What is Blockchain & how does it work?
They say knowledge is power, and whoever “they” is couldn’t have been more right. As technology advances and new ecosystems are made available for us to work in, invest in, and live in, it is important to garner at least a base level of knowledge in order to make the most out of these new opportunities. That’s why I’m here to help you get a layman’s understanding of what Blockchain is, how it works, and why it’s important for the future of business, economy and society as a whole.?
So, what is blockchain? Blockchain is an amazing technology that solves one of the biggest problems humanity has faced since the dawn of history. That is the problem of trust.
Ever since we humans were apes, we began exchanging value, hence the popular phrase, you scratch my back and I'll scratch yours. Other examples include, you give me your vegetables and I'll give you my rice, or you take care of my children and I will patch your roof, and so on.
However, the biggest hurdle in our many transactions has always been how we could trust each other. If we do our part first, how can we be sure that the other party will fulfil theirs? How do I know for sure, that once you have my vegetables in hand, you will not run away without handing me the sack of rice?
That’s what Blockchain technology solves. It will allow us to trade and transact with each other without having to establish trust because it records in real-time all transactions in a way that’s secure and verifiable by anyone. That’s why they call it “Trust-less”.?
Another term you might have probably heard in relation to blockchain is permission-less, that's because blockchain technology can operate without the need for a centralised power, for more on decentralisation check out my YouTube series or this article. Instead of a centralised authority calling the shots, Blockchain makes use of code and protocols to facilitate transactions. And, if people do not have to be worrying about whether you will trick them or not, I believe this opens up a whole new space for collaboration as we have never experienced before.
Currently, a huge amount of resources and energy goes into maintaining organisations and governments all over the world, this is not only wasteful but incredibly inefficient. The larger the group of people, the more difficult it is to manage and organise. If we pay attention to the developments of the last decades you may come to the conclusion that globalisation as a whole has been a failed effort. The impact of world organisations like the UN, the EU, the World Bank, etc. has diminished over time as countries find it evermore hard to collaborate with each other and coordinate societal advances as the way we humans relate to each other becomes more complex. As someone living in the UK, I can tell you firsthand that Brexit is a great example of what I’ve just laid out.
So how does Blockchain actually work, and how does this help us solve the aforementioned problem?
Blockchain technology can potentially help us overcome many hurdles that the first wave of globalisation failed to resolve. This is especially true in a post-pandemic era where we can work and collaborate with anyone from anywhere in the world. As events like the pandemic and the climate crises unite us in a common struggle, it has never been more pressing to band together as a species, as part of the population of this planet, to find common solutions, but under the current type of government, this is nearly impossible. It is too slow and requires a lot of trust-building, something that seems to be going the opposite way right now as people lose?
faith in their governments and leaders.
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As Blockchain technology bypasses the need for trust-building, I believe as it advances and is widely adopted, it will pave the way for an exciting new era in human society. Blockchain is not just a technology, it's also an economic, cultural, and socio-political phenomenon that could potentially undermine many of our centuries-old established status quos. One of the most important implications of this technology is the way it could change our monetary system. As we went from monarchy to representative democracy, we saw the separation of state and religion. Now, as we go from representative democracy to decentralisation, we are seeing the early stages of the separation between the state and money.
At its core, Blockchain technology is a combination of encryption and distribution, concepts not really new in themselves, but potent when combined. In simple terms, Blockchain is a database that’s distributed among a number of computers, secured by encryption. It works sort of like a Google Doc, where anyone can add and contribute to the data on the document, improving its content, but with the main difference being that no one can delete or change anything. They can only add. Deleting a previous block will change the entire document, and since many computers are plugged into it, the community will keep it secure and prevent any bad actors from deleting or changing anything.
But how does the community protect the blockchain from being altered by ill-intentioned users without infringing on the privacy of the people whose data is in that database??
The way it works is that the database has a series of blocks that come one after another. Every time a block is completed, a string of numbers is generated that represents that block. That string of numbers is called a Hash.?
For example, let’s say there was a blockchain that contained the names of everyone and their pets. My name, Somi Arian, is in Block number 37, and the names of my cats, Rumi and Armani are in Block 38. Now Block 37 and 38 would each have their own unique hash. A hash is a unique identifier of encrypted data in each block, like an anonymous ID for each block.
If there are 1000 computers collaborating on this blockchain, they would all receive an alert when my name and the names of my cats were added to the blockchain, but those computers won't be able to see the actual data that’s contained in the block. In other words, they wouldn’t be able to see my name or the names of my cats. They can only see the “Hash”. Now, if a bad actor goes in and changes one of my cat’s names, the hash of that block would immediately change, alerting the whole network of the alteration so that it can be stopped.
So, in simple terms, this is how a group of computers (distributed all around the globe) can collaborate to keep a network secure, using the hash number, without the need to know what is contained inside each block. All the computers in the blockchains are bound with a kind of algorithm called a distributed consensus, whose job is to make sure that all the computers in the system agree with each other so that none of the changes affect any of the data without the consensus or agreement of others.?
What’s interesting about Blockchain technology is that each time a block is completed and added to the chain, a new block is generated that contains all the information of the previous blocks thanks to the hash numbers that represent them. The Blockchain works in a linear fashion, like the timeline of a film or story. Events (or blocks) unfold one after the other, however, unlike a movie, the blockchain can’t be altered. What goes in, stays in.
Blockchain technology is still very young, but if you’ve understood the basics of what I am trying to explain in this article, you will probably be able to gauge the potential it has for human society as a whole and for collaboration across the planet that will benefit all of us.