One of the stumbling blocks for people who want to get involved in blockchain is getting their head around the concept to begin with. To put it in the simplest possible terms, blockchain is a digital ledger of transactions distributed across a network of computers, which means it is decentralized and transparent.
Each block in the blockchain contains a number of transactions. With each new transaction, a record of that transaction is added to the ledger. That decentralized database – that blockchain – is also known as distributed ledger technology. You can picture it like a digital version of Legoland.
The best way to think of it is as a network of computers, similar to the internet except there are no central points where all the data is stored.
The blockchain data is stored and copied on every computer or node in the network all over the world by whoever chooses to run a computer or node, which means the data is not controlled by a single group, party, or entity. (A node is a device or data point in a larger network. In networking, a node is either a connection point, a redistribution point, or a communication endpoint.)
Every node on the network can be operated by anyone. If you download a bitcoin wallet, you’re probably running a bitcoin node without having to do anything to actively, or even knowingly, support the network.
In addition to being decentralized, an important facet of the technology is the fact that it is secure. Every block of transactions is cryptographically secured through what is called a hash, which is a string of numbers and letters.
Each unique hash can only be decrypted with a private key, or seed, provided by the person sending something via blockchain that has that hash attached to it. Now this may sound a little complicated, but at the most basic conceptual level, it is no different from buying a car or house and getting the unique set of keys to it along with your purchase.
The Byzantine Generals Problem
So why is blockchain such a game changer? The thing with blockchain is that it is the first time a network has been able to solve the Byzantine Fault Problem, also commonly known as the Byzantine Generals Problem.
The problem is essentially this: Imagine you are in a battle and have an army attacking on two or more fronts; the enemy is strong enough to defend itself from one attacking army at a time but not two or more simultaneously. All parties must agree on a strategy and act in concert – otherwise your army will face complete failure and defeat.
To add to the complexity, there may be officers, messengers, or other actors who are unreliable or corrupt working to undermine your victory. So how do you coordinate your soldiers to attack or retreat as one? If you are in multiple locations involving multiple decision-making processes and multiple actors, how do you reach consensus on what to do and execute that decision at the same time?
While it is an interesting thought experiment, it is also a common real-world problem in many facets of society, including the internet. Blockchain creates consensus over the internet with transactions.
It confirms transactions with many different nodes, which are then propagated as transactions across the network. It creates a permanent public record, so to speak. It takes the internet as it is today and adapts it to a completely digital world.
What’s New About Blockchain?
More and more of our everyday activity is taking place online. We have entered the age of the Internet of Things, wherein all devices are connected. We are sharing our lives and connecting online through social media, gaming, and other forums. We conduct our businesses, manage bank accounts, make purchases, and do a whole host of other things online.
Blockchain opens up even more opportunities to do things online, but with one clear distinction: to have control over them.
Let’s say you set up an Instagram account. You have ownership and control of your account – you can post whatever you like for the most part – but ultimately it’s not owned by you. The account is owned by the company.
With blockchain/Web 3.0, you can create your own version of an Instagram account that no one can shut down or moderate. You can post anything, monetize it how you wish, take it with you anywhere (digitally or in the real world), and it connects to just about everything frictionlessly.
What Can You Do With Blockchain?
If you’re a coder or developer, you can create a blockchain. The challenge is to create one that is efficient, cost-effective, secure, private, and scalable to millions if not billions of users and transactions – basically whatever your end user wants.
Enter Vitalik Buterin. He is one of the most important people in the crypto space. Vitalik and a few other collaborators saw what Bitcoin was able to do, looked at the underlying technology that made it possible, and asked, “How can this decentralized, distributed network fulfill other uses?” Eventually they created Ethereum.
Ethereum uses open-source blockchain technology to create other things that are decentralized, such as smart contracts. These are essentially self-executing contracts that do not require an entity to fulfill them. With a smart contract, you can do all kinds of things. It means you can eliminate a middleman.
A smart contract establishes an agreement between party A and party B. For example, if you were to purchase real estate, you would normally need a broker. But using blockchain, you no longer need that broker to help navigate the legal and financial practices of the industry – in particular, the transferral of ownership.
So there’s a crash course for you on blockchain. It is a flexible technology, and as such there are so many industries that blockchain will become an integral part of. We have only skimmed the surface of what can actually be done at scale.
Article By Brandon Zemp
About Brandon Zemp
Brandon Zemp is an entrepreneur and investor. He made his mark early on as a trader in the fast-paced crypto market, and soon established his first company, BlockHash LLC, a blockchain consultancy providing educational resources for small business owners, students, developers, and investors.