What Is Blockchain?
Suddenly blockchain is everywhere. The technology that was invented in 2008 to make Bitcoin work when it launched a year later is used for everything from copyright protection to sexual consent ( yes, indeed ).
With the daily outflow of blockchain news, not to mention the skyrocketing value of Bitcoin and other cryptocurrencies that rely on this technology, you might be wondering what the hell is blockchain. It’s actually a pretty simple concept, although the closer you look, the more complicated it gets.
With that in mind, here are a few different ways to think about blockchain, from simple definitions to far-reaching metaphors.
How does blockchain work?
For starters, here’s the simplest explanation without metaphors or exaggeration. In the language of cryptocurrency, a block is a record of new transactions (this could mean the location of the cryptocurrency, medical data, or even voting records). After each block is completed, it is added to the chain, creating a blockchain: blockchain.
Since cryptocurrencies are encrypted, processing any kind of transaction means solving complex math problems (and these problems get more complicated over time as the blockchain grows). People who solve these equations are rewarded with cryptocurrency in a process called mining.
If you own any cryptocurrency, then you actually have a private key (in fact, just a long password) to its address in the blockchain. With this key, you can withdraw the currency and spend, but if you lose the key, you will not be able to get your money back. Each account also has a public key that allows other people to send cryptocurrency to your account.
Information about the blockchain is also publicly available. It is decentralized, which means that it does not depend on a single computer or server to operate. So any transactions are instantly visible to everyone. This brings us to our first metaphor: the public book.
Blockchain is like a public ledger
If you send bitcoin (or other cryptocurrency) to a friend or sell it, this information becomes publicly available on the blockchain. Other people may not know your identity, but they do 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 other institution to verify the money transfer, you can use blockchain and eliminate the middleman.
“Internet of Values”
Building on the idea of a public ledger, another popular way to describe blockchain is through the Internet of Value. The idea is quite simple: the Internet has made it possible to freely distribute data on the Internet, the blockchain does the same for money.
Rather than relying on newspapers, television and radio (which are largely controlled by large corporations), the Internet gives everyone a voice, for better or for worse. Blockchain and cryptocurrency make it easy to transfer money around the world, bypassing traditional intermediaries like banks and even governments.
Blockchain is similar to Google Docs
Here’s a clever blockchain metaphor from William Mugayar , author of Business Blockchain : Blockchain is like Google Docs.
Before Google Docs, if you wanted to co-write text with someone on the web, you had to create a Microsoft Word document, send it to them, and then ask them to edit it. Then you had to wait for them to make those changes, save the document, and give it back to you.
Google Docs fixed this by allowing multiple people to view and edit the document at the same time. However, most databases today still work like Microsoft Word: only one person can make changes at a time, blocking everyone else until they are done. Blockchain fixes this by instantly updating any changes for everyone to see.
For banking, this means that any money transfers are checked at both ends at the same time. Blockchain can also be used in legal business or architecture planning – in fact, in any business where people need to collaborate on documents.
Blockchain is like a row of safes
Here’s another helpful explanation from the Bitcoin Talk online forum . This one explains really well how public and private keys work:
Imagine that somewhere in a huge room there are a bunch of safes. Every safe has a number that identifies it, and every safe has a slot that allows people to throw money at it. All safes are made of bulletproof glass, so anyone can see how much is in each safe and anyone can put money in any safe. When you open a Bitcoin account, you are given an empty safe and a key to that safe. You mark which number is in your safe, and when someone wants to send you money, you tell them which safe is yours, and they can throw money into the slot.
Blockchain is like DNA
Finally, this one from Robin Chauhan on Medium is a little far off, but I love it.
Blockchain is a record of transactions that spreads across the Internet as more people use cryptocurrencies. Likewise, DNA is a record of genetic transactions and mutations that spread as life spreads across Earth. Both become more complex over time as our DNA evolves and new blocks are added to the blockchain.
Each blockchain (Bitcoin, Ether, Ripple) is like a separate species (human, chimpanzee, etc.). The blockchain can also be forked (as is the case with Bitcoin Cash) to create a competing currency in the same way that two different kinds can have a common ancestor.
Of course, DNA changes are not easy – scientists believe that a genetic mutation takes about a million years to take root – and building a blockchain is also not easy. The process of evolution and natural selection is a bit like mining – a complex series of steps that create something incredible.