If you stay even slightly up to date on what’s happening in the tech world, you’ve probably heard the word “blockchain” more than once. Usually with the word blockchain comes bitcoin since they’re related in the sense that blockchain was invented for the purpose of powering the cryptocurrency. We know that bitcoin is like “digital gold” as some people like to say, but what exactly is blockchain? Fortunately, you don’t have to have a full understanding of the innovative technology to be able to use it or even invest in blockchain hedge funds, but it’s always good to know the basics.
In the simplest of terms, blockchain is exactly what it sounds like, a long chain of blocks with a record of a transaction on each block. The transaction information was built to carry location of cryptocurrency but is now being used for other things like asking for sexual consent, voting records, and even medical data. Cryptocurrency is encrypted therefore in order to access the block; the user has to solve a complicated algorithm that gives them what we’ll call a password to the location of the cryptocurrency. If you’ve ever heard people talking about mining while talking about cryptos, this is the process they’re referring to. As the chain of blocks grows, the algorithms become more complicated to solve.
The information on blockchain is decentralized, meaning there’s not a single server that it runs on. It’s almost like a new form of Internet, but with little digital privacy thus far. When you make a transaction, everyone can see it. Those who see your transaction might not know who you are or who you’re transferring money to, but they can see the amount. Some people prefer this method of transferring money compared to the traditional banking method. Blockchain lets people cut out the middleman, saving them time and money, but it also scares others due to the lack of security.
William Mougayar came up with a clever way to describe what exactly blockchain is in laymen’s terms. His metaphor relates the technology to a Google Doc. Prior to Google’s invention, in order to collaborate on a paper or project with another person or group of people, you would have to write up your draft, email it to them, wait for them to edit it, save it, and send it back to you. With Google Docs, however, allows you and your group members to collaborate on the same document at the same time. Blockchain fixes the same problem that Google Docs did in relevance to banking rather than writing. Money transfers on blockchain are verified on both ends simultaneously, a change that can be useful in many industries that require collaboration.
A Bitcoin forum has another metaphor for blockchain and how the private and public keys work. LifeHacker.com writes: “Imagine there are a bunch of safes lined up in a giant room somewhere. Each safe has a number on it identifying it, and each safe has a slot that allows people to drop money into it. The safes are all made of bulletproof glass, so anybody can see how much is in any given safe, and anybody can put money in any safe. When you open a bitcoin account, you are given an empty safe and the key to that safe. You take note of which number is on your safe, and when somebody wants to send you money, you tell them which safe is yours, and they can go drop money in the slot.”
The status quo that’s being challenged by blockchain is the third party that involved in all non-direct money transfers. The open, decentralized database allows for the direct exchange of anything of value (money, goods, property, votes, etc.). Like in the safe metaphor, the entire blockchain community can identify you by your safe number.
The World Economic Forum predicts that in less than 10 years, blockchain technology will be used to collect taxes, financial fraud will be reduced, and immigrants will be able to send money overseas quickly and easily. In fact, they are predicting that third-party companies like banks will be extinct when society is ready to embrace the new technology. Blockchain seems to be the wave of the future, but it’s hard for people to utilize something that confuses them. With greater understanding and more proven success, blockchain should eventually be everywhere.