I'm going to explain blockchain in a way you've never heard it before, and I think it will be more helpful than any other explanation of blockchain you've come across. I'm going to do that by making this incredibly simple. First, what is Bitcoin? Then we'll talk about what Ethereum and other smart contract platforms are. And then we'll get into how the Internet Computer is drastically different from all of these. That last part is what's missing from every other video and article explaining blockchains.
Bitcoin is a spreadsheet and two math equations
Bitcoin is basically a spreadsheet with an algorithm for creating transactions and an algorithm for adding all those transactions to the spreadsheet via a new block. If "algorithm" sounds too complicated, it's just a math equation. That's it. All these blockchain explanations make it sound so complicated, but Bitcoin is basically a spreadsheet and two math equations. I know that's an absurd simplification, but you need to be able to understand this in a practical way.
The Bitcoin ledger basically started out as a blank spreadsheet with no transactions. Then with proof of work mining, there's an algorithm, a difficult math problem, that people put their computing power toward, running it through a program to try to guess the correct output. Whichever computer gets the output correct gets a reward, currently three Bitcoin. That computer also gets to put all the new transactions on the block that all the Bitcoin nodes have collected. As Bitcoin has evolved, eventually all the coins got created originally from mining, and then all those coins get sent out based on each new block.
In order to create a transaction, you need a private key. A private key is basically just a string of 256 zeros and ones. You take your private key, run it through another math equation or cryptographic algorithm, and it cranks out a public key. The public key is your address that anybody can use to send you Bitcoin. What's magical is that you can't take that public key and work backward to the private key, at least in theory. It's possible that quantum computing could change this once someone has actually sent a transaction from an address, but right now, as far as we can see, it holds. If you have a private key, you can prove you have access to it by running your private key through an algorithm that then signs a transaction tied to the public key. That's what makes this whole blockchain thing possible. It's literally those two things. Bitcoin is just basically an Excel spreadsheet with those two equations that control sending transactions and control who gets to add the new transactions and update the blockchain.
Ethereum adds smart contracts, but it's still a spreadsheet
Ethereum comes along with smart contracts. What smart contracts essentially allow you to do, in the utterly simplest terms, is make your own spreadsheets on Ethereum. If you want to put it in Microsoft Excel or Google Sheets terms, it's one basic spreadsheet file, and then you can add new sheets. You can create your own tokens, and then you can track all those tokens' transactions, and you pay to update those by paying the Ethereum gas fees, or the gas fees of whatever blockchain you're on. That has also led to all these other things being created on Ethereum, like NFTs.
When it comes to Ethereum, or anything besides ICP, all they're really doing is putting a link on the chain that points to something that's off-chain. Once you understand that Bitcoin and Ethereum are basically just spreadsheets with a couple of math equations, think about it: you don't think of a spreadsheet as being able to do a lot of computation or host a lot of data, do you? Because that's not what it's designed for. That means you can put basic, basic data on blockchains, but anywhere besides ICP you can't put whole photos, you can't host websites, you can't do almost anything except make entries in the spreadsheet and make little formulas in the spreadsheet that swap tokens or create little identifiers that point to where something's hosted off-chain. Every blockchain except ICP is extremely basic in what the blockchain itself can do.
So the way the rest of crypto has addressed that is that almost everything is built off to the side of the blockchain. Take crypto exchanges: they're not actually touching the blockchain most of the time. They're holding the crypto in their wallets, and then they give you a website where all the crypto trading happens. They don't move the crypto on-chain unless somebody withdraws, or unless they consolidate all their balances into big accounts with lots of money.
The Internet Computer turns a blockchain into a real computer
Now, the biggest innovation we've seen in blockchain since Ethereum is the Internet Computer. The Internet Computer is different because it is a real world computer. The basic idea is that they took the concept of blockchain and, instead of just having a spreadsheet, they thought: what if you could essentially turn the blockchain into something like a cloud provider, like Amazon Web Services or Google Cloud? What if you could expand the computation power of the blockchain? Instead of just having a spreadsheet with little entries and tokens in it, what if you could turn a blockchain into a real, scalable, powerful world computer?
That has required a lot of research breakthroughs. It has been something very difficult to engineer, and it's been done by the DFINITY Foundation. They have the largest research and development team in crypto. Their employees hold hundreds of patents, thousands of publications, and hundreds of thousands of citations. In my view, this is one of the most impressive teams of cryptographers in the world. You have all kinds of people on this team, from Dominic Williams to Jan Camenisch and many others, an absolutely incredible team of engineers who have solved a bunch of difficult problems.
Here's why that matters. Once Bitcoin and Ethereum came out, almost every other blockchain just copied the open source code. Bitcoin's open source, so you can see exactly what the code is. You can take the code yourself, modify it, change the name of the blockchain, change a couple of other things, and use that as your own blockchain. Some of these others, like Litecoin and Dogecoin, literally just copied the entire Bitcoin blockchain and then modified the code. That's called forking it. They created their own version, made a couple of little changes, took the original data from Bitcoin, and then ran their own modified chain next to it. Ethereum did the same thing. Ethereum Classic was actually the original Ethereum blockchain, and they forked it. Forking just means you basically copied it, then changed how it operates, and then people run new versions of that on their computers, often in the cloud.
ICP had to make a bunch of huge innovations for the Internet Computer to exist. They had to figure out how to go from just running a spreadsheet to being able to run entire websites. How do you go from just doing token transactions to being able to serve the web?
Why running websites on-chain changes everything
Many of you might think, well, so what? ICP can run websites, big deal. It makes a huge difference, because right now blockchain is totally dependent on third parties outside of ICP. In order to interact with most blockchains besides ICP, you need a third party wallet that's not controlled by the blockchain. And if you create a token on these chains, whatever value those tokens have is totally speculative, because it's not controlled by law. When you buy a stock, that gives you legal ownership. When you buy a token on ICP, where everything is on-chain in an SNS DAO, that's a different situation. Only ICP has these, and in my opinion nobody else even has a chance of making anything like this for the foreseeable future, because you need to be able to serve websites and keep all the pictures, all the data, everything, fully in the blockchain.
ICP's big innovation was canister smart contracts. That's one of the breakthroughs, where right now I believe you can put around 400 gigabytes all in one canister, and that's replicated over a bunch of different computers all over the world. That serves websites, can hold tokens, can hold all your NFTs, and can store fully on-chain videos and more. This is a huge innovation because right now almost everybody interacting with crypto is doing so through third parties and through the existing internet infrastructure, which is inherently insecure. That's why we've seen so many hacks and problems in crypto.
I've come to believe that DFINITY, via ICP, has made something incredibly useful to the world. In my view, ICP is the infrastructure of the future for the internet, because it solves so many problems like cybercrime and allows you to have real Web3. If you want to go deeper on all of this, I share much more in my ICP Crypto playlist. And that's why I'm all in on it.