Cryptocurrencies dominate the headlines, and experts from various industries discuss the underlying technology of any cryptocurrency in the world — blockchain. Why does this technology cause so much discussion and hype? The thing is, it’s revolutionary. It’s a technology that allows us to store information of any kind in decentralized databases which are virtually impossible to hack. A blockchain is an electronic ledger that stores information in numerous blocks which are distributed among thousands of computers.
It also allows users to make transactions which are digitally verified and guarantees the implementation of terms of agreement, due to a system of smart contracts.
Simply put, this technology allows us to transfer information more secure and faster than any other existing solution. Thus, there’s no surprise that blockchain became so popular in many industries, as it can be used for absolutely different purposes. This technology is very important to understand, however, it may seem not easy to explain. We think that everything can be explained simply, and we are going to help you explain blockchain to anyone, even to your kids or grandparents.
Why Is It Important to Understand How Blockchain Works?
Do you understand how the internet works, and how every website is built? Even if you don’t, it doesn’t stop you from using it. Blockchain is no different because it’s a complicated technology based on tons of code but its main principles are quite simple and understandable.
The first and the main implementation of this technology was cryptocurrency transactions. Indeed, blockchain helps exchange any digital assets anonymously, with no need for a certain authority that would verify such transactions. In addition, there’s no need to rely on trustful relationships anymore. All the transactions are verified using sophisticated mathematical algorithms and recorded in a public system that can be checked by anyone at any moment. At the same time, nobody is able to change, copy, or alter any of such records, as they are distributed among thousands of computers from all over the world.
Blockchain enables exchanging not only cryptocurrencies but virtually any kinds of valuable assets. It’s important to understand that the system of data protection and automatic verification has many possible applications, which makes blockchain somewhat similar to the internet. For example, the TCP/IP protocol allows us to make financial transactions on the internet but it’s not just a financial instrument. Blockchain also is going to be used in many different industries in the nearest future, that’s why it’s so important to understand the basics of this technology and its disruptive potential.
Practical Ways to Help Kids and Adults Understand Blockchain
Let’s use simple terms
First of all, let’s not use terms like “hashing,” “database,” and “nodes.” We can call a blockchain a distributed ledger, or even simpler, a shared ledger. This ledger consists of hundreds of line items — blocks. This shared ledger isn’t just stored on some computer which is shared by many people. This ledger has thousands of copies that are stored on servers and home computers all over the world. A line item in this ledger may be a money transaction or any other information, however, let’s talk about sending and receiving money, as it’s the most common application of blockchain which is easy to understand.
When Ben sends some money to Jill, a new line item appears in the ledger and is sent to thousands of computers. All the copies of this record must perfectly match each other, otherwise, the transaction will be impossible. Imagine a crowd of people standing around Ben and Jill, watching how he gives her money. They all must agree that he really gave the money, she did receive the payment, it was the right amount of money, etc.
The difference with a bank
Blockchain is decentralized, which means that you don’t need to rely on any bank or another financial institution. There’s no middleman involved in blockchain transactions. This shared book of records is irreversible, and every line in it is going to exist forever (or as long as the internet exists). Thus, if Jill decides to return the money, this action will create a new line in the ledger, without changing the first record of Ben sending money to Jill. If somebody decides to change his or her copy of the record, it won’t match all the remaining thousands of copies, which is a reason why all the records are protected. There’s no need for a bank to control such operations.
It’s also important to understand that the line in the ledger itself is the money — there are no coins stored in a certain repository. To receive the money, Jill needs to provide her wallet address to Ben. Line items related to Ben’s and Jill’s wallets are protected by very long and complicated codes. Thus, they are the only people who are able to create new line items, sending money to each other. Once Ben writes a line which says that he puts 200 coins in Jill’s wallet, he loses control over this money, and only Jill can use those coins as she wants.
And what is so special about this technology?
Blockchain is a system that can verify the ownership of any digital data, whether it’s some cryptocurrency or not. And this is what makes this technology disruptive. For example, you can buy music directly from your favorite artist — companies like VOISE and Ujo Music are already working on such ideas. Any picture or audio track can be checked for originality because it has its record in a blockchain, which cannot be altered. Walmart and IBM used this opportunity to create a new blockchain-based technology for supply-chain management. Enthusiasts develop blockchain-based social media platforms and even use this technology in elections.
As blockchain gets more and more actively discussed in various industries, it becomes important to understand the basic principles of this technology. Even though blockchain is based on complicated algorithms and sophisticated code, you can explain this technology to everyone by using simple examples. The most important thing about blockchain is that it helps store different kinds of information and make secure transactions. The security of this technology and the automation of data verification is a reason why blockchain is going to disrupt many industries, so everyone will surely benefit from learning more about it.
Ester Brierley is a QA Engineer in a software outsourcing company and a competent virtual assistant for College-Writers, but thinking about her own entrepreneurial journey. As a seasoned content creator, she writes about cutting-edge digital (and lifestyle) trends. Follow her on Twitter.
