What is Blockchain? An In-Depth Beginners Guide
The blockchain is likely the biggest fundamental innovation of technology since the internet itself. Those who choose to learn about the blockchain, what it has to offer society, and the various use cases behind it, are those who will benefit the most from its disruption. Those who choose to ignore the blockchain and its disruptive capabilities are in for a rude awakening.
Blockchain technology offers the opportunity to bring a decentralized, transparent, incorruptible and efficient solution to many facets of our modern lives. With the blockchain, we can transform industry and bureaucracy, not just for the rich in the West, but also for those less fortunate across the world.
To put it in simple terms, a blockchain is a public ledger that keeps track of all transactions ever recorded within it. This ledger is not managed by a single person, nor can a single person edit this ledger in any way, shape or form. Instead, the ledger is managed on a global scale – countless individual computers (referred to as “nodes”) are connected to the blockchain and are constantly approving and relaying transactions.
Don Tapscott (Co-founder and Executive Director at Blockchain Research Institute) has a great explanation of the blockchain:
“At its most basic, the blockchain is a global spreadsheet — an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value and importance to humankind.”
To clear up a common misconception, Bitcoin is not the blockchain, Bitcoin is simply a use case of the blockchain – albeit the most prevalent and recognized use case.
A great way to understand how the blockchain works is to follow the progression of a simple transaction.
- 1). A transaction is initiated
- 2). The transaction is broadcasted to a P2P (peer-to-peer) network of individual computers known as “nodes”
- 3). Using known algorithms, the nodes validate the transaction
- 4). Upon validation, the transaction is combined with other recent transactions to form a “block”
- 5). The block is then added to the ledger (a.k.a. the existing blockchain)
- 6). The transaction is now complete
It’s important to understand that “transaction” doesn’t just mean currency, it can also be legal documents, contracts, diamonds, gold… you name it.
Why is the Blockchain Valuable?
To date, the best analogy I’ve heard to explain the fundamental value of the blockchain was given by William Mougayar:
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes, because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access.”
“With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people.”
Key Valuable Features of the Blockchain:
- 1). Transparency & Distribution (no 1 person can tamper with the blockchain)
- 2). Simultaneous Use (no waiting around for other entities)
- 3). History is Never Erased or Tampered With (once a block makes it into the chain, there is no changing it. It’s there forever)
- 4). Borderless (the nature of the blockchain is in the masses. Therefore, it knows no borders, “transactions” overseas are much easier than it’s bureaucratic counterparts)
- 5). Monetary Efficiency (in 2014 ‘The Economist’ reported that intermediary banks across the world charged an estimated 2% of the entire world economy – approximately $1.7 Trillion USD)
Blockchain Use Cases:
The use cases of blockchain technology are potentially endless. There are thousands of projects that are currently being worked on, but this is only the beginning… In the following section, I’ve included a few of my favorites that have so far come to light.
Bitcoin – The most widely used and recognized use case of the blockchain. Bitcoin is a digital currency (an alternative to fiat currency – fiat currency refers to the typical currency that we’re all used to, such as U.S. Dollars or Euros).
Ethereum – “Ethereum is a decentralized platform for applications that run exactly as programmed without any chance of fraud, censorship or third-party interference.” – Ethereum.org
Golem – A decentralized supercomputer that anyone can access. “The Golem Network is a decentralized sharing economy of computing power, where anyone can make money ‘renting’ out their computing power or developing & selling software.” – Golem.network
Aragon – A “digital jurisdiction platform” created on top of the Ethereum network in hopes to bring more efficiency to decentralized organizations.
Steem – Steem is “Social Networking with Rewards.” It provides a social platform where users can up-vote content (in the form of comments, posts, links, etc) and get paid for doing so.
Hopefully you’ve gathered a basic understanding of blockchain technology from the above. Armed with this understanding, you should see that the use cases for blockchain technology are endless. What I listed above are just five out of thousands of use cases that are currently being worked on.
Luckily, you’ve caught on to this technology in its early stages. I urge you to keep researching and keep learning about this technology and how you can get involved. Whether you invest in the technology, help spread the word, or go out and create it yourself, I’m convinced that you’ll love getting involved in the community. Above all else, the community is the true value in this landscape, without it, none of this would be possible.