and advance ideas.

In our current context, the web is the invention of a global language. It is a way to allow one computer to talk to another anywhere else on earth. The world wide web provides lots of interactions, but it doesn’t actually permanently record things. Sure, it allows a platform to display information that seems permanent, but we rely on being able to visit an active site at any given time. Any info on the web today could be removed and lost forever. Both and could vanish tomorrow, and the information on them would devastatingly be gone. The world wide web would keep functioning without those sites, and though references to and might be made elsewhere on it, eventually the memory of them would simply become lore.

Some entities, like Facebook, own a large amount of information generated by this language, as they have created a platform to enable many individual interactions. In turn they’ve stored that knowledge in digital databases. Facebook itself, however, is still just a single entity. Facebook is like an old wise-person with lots of institutional knowledge – it possesses a lot of data and can pass that knowledge onto other entities, but if and when it disappears, it’s data will be gone with it. Government records are similar. And our health records. And everything else we’ve decided to store digitally.

If the invention of the world wide web is akin to the spread of a common digital language that allows online entities to share information whenever and wherever requested, then blockchain is equivalent to the invention of a digital alphabet that records and shares that language and allows it to be interpreted over time and space. Blockchain writes and records interactions that take place using our internet language, and shares them as snapshots in time for all to look back on. This makes it possible for a company, a government, or a group of decentralized people to securely record and share digitalized data.

It’s not exactly a perfect analogy, but conceptually it should help define why the use of a ledger might be an important evolution for the internet, and all who access it.


How is Blockchain Currently Being Applied?

As people are rapidly taking note of the potential influence of blockchain, there has been a move to capitalize on it. The difficulty is, it’s not entirely clear how blockchain is going to be disruptive. The introduction of the world wide web spurred the dot-com boom. Everyone knew that an instant global connection across the entire planet was going to be game changing. It just wasn’t entirely clear how. A lot of money was invested, and for every Amazon that succeeded, there were a lot of companies that failed. Entire industries, such as news media, are still sorting out how to adapt their strategies to endure on the web. Blockchain is going to have that same sort of chaotic growth. After all, we learn through failure. But that hasn’t stopped people from investing in the tech du jour, as if it won’t fail.

What has made initial investment in blockchain interesting has been… well… blockchain. Because the first application of blockchain has also happened to be a method to invest in more blockchain.

Enter Bitcoin.

Essentially, people are “investing” in blockchain in 2 ways: The first is by trading for digital currencies – and in particular Bitcoin – and treating it as an investment.

Bitcoin was the first application of a working blockchain. It is a digital currency that records every single transaction on a blockchain, so everyone can verify and follow each exchange. Transactions are all recorded, but who makes them is anonymous. Its success has also spurred the creation a number of other digital cryptocurrencies (Ethereum, Ripple, Litecoin, and the list goes on).

The value of these currencies has been very volatile. This is because, while there has been a rush to acquire Bitcoins, people who follow these sorts of things more closely than I do say there are too few transactions taking place to determine what these currencies should actually be worth.

The entire point of a currency is that it holds some predictable degree of value so you know what it’s worth when you make transactions for goods and services. If you have $5 USD, it’s not valuable because the paper is worth something. It’s valuable because other people have agreed to attach a similar worth to it, too. And when you head from the US to Europe on vacation, you don’t “invest” your USD into Euro’s hoping that they’ll appreciate greatly while you’re traveling and spending. Rather, you exchange one currency for another, so that you can spend the rough equivalent for the goods in services in Europe as you would in America, but using a locally known, trusted, and exchanged currency. Similarly, the point of a digital currency is that if you want to buy things, like pizza, you can spend Ƀ10 Bitcoin from your digital online account, rather than your $10 USD from your pocket, and not worry too much about how Bitcoin is doing versus the USD that day. In essence, you can predict and trust the value of either currency. The idea is for the first truly global currency that has a predictable value, which is a neat idea, but which also hasn’t materialized to date. For example, Ƀ1 Bitcoin was worth $19,000 USD 2 months ago, $11,000 USD 2 days ago, and $9,800 at the time of writing. It’s hard to buy pizza with that.

As a result, what’s weird about the notion of “investing” in Bitcoin is that it holds no inherent value in and of itself as a digital piece of incredibly secure data. It’s worth, relative to other currencies, keeps rising and falling dramatically, because people keep buying and selling it as if it were a stock, as they try to make money. As far as investments go, exchanging your money into a different currency isn’t the same as making an investment in something that will grow and create value. Which means, when you “invest” in a cryptocurrency you are essentially exchanging your money that has a level of value that you trust and understand, for other money that has no known value. You won’t own anything as a result of exchanging USD into Bitcoin. That’s why regulators, and others, are warning people that it’s a complete gamble.

The second type of investment that people are making in blockchain is through Initial Coin Offerings (ICOs). Investing in an ICO is actually very similar to investing in currencies and hoping to make money, but takes it a step further. It’s a bit like doubling down on cryptocurrencies.

Because ICOs are completely unregulated at the moment, there isn’t a steadfast explanation on what happens or how it works. It’s the wild west. But here is a general overview.

ICOs have been compared, in title at least, to Initial Public Offerings (IPOs) when companies go public and put stock in their company up for sale. But they are quite different. When you invest in an IPO you more-or-less own a bit of that company (or, at least, you’re entitled to its profits). If the company does well, your stock becomes more valuable, and vice versa.

By comparison, an ICO is simply selling the idea of a new market – almost its own cryptocurrency, but one that can only be used on the product or service the company is aiming to design and provide. This means, when you invest in an ICO, you’re not actually buying a stake in the company. Instead, you’re buying ‘tokens’ that will be usable once the business is up-and-running (but only at that business). It’s a bit like going to the arcade and getting tokens to play the games. Except the arcade doesn’t exist yet. So, you’re hoping that the arcade will get built, will be well run, and that the value of the tokens to play the games will eventually hold quite a bit of value and other people will want to use them. Only if this comes to pass, will you be able to sell your tokens to people. That’s what your investment in most[iii] ICOs gets you.

Additionally, companies are launching ICOs very early in the life of their start-up. There are no rules or regulations, which means many companies are simply drawing up conceptual ‘white papers’ outlining their idea, and then raising (often a lot of) funds based on that, instead of based on any semblance of business success. Which means that purchasing tokens is, in most instances, investing money into what is nothing more than a (hopefully) good, but unproven idea.

As I mentioned, there is also an aspect of doubling down on cryptocurrencies by investing in ICOs, because most ICOs are built on the blockchain of an existing cryptocurrency. Which means, you’re hoping your tokens hold value in a yet-to-be-created or closed market (or one in its infancy), and those tokens can then be exchanged for a digital currency that you’re also hoping has value.

To make matters trickier, consider the conversation I had with my friend about these blockchain start-ups. They are often bringing in millions of dollars. Sometimes in the order of tens of millions. But the money these new companies have brought in is volatile, since it’s based on cryptocurrencies. So, they need to convert the cryptocurrency they raised into a more stable currency to scale up their business. Which means they will convert it back to a their national/regional currencies. And I’m just going out on a limb here, but I bet they are selling that cryptocurrency to people who are looking to ride the value of that currency, or pour it into more ICOs.

Now, you might be thinking, “This is all great! It’s money making money! It can’t fail.” That is, until you consider that some of these businesses, who have raised tens of millions of dollars based entirely on a concept, and without any proven track record of success, probably aren’t going to pan out. They’ll go belly up. And then suddenly you’ll have billions of dollars invested into companies that fold, and in concepts that fail to create valuable tokens. 

This leads to a question for investors, and for companies.

Why are some investors increasing their value by ten times after an ICO? Well, basically, because nobody knows what the hell is going on or what anything is actually worth, and there is nobody regulating any of it. A new technology has kickstarted a few sound projects, which triggered a rush of investment in all projects. And as more people invest, it gains more value, making it more tempting to invest in. Unfortunately, it’s underwritten by a volatile currency with an unpredictable value.

It’s important to remember, then, that if you own purchase ‘tokens’ through an ICO, you do not necessarily own a share of that company. Rather, in all likelihood you have purchased currency that will allow you to use that company’s services. The amount you have invested is an indication of how much you think that service will be worth once the company is actually up and running. That isn’t necessarily a terrible thing. Except that for now, in the pre-regulated landscape of ICOs, the ‘value’ of your tokens is speculative and highly volatile. Many of these companies raising millions of dollars will not succeed. In this sense, the current context is a pretty classic definition of a bubble.

And, if that’s the case, why are companies able to raise so much money? Well, basically, because nobody knows what the hell is going on or what anything is actually worth, and there is nobody regulating any of it. They are able to raise millions in exchange for access to conceptual markets that are typically based on an entirely untested product.

Again, that’s not to say that all of the companies have failed to build and scale in a sustainable way, and it goes well beyond my capacity to write broadly about this current trend in blockchain to attempt to distinguish which ICOs have built a working model before raising coins, and those that haven’t. Don’t get me wrong, plenty have brilliant ideas and what appears to be a solid foundation. The point is, the macro view of all of this is that it’s unregulated, there is a lot of money flying around (according to ICO tracker CoinDesk, in 2017 there were $5.4 billion raised through ICOs, and it’s not yet the end of February in 2018, and already over $3 billion have been raised this year), it’s based on an unstable currency, and for every potentially successful idea there are probably many that will fail.


Is Blockchain Just a Bubble?

The most popular, and most impactful application of blockchain to date has been through these cryptocurrencies and ICOs. It’s difficult to say whether Bitcoin and other digital currencies will eventually stabilize, and what the value will actually be. But that won’t happen until these currencies are accepted and used more regularly as legal tender. But, who is going to use Bitcoin to buy pizza as long as it fluctuates so dramatically? And how many pizza spots will accept a currency they don’t know the true value of? It’s a bit circuitous. Chances are, the crypto bubble will burst, ICOs will become regulated, and the currency will settle. It’s a matter of when and in what order those happen.

Through that, it will be interesting to see how my friends fare. The friends who invested in an ICO may make lots of money, or they may lose it all. But it certainly appears as though a majority of people who have invested in the current monetized iteration of blockchain stand to lose money (in truth, I suspect it’s probably the people that the original investors sell their tokens to who will be the financial losers). And the friend who advises start-ups will likely watch a number of triumphs turn into disasters. Her role managing the incubation of blockchain start-ups will likely look much different in a year from now, and will continue to evolve as there is a reining in of investment in conceptual business ideas.

But blockchain is not a bubble, only some of the current investments in it as a currency. And to those who have said that blockchain is the next digital revolution, much like the world wide web was before it, I tend to agree. But in doing so, it’s important to divorce blockchain as a concept from cryptocurrencies/Bitcoin. This is just a single application of blockchain’s secure digital ledger. And, actually, it’s a pretty good example of just how disruptive blockchain will likely be. Think of the fact that there have been billions of dollars invested, major market disruptions, governments scrambling to regulate, and all that was triggered by a single very narrow application of blockchain as an online currency.

Conceptual applications of blockchain are emerging outside of the realm of cryptocurrencies, and the precise application of how the technology will be disruptive is still largely theoretical. How it will all unfold is unclear. Keep in mind that in 1999 was the symbol of how the world wide web was going to transform business. Now it’s the symbol of thoughtless overindulgence in valueless hype, while web giants Amazon, Google, and Facebook harvest our data to make billions of dollars. Similarly, it’s actually once you get away from the hype of current news headlines that blockchain becomes more exciting. Once the blockchain’s ability to secure, validate, and time-stamp all digital transactions begins to be applied to other industries, that’s when it will really begin to change the world. The implications are far reaching, and relate to everything from business industries such as insurance, to peoples’ health, to governance, to democracy and how we organize ourselves.


What is the Future of Blockchain?

The truth is, no one quite knows how blockchain is going to influence society, but it’s certain to be significant. Blockchain will transform our digital interactions from a language of the world wide web to a universal digital manuscript that transcends time and space. It will provide a level of infallibility and permanence that allows us to reflect and make insights in ways previously unimagined.

The important questions won’t be whether people can make some money from it. Rather they’ll be more existential: Who will learn to yield it, and how? Will it become a tool for tracking and recording the actions of individuals? Or will it be used for greater transparency and trust in our institutions? Will it record even more of our data to be analysed and manipulated by those seeking profits or power? Or will it lead to a democratization and decentralization of data, and greater control over our privacy? 

It will be up to us to prioritize and decide what blockchain becomes. These decisions will create the alphabet of our digital language. For the moment we are scribbling somewhat blindly on a digital page, but in doing so we are writing the future, nonetheless.





(Note: I’ve used a few terms in ways that are technically incorrect throughout. For example, in reading up on this I learned that ‘internet’ and ‘world wide web’ shouldn’t be used interchangeably. Or that all tokens are actually cryptocurrencies, while Altcoins are actually alternative open market currencies. But I figured it’s easier to be consistent with the language that I know and understand as a layman. There are probably plenty of instances of this within.)





Some interesting additional reads:

An overview by Steven Johnson on the potential for blockchain to decentralize services:


CoinDesk has lots of articles and data on ICOs:, as well as their investment tracker


Wired has a plenty of articles about ICOs as funding models:

See,, and


MIT has a nice technical explanation of blockchain: 




[i] This is a broad generalization of a process that can break down in many different ways. Different businesses will raise different amounts, with different goals, through various rounds of funding. Simply think of this as a point of reference.


[ii] There seems to be a tendency to call it ‘the blockchain’ rather than ‘a blockchain’ when speaking about it the technology in broad terms. This is semantic, but I find this confusing, as there isn’t one single blockchain that everything and everyone is working off. Blockchains can, and will, be applied in very different ways – hence, to me, each one would be considered a unique blockchain. Perhaps a computer scientist can explain this to me some day. This isn’t really critical, it just confuses and annoys me.


[iii] I want to reiterate how tough it is to make generalizations, because it’s completely and entirely unregulated. There are companies that have built their business and proven demand for their concept before going for an ICO, but most have not. I’m simply making observations of the overall trends, to the best of my ability.


Glenn Taylor says:

Wow. For the very first time I now have a basic understanding of this subject. For a digital dinosaur like me, this was a very informative read. Thanks Evan!

Thanks Glenn, glad you found it helpful. This is my attempt to make it an accessible conversation, so appreciate that feedback.
Blockchain ‘purists’ they might say that I’ve muddied some of the details (probably rightly!), but I think it’s important to start having conversations in which people who don’t eat, breath, and sleep blockchain can participate.
Certainly appreciate if you can share this post so I can get further feedback and thoughts.

Campbell Cameron says:

This is a great article, very well written so that I can understand what blockchain is. It also provide additional insight into the confusing world of cryptocurrencies. What I am curious about is how can one invest in blockchain? Are there companies who created blockchain or is it simply a method adopted by internet users in order to provide more security to their online transactions? Was the software to record these transactions already established or are they created by these early users? Maybe I haven’t understood what you’ve thrown down? To make my question more clear, using your ‘words on paper’ analogy, is there a company who is providing the paper and pencils and defining the alphabet? I think I want to invest in this company…

Thanks Cambell,
By no means do I consider myself an investment specialist, so take everything I say with that in mind.
Right now the most direct ways to invest is in a cryptocurrency or through an ICO. There is plenty of money to be made through these, but also a lot to be lost. If you decide to do that, be careful – there are some amazing ideas, but there are also scams. There are probably more conventionally funded companies adopting blockchain too, and I imagine some would have stocks you can invest it. Finding those requires some research on your end.
Many blockchains are built on a platform called Ethereum – it has its own cryptocurrency – but that doesn’t necessarily mean that Ethereum builds the blockchains. Think of it as a base layer.
You could also consider companies that benefit from blockchain. Are there companies that will benefit from the high energy usage from Bitcoin? Are there Companies that make hardware to handle the high volume of recorded data transactions? Is there cloud storage that might benefit from the vast amounts of data being created and shared?
These are all pretty open ended, but worth looking into from an investing prospective.

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