Though the hot topics of automated vehicles, fintech apps and artificial intelligence are game-changing, below the surface is where we find what is revolutionary. It’s called the blockchain.
Wait, don’t go! Let’s try to explain
On top of being such a cool term to say out loud, it’s even cooler when you actually know what it is and how it works. So, let’s try to get on the same page.
Blockchain is popularly used as the foundation for digital currency, such as Bitcoin and Ethereum. To give a faint comparison: Blockchain is to Bitcoin like the Internet is to Facebook.
Blockchain is a database that is publicly shared and maintained by a large network of computers through a cryptographic mechanism. This mechanism is used to give the thumbs up (or thumbs down) on transactions within that database. For digital currencies, that database is a ledger that is shared between all nodes participating in the digital currency network verifying every transaction that happens.
Remember when our parents or grandparents would sit at the kitchen table with their checkbooks open balancing their checkbooks? Now, imagine there is a web of computers that all have access to this same ledger, kind of like a Google Doc, making sure that all the transactions are correct and true. It’s like having a notary present with every Bitcoin transaction.
These transactions are all grouped into “blocks” and are protected with complex encryption technology. Anonymous folk in the network with high levels of computing power, called miners, then compete to verify these transactions by solving the complex coded problems. The first to solve them is rewarded. For example, in the Bitcoin network, they receive Bitcoins as rewards.
After the block of transactions have been verified by the miners, they are timestamped and thrown into a chain in chronological order that are connected to older blocks. This way, everyone knows who paid who, who received what, and when it all went down. It’s like the Venmo newsfeed, where you see all the transactions your friends did, except it’s everyone in the network, and all the transactions have been verified by strangers with high-capacity computers. Keep in mind, this is all instantaneous as there are currently 6,793 nodes making this happen.
OK, here’s a video if you still don’t get it.
The new kids on the block
In the paper-money world, we all know that our money doesn’t physically sit in the bank. It goes off in the form of loans to strangers that need money. Crazy, right? So, when we give our money to the bank, we inherently trust them to keep an accurate ledger so that our money doesn’t get lost somewhere. The bank, namely the Federal Reserve, is a middleman that facilitates and verifies transactions of some people giving money to others and keeping track of it.
What’s revolutionary about the blockchain mechanism is that this middleman is decentralized and virtually impossible to defraud, unlike a bank, which is centralized and managed behind closed doors. By storing the encrypted data publicly across its network, the blockchain lacks the centralized points of entry in which hackers can easily exploit and needs consensus of the network to approve anything that’s happening. No trickery is possible.
This enhanced digital security is appealing in the modern economy. Blockchain will be applied in sectors way beyond just the transfer of digital currencies. We will soon see it embedded in education, healthcare, real estate and the public sector to protect, store and transfer information with each other.
It’s not terribly important to understand the minute details of blockchain technology. However, understanding the main gist of blockchain can be helpful.
Blockchain, like other technologies, are meant to make life a little bit better and cheaper for consumers. The decentralized aspect of the technology will decrease the cost of doing business with other people by getting rid of centralized middlemen like a government agency or a big bank. What’s more is that we can find comfort in knowing that this technology not only makes transactions between people more efficient, but it makes it safer. With the rising concern of cybersecurity in a highly digital interconnected world, everyone in the network is essentially a watchdog.
What blockchain really brings to the table is a better way for people to trust each other when engaging in any kind of business. That, in and of itself, is revolutionary.
Previously posted at GenFKD.