Oluwole Oyekanmi

@OluwoleCo

The no-frills intro to Blockchain

Not too long ago, there was this very new thing called The Internet. It was a concept only few people fathomed. Those few knew it’s potential and how it might function, but all else didn’t know what was coming.

Flash forward to today… one does not need any form of technical education to understand what the internet is or its basic use. In a way, I see the blockchain in that same light. It’s a developing concept, currently hard to grasp, with the potential to be the breakthrough technology of the 21st century.

So, I’m going to take a swing at helping you, an everyday Jane or John Doe, understand what this nascent technology is.

Blockchain is a database. Yeah… Long story short (Ikr!). But what is a database? You may ask… A database consists of rows and columns where a computer records information — kinda like an excel sheet. We’ve had databases for as long as we’ve had computers. What differentiates a blockchain is the type of database that it is.

A Blockchain is a distributed, open and immutable (can’t be edited) database. Some of the things that make it peculiar as a database:

  • It is public (anyone can see the entries) but can’t be edited,
  • A network of independent persons maintain it. Although technically no one person can control it,
  • It’s a ledger. It is worthy of note that value is not stored on the blockchain. Take for instance Bitcoin. Bitcoin itself is not stored on the blockchain! Records of transactions made are what are stored on blockchain. The Bitcoin will be in your wallet.

Why do we need the Blockchain?

Let’s run through a scenario… So your data on Facebook ‘sits’ in Facebook’s Data Center. When you try to log into your account, a request is made for it. Facebook then serves it to you. By signing the terms of service, you get into an agreement that they will keep your data safe. Safe from anybody who may want to unlawfully gain access to this information. Hypothetically this all makes sense and all factors normal pretty achievable. The case is that this notion may stop holding much weight soon…

Currently, we trust a central party. We trust Facebook and Google to keep our data safe. We trust the government to make proper laws if we pay our taxes. We trust central banks to issue currency and determine monetary policies. Finally we trust banks to keep our money safe.

These systems have risks within them. The central party have out-sized authority and sometimes monopoly on the records/database. For banks, that translates into big security risks and effective monopoly pricing power for the centralized party in control. This is why remittances, credit cards, and bank fees tend to be so damned expensive.

Going back in time, we’ve always had centralised power. Kings controlled the wealth of the land and taxes were paid to them. Indeed as long as earth exists, we will have a form of centralised power. However, the decline in trust in governments and corporations(side eying you Facebook) in recent years makes it clear creating a more transparent layer on top of these institutions is not a bad idea. Blockchain is here to help achieve that..

First, it is Distributed…

Blockchain is built in such a way that no one party is in control. There’s no one server in charge because it’s distributed in a peer-to-peer manner all over the network. So, rather than consensus and data integrity being at the hands of one party, we make it distributed across all parties bound by a set of rules.

Second, it has Miners!

You may have heard of them (these miners). They have only one job… verify transactions going through the network, ensure validity and add to the database. The blockchain thanks them for this by rewarding them with minted tokens (bitcoin, ethereum etc).

What is being verified?

When a person sends bitcoin, the blockchain gathers that transaction with a few other transactions into a block. This transaction needs to be confirmed before that block is added to the blockchain. This entire process is what miners do.

Miners don’t do this task for free, hence the reward in form of a unit of bitcoin. So how do we determine a fair method to choose the miner who does this task and gets the reward? You may wonder. The miners are pit against one another and given a task.

This task is an algorithm called the proof of work. It’s math that miners need computers to solve. If a certain miner’s computer solves it first, that miner creates a new block. Then announces his/her solution to the entire network and in turn receives the newly created unit of bitcoin as a reward. Everybody wins.

Apart from use cases such as bitcoin, we can adopt the blockchain technology in other scenarios in society where there is alignment of value, incentive and exchange.

“The first step to caring is understanding that blockchain is just behind-the-scenes code. That’s all… You don’t need to be the person who knows how to code for it, but you do need to know the type of systemic changes it can affect. You do need to know the industries it can disrupt. If you want the systems of the future to work for you, include yourself in blockchain”. — QZ

As a new technology, there’s still a lot to learn so, take QZ’s advice and include yourself in blockchain :)

N.B

Bitcoin is not blockchain. Bitcoin utilises the blockchain technology/protocol. Value is not stored on the blockchain. In the case of Bitcoin for instance, the bitcoin you own is not stored on the blockchain, it’s in your wallet. What is on the blockchain is the transaction records. Hence, why it is often called a ledger.

Thanks to Hazel Apondi for reading a draft of this

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