All of a sudden, blockchain is everywhere. But what is it? And can it be applied to address global challenges? It turns out it’s actually a fairly simple concept. In this article, we’re breaking down a few different ways for you to understand blockchain technology and its uses.
Blockchain technology was conceptualized in 2008 by an anonymous person or group known as Satoshi Nakamoto. It went on to power Bitcoin when it launched a year later. Since then, it has been the inspiration for many other applications, ranging from copyright protection to voting, and from transaction processing to food traceability. “In the language of cryptocurrency, a block is a record of new transactions. Once each block is completed, it’s added to the chain, creating a chain of blocks: a blockchain,” Jacob Kleinman writes on Lifehacker.
“If you own any cryptocurrency, what you really have is the private key (basically just a long password) to its address on the blockchain. With this key you can withdraw currency to spend, but if you lose the key there’s no way to get your money back. Each account also has a public key, which lets other people send cryptocurrency to your account,” Kleinman adds.
“The idea is pretty simple: the internet made it possible to freely distribute data online, blockchain does the same thing for money” – Jacob Kleinman, contributor at Lifehacker
A bunch of safes in a giant room
“Imagine there are a bunch of safes lined up in a giant room somewhere,” online forum Bitcoin Talk suggests. “Each safe has a number on it identifying it, and each safe has a slot that allows people to drop money into it. The safes are all made of bulletproof glass, so anybody can see how much is in any given safe, and anybody can put money in any safe.”
“When you open a bitcoin account, you are given an empty safe and the key to that safe. You take note of which number is on your safe, and when somebody wants to send you money, you tell them which safe is yours, and they can go drop money in the slot,” Bitcoin Talk explains.
As a result, many people see blockchain as an alternative to traditional banking. Instead of needing a bank or some other institution to verify the transfer of money, you can use blockchain and eliminate the middle man.
The internet of value
Blockchain’s specific qualities make it highly suitable to function as a public ledger, or registry, which leads us to the notion of ‘the internet of value’. “The idea is pretty simple: the internet made it possible to freely distribute data online, blockchain does the same thing for money,” Kleinman shares.
He adds, “Instead of relying on newspapers, television and radio (which are mainly controlled by big corporations), the internet gives everyone a voice—for better or worse. Blockchain and cryptocurrency make it just as easy to transfer money across the world by bypassing traditional middlemen like banks and even governments.”
“Blockchain could also be used in the legal business or architecture planning, really any business where people need to collaborate on documents” – Jacob Kleinman, contributor at Lifehacker
Blockchain is like Google Docs
Kleinman volunteers a clever metaphor for blockchain from William Mougayar, the author of The Business Blockchain. Mougayar says, “If you understand Google Docs, you can understand blockchain”. “Before Google Docs, if you wanted to collaborate on a piece of writing with someone online you had to create a Microsoft Word document, send it to them, and then ask them to edit it. Then you had to wait until they made those changes, saved the document, and sent it back to you,” Kleinman elaborates.
“Google Docs fixed that by making it possible for multiple people to view and edit a document at the same time. However, most databases today still work like Microsoft Word: only one person can make changes at a time, locking everyone else out until their done. Blockchain fixes that by instantly updating any changes for everyone to see,” he explains.
He adds, “For banking, that means that any money transfers are simultaneously verified on both ends. Blockchain could also be used in the legal business or architecture planning— really any business where people need to collaborate on documents.”
In the Netherlands, and in ImpactCity The Hague specifically, an increasing number of pioneers is exploring the societal uses of blockchain technology. Interested to stay up-to-date? Look into the The Hague-based Blockchain Future of Trust Summit and check back here as we will be reporting on new developments.