As someone who believes in the technology that blockchain can provide to the infrastructure of our society, I try my best to educate anyone who asks about it. And by far the most common question I get is “Soo…..what is blockchain?”. We see so many things on the news about this technology both good and bad (FTX scandal anyone!?). We see many people making and losing money based on what this technology can do. And well, to the average person, none of this makes any sense and when something doesn’t make sense it is easy to disregard it. So, I am going to try my best to put this into simpler terms that someone new can understand.
So, what is it? Blockchain is simply a ledger that can record and track transactions. That’s it.
You know when you make a purchase on your debit or credit card and you’re able to see who you paid, and how much you paid? That’s a transaction that your bank or institution is recording and tracking. This is similar to how the blockchain works but with 4 key differences. And these make the blockchain, in my opinion, much better:
- There is no middleman
- Faster transaction time
- Transparency of transactions
- Security of transactions
No middleman: The transactions on the blockchain are peer to peer meaning the transaction doesn’t need to go through your bank or financial institution (sometimes multiple, especially if you’re using an app) to be validated which can sometimes take days to clear, ESPECIALLY if you were to get a refund from a company. How many times have you seen “It could take 3–5 business days before you see the funds in your account”? Or if you have a pending transaction that comes back in a couple days as more than what you thought? Super annoying. By bypassing the need for intermediaries, blockchain technology can produce faster and more efficient transactions.
Faster transaction time: In addition to removing intermediaries like banks, the blockchain uses different types of consensus mechanisms to validate and clear almost instantly and add the transaction to the blockchain. I will write another article about the different types of consensus mechanisms used to validate these transactions later. But, for now, just know that it is a technique that uses algorithms to prove that something, or a transaction, is valid. If it helps and if you want to research more, there are two main types, proof-of-work which is what Bitcoin uses and proof-of-stake which is what Ethereum uses. There are MANY more but in general, they all aim to ensure that only valid transactions are added to the blockchain and to do it as fast as possible.
Transparency of transactions: One of the key features of blockchain technology is transparency. All previous and new transactions are stored on the blockchain which is shared by different people on their computers. And yes, you can download this history yourself as well and even contribute to validating new transactions (And be rewarded for it! A new way of receiving passive income). Each transaction is connected to the one before it and after it, this way, it is hard for anyone to change or cheat the system because they would need to change the data on everyones computer that is actively involved with the blockchain. This is different from other kinds of transactions, like using a credit card or paying with cash because these transactions aren’t easy to see and track and are watched by a single institution. They can also happen in any order and be altered at the institution’s discretion. So, this transparency can help increase confidence in the system and make sure everything is fair and honest.
Security of transactions: In addition to being transparent, blockchain is also very secure. It uses cryptographic techniques such as keys and hashes to make sure only the parties involved in a transaction can access and validate it. This is also something I will write on later but can be confusing for now. Basically, the keys and hashes are items that are used in a way so that only you and the party you are interacting with would have or know. It is built into the way the transactions are created to ensure only you and that party can interact. The history of transactions is used to validate new transactions and if something doesn’t match, the transaction is refused and not accepted on the chain. This is important because when people can see what is happening and verify if it is authentic or not, more people will have confidence within that system. The security also helps protect against fraud and ensure that transactions are safe and secure. Since everyone can see who sent and received a transaction, there is no he said — she said — they said-type arguments. It’s there in plain sight.
In conclusion, blockchain technology has several key advantages over traditional payment systems like credit cards, debit cards and cash. Including no middleman, faster transactions, transparency and security of transactions. These features make it a very compelling technology for a wide range of use cases from owning homes, creating a more secure voting system to even verifying academic credentials like degrees and certificates. While there are still challenges and risks associated with the adoption of blockchain technology, it has the potential to really change the way we do business and interact with each other. As the technology continues to evolve and mature, it will be pretty interesting to see how it will shape the future of our society.
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