BLOCKCHAIN: Do You Really Need It? This Will Help You Decide!

The word “blockchain” is still surrounded by hysteria: companies that simply enter in it, their name soar in price by 400%. Half of the world would like to receive cryptocurrency as a gift for the New Year, while Bitcoin is called "the largest bubble in the history of mankind." A dozen new terms, some fascinate with innovation, others - scary, resembling a scam. I will explain in simple terms why bitcoin and blockchain are not the same things, how technology will make the world transparent and who will benefit from it.

Explain to me what is the meaning of blockchain?

Imagine an amusement park. At the entrance, everyone is given tape recorders, and they are constantly on for recording. Cotton candy and a roller coaster ride here can be bought for tokens, but no one gives them to you. Suddenly you hear the seller cry: “Vasya gave Oleg four tokens!”, “Alex gave 100 tokens to Anya!” - and so on, without stopping. 

Every time someone exchanges money for tokens or pays them, the seller yells about it to the whole crowd. Voice recorders in the park record this scream. If you finally want to pay with tokens, the seller will begin to compare your voice recorders with him. 

This is the key moment of the park’s safety: you can’t suddenly “come up” with yourself a couple of extra tokens: the scam will quickly open because there’s no one on the dictaphone record who will be screaming from the seller who would transfer these two tokens to you before.

The film of any voice recorder in the crowd with the same recording of screams is the blockchain, a kind of propagated universal diary. If such a park were real, it would have taken sellers a lot of time to compare the films with each other.

But in the digital version, blockchain is fast and safe, because the Internet speed is now high, the processors are powerful, and data can be transferred in large volumes. The main benefit of the blockchain is decentralization. Each has a double history of all transactions, as it would be if everyone collected paper checks about their operations on the account, and then posted them on the Internet. Then neither you, nor the owner of the amusement park, nor the sellers can deceive.

I understood the analogy. How does real blockchain work?

For any data transmission system, the transmitters themselves and their special language are needed. In analogy with the park, these are voice recorders and magnetic tape.

Blockchain is the name of an endless list in which, like on tape, information is transmitted from one person to another, and each of them owns a copy of the general list. 

There are many different blockchains. It is like an internal combustion engine. The principle of operation is the same, but the incarnations and fuel are different: the diesel locomotive drives a diesel engine, Formula 1 cars drive gasoline. 

The rules for maintaining the blockchain are set by programmers who write the client program code (create a voice recorder) through which information will be exchanged.

If you want to connect to some of the already running systems, then together with the client program you download the entire blockchain or the “fresh” part of this transfer registry (for example, weighs more than 170 gigabytes). 

Each line in it is a record that some information has passed from one addressee to another. The main rule of transfer does not change: do you want to send a certain digital token from A to B? First, you need to prove that someone gave you this token in the past.

Where are “Tokens” stored on the blockchain?

Nowhere. There are no wallets or accounts in the blockchain itself, as in a bank: there is generally no information there other than an open transfer history. You only own the key to your "previous" transaction, which says where your "tokens" came from and in what quantity. 

The private key is your only proof of ownership of the tokens mentioned on the blockchain. Usually, it is a number in the hexadecimal system - a set of random numbers and letters that are generated by the computer (so the option with the "mother's maiden name" will not work here). 

Only by presenting this key in a new transaction, you can transfer tokens to another. By the way, in most cryptocurrencies, the entire blockchain can even be viewed manually: bitcoin, for example, has convenient browser sites.

It is important to understand that if you lose your private key, you will lose tokens and no one else will be able to use them. It is impossible to “pick up” an encrypted private key: it will take more time to search through all the options than the Universe exists.

That is why the American James Howells from an already famous history has been trying for several years to find a hard drive in the dump with keys from 7.5 thousand bitcoins. 

A remark about secrecy: if all translations can be tracked, this does not mean that all your names and appearances are recorded on the blockchain. The sender and receiver can also be encrypted in the form of random numbers (blockchain addresses), which will also change with each transaction, then the network becomes completely anonymous. For more elaboration you can also read NULLcoin whitepaper. ;-)

Blockchain wallets can manage cryptocurrencies such as my partner ARCS, which allows users to transfer and receive digital assets. The rise of digital identity has sparked new standards and applications e.g. decentralized identifiers (DIDs) from the W3C. 

With the notion of identity, it will be possible to manage a self-sovereign identity in a wallet as well. AIre plans to implement DIDs as an integrated part of the blockchain so that users can assign attributes to their digital identity and claim verifiable credentials from blockchain-powered claim issuers.

Why can’t blockchain be hacked? It is publicly available..

Remember the seller from the amusement park who compares your dictaphone films with him for identity? In the digital blockchain, this task is performed by miner computers.

It is miners who collect transactions in “blocks”, which are then added to the blockchain. To understand how miners protect the blockchain, we will have to draw another pictorial analogy. If it seems strange to you, do not forget that we are talking about technology, for which millions of dollars are paid.

There is constant competition in the party of miners connected to the system. Imagine that in a cafe behind the counter there are ten bartenders with their mixers: they compete in who will be the first to make a cocktail of fruits and berries - smoothies. 

They do not choose the composition of the smoothie, their task is simply to keep the buttons on the mixers. Whoever first mixed fruits and berries to the desired consistency won, he gives the glass to the guest.

The bartender’s skills do not play a big role here, it’s only important how powerful the mixer is. The guests of the establishment do not want the smoothie recipe to be violated, so the villain will be the one who adds a new ingredient to the original composition. But he will not be able to do this unnoticed. 

Firstly, guests will easily feel that the taste has changed. Secondly, the villain needs to have the most powerful mixer of all and crank the fraud faster, than all the other bartenders. And it will be almost impossible if several bartenders decide to join forces to quickly collect one glass of smoothie from several small portions, which each interferes individually.