What the heck is blockchain?
What the heck is blockchain really?
It’s actually a pretty simple concept; though things quickly get more complicated the harder you look.
How Does Blockchain Work?
To start, here’s the simplest explanation with no metaphors. In the language (or form) of cryptocurrency, a block is a record of new transactions (that could mean the location of cryptocurrency, or medical data, or even voting records). Once each block is completed it’s added to the chain, creating a chain of blocks: a blockchain.
Because cryptocurrencies are encrypted, processing any transactions means solving extremely complicated math problems, and these problems become more difficult over time as the blockchain grows . People who solve these equations are rewarded with cryptocurrency in a process called “mining.” Keep in mind, the blockchain does not produce any coin, the blockchain produces a 'safe' for data. As more data enters the blockchain, the mathematical complexity grows as the data is never ‘erased’.
If you own any cryptocurrency, what you really have is the private key (basically just a long password) to its address on the blockchain. With this key you can withdraw currency to spend, but if you lose the key there’s no way to get your money back. Each account also has a public key, which lets other people send cryptocurrency to your account.
Information on the blockchain is also publicly available. It’s decentralized, meaning it doesn’t rely on a single computer or server to function. So any transactions are instantly visible to everyone. That brings us to our first metaphor: the public ledger.
Blockchain Is Like a Public Ledger
If you send Bitcoin (or some other cryptocurrency) to a friend, or sell it, that information is publicly available on the blockchain. Other people may not know your identity, but they know exactly how much value has been transferred from one person to another.
Many people see blockchain as an alternative to traditional banking. Instead of needing a bank or some other institution to verify the transfer of money, you can use blockchain and eliminate the middle man. This decentralization also translates into the potential end of needing a traditional bank account. Neither the blockchain or cryptocurrency has a place for ‘credit’ (at this time) and individuals seeking a loan will still use traditional loan agencies.
Building off the idea of a public ledger, another popular way to describe blockchain is as the internet of value. The idea is pretty simple: the internet made it possible to freely distribute data online, blockchain does the same thing for money.
Instead of relying on newspapers, television and radio (which are mainly controlled by big corporations), the internet gives everyone a voice—for better or worse. Blockchain and cryptocurrency make it just as easy to transfer money across the world by bypassing traditional middlemen like banks and even governments.
Increasing The Ability to Collaborate
Before Google Docs, if you wanted to collaborate on a piece of writing with someone online you had to create a Microsoft Word document, send it to them, and then ask them to edit it. Then you had to wait until they made those changes, saved the document, and sent it back to you.
Google Docs fixed that by making it possible for multiple people to view and edit a document at the same time. However, most databases today still work like Microsoft Word: only one person can make changes at a time, locking everyone else out until their done. Blockchain fixes that by instantly updating any changes for everyone to see.
For banking, that means that any money transfers are simultaneously verified on both ends. Blockchain could also be used in the legal business or architecture planning— really any business where people need to collaborate on documents.
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