What is it? What isn’t it? What might it be?
These are the questions most have when they hear Blockchain. It has been the latest craze in the tech scene, but just like you I am a neophyte when it comes to understanding the inner working of this seductress known as Blockchain.
So… this is my attempt to help us “WTF is it crowd” to understand it.
In short, what the hell is blockchain?
Blockchain is presented as the disruptive technology for the coming years, with Bitcoin as the widest-spread and best-known example of a cryptocurrency based on this technology.
You know bitcoin, that weird funny money that everyone is talking about. However for this discussion I want to stay far away from Bitcoin. You and I will be focusing only on the blockchain application that makes this all possible.
Just last year, a record-breaking $1 billion so far has been pumped into Bitcoin and blockchain-related tech startups. 22 leading banks have recently announced plans to back an industry initiative to accelerate the acceptance of “distributed ledger technologies to the global financial markets.
What is Blockchain: Finally a Simple Guide!
The blockchain is designed to make transactions safe and reliable even if the people doing them don’t trust each other.
The blockchain is a way to structure data, and the foundation of cryptocurrencies like Bitcoin. This coding breakthrough—which consists of concatenated blocks of transactions—allows competitors to share a digital ledger across a network of computers without need for a central authority. No single party has the power to tamper with the records: the math keeps everyone honest. Forty of the world’s top financial firms are experimenting with the tech.
Side note: Concatenation: In formal language theory and computer programming, string concatenation is the operation of joining character strings end-to-end.
Average Joe talk:
A blockchain is just a record, a ledger of all transactions that has ever taken place. That’s pretty much it. Goodbye… All jokes aside.
It is similar to a ledger that a bank would maintain to record all transactions of their customers. However, that’s where the similarity ends. In a bank, the ledger is controlled by the bank itself. Only the bank can see the transactions. The bank has its own security and access system to secure the ledger and to enter transactions. The bank does, what it pleases.
In the blockchain, a copy of the ledger file is shared between thousands of participants globally, also called miners. Even you can become a miner by simply downloading the open source software. New transactions are added in the blockchain by a consensus of a majority of the miners, explained below. People do mining because they receive new created cryptocurrencies in return for their efforts. Once a transaction is entered in the blockchain, it can never be erased or modified.
Instead of trusting people to authenticate, or trusting a system you don’t have access to, the blockchain makes it all visible to the user while still being secure.
The above picture “The network” is the miners.
Read before continuing:
I want to keep this simple and as we are talking about the bitcoin blockchain for now (There are others) And their mining process differs, some good some bad. so please keep this mind.
I will quickly try to explain the mining aspect which in my opinion is the magic that makes a blockchain
side note: I will be making a video to simplify blochchain even further, so stay tuned!
How does Blockchain mining work?
Personally I hate the term mining or miner. I view the participants in the networks as custodians.
However to keep things kosher we will stick to mining.
Miners are anyone willing to maintain a complete copy of the blockchain and monitor the network for newly-announced transactions. Miners then performs work in an attempt to fit all new, valid transactions into the current block.
Miners race each other to complete the work, which is to “package” the current block so that it’s acceptable to the rest of the network. Acceptable blocks include a solution to a Proof of Work computational problem, known as a hash. (Don’t worry about hash for now, that’s geek talk)
But why do miners invest in expensive computing hardware and race each other to solve blocks?
Because, as a reward for verifying and recording everyone’s transactions, miners receive a substantial Bitcoin reward for every solved block!
- A blockchain is a decentralized ledger
- A ledger is file that tracks the transfer and ownership of assets (e.g. TD Canada Trust ledger tracks how much CAD you hold and send to other people)
- A decentralized ledger is a file that isn’t operated by a single entity (e.g. TD Canada Trust); instead, the operation is distributed across many folks in such a way that folks who use the ledger can trust that what it says is actually true
- Bitcoin is an example of a decentralized ledger that lets people send and track ownership of a single type of asset: bitcoin/BTC
- Ripple is an example of a decentralized ledger that lets people send and track ownership of any type of asset – USD, EUR, BTC,
- Miners receive a substantial Bitcoin reward for every solved block!
What does blockchain technology solve for?
The most significant and immediate benefit of the blockchain is that it can eliminate inefficiencies in existing financial markets and drive faster, lower-cost transactions.
Bottom line: You win!
The blockchain offers trust for the user, eliminating the need for the intermediary and mitigating the risk of human error (or should I say human evil greed) with complete automation.
Here are my top 3 choices that, I believe Blockchain can have the most impact in the world.
1. Secure digital voting
The greatest barrier to getting electoral processes online, according to its detractors, is security. Using blockchain, a voter could check that her or his vote was successfully transmitted while remaining anonymous to the rest of the world. In 2014, Liberal Alliance, a political party in Denmark, became the first organization to use blockchain to vote. With American voter turnout still shockingly low, distributed digital voting may represent a way to enfranchise non-participants.
2. Decentralized exchanges
Traditionally, exchanges require an intermediary such as a broker/clearing housing to match buyers and sellers. With the blockchain, the need for this 3rd party arbiter is scraped. Orders to buy and sell are matched and executed using an escrow system while the network acts as a validator.
Counterparty, for instance, runs a decentralized exchange that lets users create their own digital assets that can then be exchanged. On the marketplace, orders are public, matching ask and bids to execute without an intermediary. A system of escrows and malt signature features combined to release funds and assets when buyer and seller come to an agreement.
3. Safe and Secure Identity Verification
Blockchain based authentication systems are based on irrefutable identity verification using digital signatures based on public key cryptography. In blockchain identity authentication, the only check performed is whether or not the transaction was signed by the correct private key.
ShoCard is a distributed ledger offering that solves the problem of forged authentication and gaining access to a trusted identity distributor. Venture capitalists such as AME Cloud Ventures and Digital Currency Group, have been pretty enthusiastic about the concept, raising $1.5 million in funding for the startup. When used properly and voluntarily, records of digital birth certificates and IDs can circumvent issues involved with misrepresented identity and human trafficking.
Blockchain Identity Use Cases
Blockchain technology can be applied to identity applications in the following areas:
- Digital Identities
- Birth Ceritificates
- Wedding Certificates
- Online Account Logins
That’s about it. I am going to stop for now and continuing updating this post until a 6 six year old can understand it. Stay tuned for more updates.
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