This is not just another article about blockchain technology. This is blockchain explained in plain English. If you and technology haven’t got friendly yet, but you’ve googled ‘blockchain’ at least once – and then given up, overwhelmed with all the information coming at you and flooding your brain – don’t click away!
When blockchain was first created, its full potential wasn’t obvious to everyone. Today, there are more and more areas of life in which blockchain can be applied and even more ways that it can be used in the future, improving the functioning of those areas significantly.
Here’s an example… More than likely, most of you associate blockchain with transferring of funds. Why is that? Because one of the uses of Blockchain is to facilitate even the tiniest transactions imaginable. Equally important are peer-to-peer blockchain transactions, which mean the transferring of funds from one place to another for free. To put it in even simpler terms, if you have a virtual wallet and your friend has one, you could exchange your bitcoin for another coin instantly and free of charge. Isn’t that the future of multi-currency payments?
Blockchain: The War of Definitions
Blockchain has been defined as a digital ledger in which transactions are recorded chronologically and publicly. Well, that’s nice but not exactly what we want. We want blockchain explained simply, using no complicated language or metaphors, right?
A blockchain consists of a number of blocks, hence the term. Each block is a record of transactions of specific data, which can contain anything from Cryptos to voting records to medical data. When one block is completed and can no longer be updated with new data, it is added to the chain and another, new block, is formed.
All the information on the blockchain is publicly available, as it’s a decentralized system. Does that word ring a bell? Decentralized literally means that the information is stored on many computers distributed around the globe, and there’s no specific party or authority to control it.
Visualizing Blockchain Technology
You could think of blockchain as the Google Docs service – hands down, a clever metaphor from William Mougayar.
Do you still remember the good-old-times when people used to create separate Word documents, save them, and then forward them to others for editing? You might – and some of you may still be doing it! These days, it’s much easier to use a Google Doc, which allows us to create, view, comment, and edit the information in a live document online, given that we have the link and know where it’s located.
In a similar way, blockchain allows for the distribution of information. So, there we have a Google Doc – a block – that is duplicated thousands of times across a large network of computers around the world – a chain of blocks. The network is set to update every single document, or block as and when its changed.
Success! Now we have a basic understanding of blockchain!
Getting Crypto With It
Now that we’ve explained how blockchain technology generally works, let’s dive deeper into the Crypto-verse. How do virtual wallets work… and what about online currency exchanges?
Imagine that there are two people who want to make a Crypto transaction on the Internet, each of them must have a public and private key, which are basically ridiculously long random numbers that are required to create a virtual user identity. A public and private key combined make up a digital signature – just like the one you use to sign important documents in real life.
As the name suggests, a public key is public – no big surprise there. It is available to everyone through a corresponding directory. A private key, on the contrary, must be kept private at all times. Both keys are mathematically related, so that one’s private key can open their public key and vice versa. Remember that if you lose your private key, your public key and the funds become inaccessible and get lost in the giant blockchain void. Below’s an example:
If you want to send tokens to your friend and be absolutely sure that no-one else will ever be able to access it, you will encrypt your transaction with your friend’s public key. Only your friend has access to their corresponding private key, which means that they are the only person who can decrypt the encrypted transaction. Any public key can be potentially accessed, but they are virtually unhackable, unless you gain access to the related private key. The moral of the story? Keep your private key safe – and do whatever it takes not to lose it along with whatever sensitive data is related to it!
Crypto Exchanges Come Into Play
You need an exchange to buy digital currency to be able to make transactions using your virtual wallet. Via an exchange, you can spend the coins you bought at once or, alternatively, you can choose to store them in your wallet, which brings us back to the importance of private keys. Once lost, your funds are gone forever.
In an ideal future world, common blockchain technology usage will be a happy reality. There’s still a long way to go until that happens. We can clearly see the need for improvements in worldwide regulations to nourish the developing blockchain industry and create a more supportive and friendly environment.
It’s immature for the existing economies to suppress blockchain developments as our progressive society is slowly, but gradually, moving over to eliminating public dependency in the equation of accessing and owning private information. We should be able to handle our sensitive data in a super-fast and secure manner, backed by the technological know-how. The truth is that the blockchain environment is currently being opposed by governments and the banking sector in particular, but the stubborn resistance will inevitably fade away eventually.