Explaining Blockchain and the Opportunity it Presents

What is Blockchain

 

The problem with most blockchain explanations is that they provide more detail than what is required to inform good decisions on the topic, using language that is foreign to most people, which winds up leaving people more confused than when they started. Instead, without worrying about being a technically perfect description, here’s an explanation of blockchain and the opportunity it presents that anyone can understand…

 

First, Let’s Reframe ‘Blockchain’

Starting with terminology, let’s ditch unfamiliar words and talk plainly – I promise you won’t read about ‘nodes’ or ‘hashing’ in this article. Jumping right in, a blockchain is a distributed database, otherwise known as a distributed ledger. To make things really simple and relatable, let’s call that ledger a record book instead. Furthermore, let’s talk in terms of it being shared instead of distributed. For even greater context, think about transactions as line items in that shared record book.

 

So, for the purposes of this article, we’re going to call blockchain a shared record book. Each addition to this record book is a new line item.

 

‘A Shared Record Book? This Doesn’t Sound Very Complex’

To be clear, this isn’t just one record book stored in a central location that is shared by many. There are thousands of copies of this record book, stored on computers all around the world, both home computers and business servers – hence the term ‘decentralised’. It’s synchronised between them. This record book can be used to record many kinds of things, however, I’ll use sending and receiving money as the primary example, as it’s the most common one right now.

 

When John wants to send money to Sue, a new line item is created detailing that transaction. This line item then gets sent off to hundreds of other computers who have a copy of the record. Those computers confirm that this transaction is authorised, and ultimately they agree (or disagree) that everything about the transaction is valid before giving that line item a tick of approval. It has to match up perfectly on every copy of the record.

 

It’s as if John and Sue had a few hundred mates stand around them and watched John hand Sue the money in question, and they all agreed that he really did hand her the money, as well as other aspects of the transaction.

 

‘How Is This Different From a Bank?’

The genius of this shared record book is that it requires no bank or centrally owned company, and you don’t have to place your trust in any financial institution — there doesn’t need to be a middleman of any kind.

 

To elaborate, this shared record book is not owned by any one individual or organisation. It’s owned by everyone who has a copy – but that doesn’t mean any one person who has a copy has control (more on this soon). Additionally, this record book is what we call ‘immutable’, or in layman’s terms, it’s irreversible. Every line entry made will exist in perpetuity, for as long as the internet exists. If Sue wanted to refund John’s money, this would be a new line item sending the money back – not the crossing out of the original transaction.

 

Because of those technology design decisions, fudging line items in this shared record book is impossible. If someone who has one or more copies of the record book on their computers was to try and dishonestly change it, those changes would be rejected by the many computers used in the verification process – things wouldn’t match up.

 

Beyond Banking

Up until now, a copy of something digital was indistinguishable from another. If an MP3 could be used as currency, there would be no way to tell whose copy of ‘Madonna – Like a Prayer.mp3’ was the real one that I should exchange for goods and services, and which was a copy. Suffice to say that prior to this technology, a truly digital coin was not possible. However, beyond disrupting the world of finance, the most mind-bending, earth-rocking uses of this technology actually have nothing to do with money specifically. With those fundamental workings explained, I’m now going to provide a few real-world examples that will give you an idea of just how this technology really could change the world.

 

The future of energy distribution? Imagine a country filled with Tesla Powerwall-equipped houses. Instead of paying an energy provider for their kWh, houses automatically generate, store, and trade electricity between themselves based on which neighbours need extra, and which have lots of excess in their batteries. Thanks to blockchain, this is no longer science fiction, and an Australian company named Power Ledger is pioneering it.

 

The future of community engagement? Over at Horizon State, we’re using this same shared record book technology for voting. In effect, we’ve replaced bitcoins (which represent currency), with tokens of our own, which represent the ability to do things such as cast member or shareholder votes, among other things. Instead of line items representing money, they represent people’s decisions. The same benefits we see with digital coins apply to these votes: their authenticity and legitimacy is validated, and the record book of results can never be tampered with. It exists transparently, to be recounted by anyone, with the same result forever, installing unprecedented levels of trust with those involved in collaborative decision-making processes.

 

And this is just the tip of the iceberg in our bright blockchain future. To quote Deepak Krishnamurthy, Chief Strategy Officer at SAP, “the current state of blockchain may be comparable to the state of the Internet and World Wide Web in the mid-1990s. When we all understood it was going to change the world, there were maybe five, 10, 15 million using the Internet, versus the two billion today. That’s where we are with blockchain’. (Taken from his interview with Forbes.com.)

Jamie Skella About Jamie Skella

Jamie Skella – Co-Founder, Horizon State. Jamie will uncover how disruption, risks and opportunities all await in a blockchain future where energy supply is being decentralised, finance is being disintermediated, and governance is becoming distributed. Technology strategist and entrepreneur Jamie Skella has spent 20 years in the design, building and advising of businesses across blockchain, esports, machine learning, and even future food. Formerly Executive Director at MiVote, Jamie is now Co-Founder of Horizon State, a startup redesigning how societies collectively make decisions using distributed ledger technology.

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