What is a blockchain? It is basically a growing digital book. A general ledger is like a cash register or a book that contains data or information about transactions. What kind of transactions and data? It started in 2009 to ensure that it will be possible to create and use a digital currency, namely: bitcoin.
Thus, the original use case was financial data and transactions. But soon people wanted to use the blockchain for other things like insurance, art and logistics. Therefore, altcoins were born, of which Ethereum was the first real one that was available in 2015.
Altcoins are alternative cryptocurrencies, so virtually every cryptocurrency that is not bitcoin is an altcoin. So how is this book growing? It grows by adding blocks to add new data and transactions that have occurred since the last block was created. The blocks themselves are created by a consensus mechanism called proof-of-work or proof-of-stake.
In principle, the “consensus mechanism” decides who can create a block and who can verify that the data and transactions in those blocks are correct. What is such a special way of implementation? The first aspect is that it should be decentralized. It should not be stored in one place so that it cannot be controlled by a single party, such as a government, bank or large company.
This is accomplished by creating a network of computers called “nodes” that store the same blockchain book. The beauty of being able to make sure that 1) everyone can see the same information 2) everyone can access it 3) everyone can agree on which information is correct and 4) no company, bank or government can block or restrict open access: is visible to all forever.
As a second aspect, data should be stored securely. Another reason why decentralization is important is that one company, a bank or a government can be attacked, as we have seen many times today. No one must be able to change the data in the general ledger.
You can only add new blocks with new data and transactions in the string: this property is called “immutable”. When you save something in an unchangeable way, every user can be sure that no one can cheat. No need to trust people, just trust technology.
How do you make a blockchain so safe? It is secured by cryptography. Therefore, the coin used by the blockchain is called cryptocurrency. Third aspect: the system should be “scalable” because it needs to be used over long distances, which is easy because it is stored in a digital format.
But it should also be able to handle the use of billions of people at once. And this is how blockchain becomes a technology that will completely change our world in this decade.
If you provide these three critical aspects, there is no need for intermediaries to make payments or trade and overpay for their services. Because it is accessible to anyone with an Internet connection, no one can be denied access. Blockchain creates the same playing field for anyone who wants to take advantage of his unlimited opportunities and many free tools.
Why is a blockchain necessary? The financial crisis in 2008 taught us that banks cannot be trusted with our money. The current COVID crisis teaches us that the government cannot be trusted with monetary policy because it only prints a huge amount of extra money, causing inflation.
Data leaks and message manipulation by Google, Facebook, and Twitter from this world have taught us that we cannot trust large companies with our data and decide which messages to see. So in conclusion, the overview of the blockchain’s mission is: “to create a digitized trust” so that we can communicate and trade directly from person to person, even with a foreigner on the other side of the world.