What is the blockchain?
To start us off, imagine a third grade class room full of children sitting quietly at their desks, little Susie is one of these children. On Susie’s desk are 10 apples. Jonny, who is a classmate of Susie’s wants some of those apples and trades Susie for 2 of them. Now Susie has 8 apples and Jonny has 2. Each of the other children in the class write down this very thing: Susie has 8 apples and Johnny has 2, when this is done, the class decides to call this trade “A to B”. Then another student from the hall, Amber, enters the room and wants 3 apples. She trades 2 from Susie and 1 from Jonny. Now Susie has 6 apples, Jonny has 1, and Amber has 3. Each student in the classroom, once again, writes down the trade: Susie has 6 apples, Jonny has 1, Amber has 3, again the students give the trade a name, this time “B to C”. But, uh-oh, as the students looks at each other’s work to make sure that everything is correct they discover that Nikko, one of the students who has been writing everything down, has written that Susie has 3 apples, Jonny has 4 apples and Amber has 3 apples. These number don’t match with the rest of the class! At this point, the class gathers together and goes through what everyone has written down and verifies that Susie has 6 apples, Jonny has 1, and Amber has 3 and they still name the trade “B to C”. Nikko is able to correct his mistake and now continues to help writing down any future transactions.
In this Scenario, Susie, Jonny, and Amber are trading a value using the students to show proof of the trades. These students, along with their records and names of the trades, are what we call the blockchain. The students represent the network of computers doing the work of verifying and validating the trades; the writing down of the transactions represent the blocks of information; and the names represent a unique way to identify each block. Each unique name is also known as a hash. As more trades occur, more blocks will be created with a name connecting them to a previous block, creating a chain of blocks.
Now, a more technical definition of the blockchain would be: A decentralized database used to verify and validate transactions around the world. To better explain what we mean by decentralized, let’s go back to our example of the 3rd grade classroom. Because every student in the room was recording the trades, no one student held all the answers, instead, they all held the answers and could verify collectively that all the other students were correct. This fact, that all the students held the answer, is decentralization: no single entity has control or authority over the various transactions because the transactions are shared and validated on the network and not a sole third party.
How does the blockchain work?
To understand how the blockchain works, here’s what’s needed:
1. A transaction: trading the apples.
2. A transaction verification: the students writing down the trade and sharing their answer to make sure it is correct.
3. The transaction needs to be stored: the students, having written down the answer and knowing that it is correct, make it official keeping it on their paper to help validate future transactions.
4. Storage needs a name: Unique names, never to be repeated are given to the transactions: A to B, B to C.
What are the advantages of the blockchain and why is it important?
Neutral
Calling upon our classroom analogy again, any one and everyone can enter the class room and trade for apples. Everyone is on the same playing field. The blockchain doesn’t care where you’re from, who you are or what you want to do on the blockchain. You do not need to ask for permission to use the blockchain.
Borderless
Blockchain puts you beyond the analogous classroom, geographic location and fiat currency. It allows trades to happen regardless of the buyers location or sellers location. Buy, transfer, sell from everywhere from anywhere. Because our classroom represents so much more, an entire global network.
No one controls it
There is no third party regulating how or when we trade apples. The trade are always being recorded by the masses for each peer to peer transaction. This also means there are no middlemen accruing fees because of transactions being made. You are in control of your own money and how it is used.
Resists censorship
Had we introduced a new element to our 3rd grade classroom where someone came in and wanted to change how things were done, the classroom could have just smiled and continued on, even if that individual tried to force their proposed change, alteration, or censor it, the classroom would have to agree. Putting this on the global scale makes that near impossible.
Traceable
Because it’s a public ledger (students sharing their information), after somethings been validated, you can go back and look at each block and follow the string for each and every transaction.
Fast
Transactions are fast because there are no third parties involved, you do not need to ask for permission and it’s ultimately peer to peer.
Efficient
There are no arbitrary actions. With everything being accounted for, the intentional set process allows for streamlined activity that can be done over and over and over.
Enhanced Security
The natural consequence of a global network is it makes it nearly impossible for hackers to take over the blockchain. Every transaction on the blockchain must be agreed upon with the community before they are recorded. After each transaction is verified, that transaction is encrypted and linked to the previous transaction.
If you made it here, congrats! We just covered a lot of material in a brief time. To summarize, blockchain is a decentralized, global database. The 3rd grade classroom personifies the technicality of the blockchain and how it can work because of the network validating and publicizing all the trades and transactions. Its importance stems from the freedom, control, and security over data provided to the individual and the masses.
Psss…If you are looking for a few other good sources that can explain blockchain more, here you go:
1. What is Blockchain? Coindesk article
2. Blockchain Explained. Investopedia
3. How does a blockchain work-simply explained (youtube video)
Photo by Fischer Twins on Unsplash