A few months back, we learned that Bitcoin mutated itself and the other strain is called Bitcoin Cash (what?).
Let’s be honest: it doesn’t matter how undeniably ingenious you are — discussing cryptocurrencies and the blockchain technology behind it is sure to make your brain squirm a little.
But as digital assets and fintech technologies become a larger part of the conversation, it’s essential to understand the basics, and you don’t have to mine a cryptocurrency to achieve this. Even the most untechnical of us can carry on a conversation about blockchain. Below is a simple guide, in straight up layman’s term, to help you do just that:
The current “real money” system
Before we get into what blockchain is, let’s discuss why and how it was created. To keep things super simple, consider this scenario:
Your younger sister needs you to send her money, so you log into your online bank account to transfer money to her.
Afterward, you call your sister to let her know you’ve come to her rescue again. It’s a simple process that you’re used to it and it’s easy enough. But, the reality is, a number of things can go wrong. For instance, what if the system was hacked and your information was stolen? Or what would happen if the systems just blew up? Caught on fire? Then what? Those are the problems that digital assets and fintech technologies are trying to solve by eliminating the current “real money” system where your entries are logged into a register that a third-party, or middleman, entity owns. Because it’s a centralized database, the system is extremely vulnerable, not to mention the fact that it excludes billions of people around the globe who lack access to resources and capital.
Birth of a new kind of system
Back in 2008, motivated by the broken system that led to the financial crisis, Satoshi Nakamoto, whose real identity is unknown and could be a person or a group of people, designed Bitcoin. Along with the cryptocurrency, Nakamoto also created the first blockchain database. Because the fintech technology was created to answer the question, “who did what and when did they do it?” a lot of the issues that come with relying on the middleman or intermediaries like banks, commerce platforms or governments, are eliminated. Instead, a peer-to-peer protocol is used. Since the network is constantly updated, and every blockchain is connected to another one across every ledger of the network simultaneously, hacking is virtually impossible. For that to happen, every single block would require hacking.
Think of it sort of like a massive Excel sheet, or a notebook, that maintains a continuously-growing list of records, called blocks. In each block is a list of transactions — grouped together by a timestamp — and every transaction recorded and processed is done so by members of the network called miners. Once a block is time stamped and added to the network or chain in chronological order, it can never be changed or removed. This means that every time you buy a share, it’s recorded as a line in your Excel sheet, or notebook. And your notebook isn’t the only one that exists. There are thousands of notebooks located around the globe, and every time a new line is added, it’s simultaneously replicated in every notebook.
This public distributed ledger is the most important concept in a blockchain, says Vivek Rajanna, senior vice president of engineering at YML.
“When you make a transaction with a bank, they keep the transactions to themselves and only they know,” Rajanna explained. That’s called a private ledger. “But in a blockchain,” he continued, “it’s a public ledger, meaning everyone can see.”
This kind of extreme transparency prevents history from being re-written by a single entity.
Additionally, a major advantage of the blockchain technology is anonymity, said Rajanna. “It’s not like if Vivian sent me 100 USD the whole world will know Vivian and Vivek [are sending each other money],” he explained. Instead, a “sort of encrypted Bitcoin address represent Vivek and Vivian so no one can track who the real person is.” A disadvantage, though, is if you lose access to your account, there’s no middleman or third-party entity to help you “log back in,” so to speak.
In a blockchain world…
What’s most exciting about the blockchain technology overall is that it’s able to disrupt industries across the board. Think of any third party you have to go through for services, from an art dealer to real estate agent. Since the fintech technology is able to validate and secure anything, it can be used for health information, proof of intellectual property, government records, and so much more. In the future, if blockchain becomes trusted enough, it can certainly be used to speed up time to market for any system that’s had enough of the headaches that come with a middleman.