Using your local bank to understand Blockchain technology

First, let’s quickly try to understand what happens to our money whenever we make a transfer to someone.

Let’s assume you have #50,000 in your account — and you try to transfer #65,000, the bank first verifies if the units you requested to move are lower than what is currently in your account.

So banks do not necessarily transfer money, they verify and move data from your account to your friend’s account.

If the “Data” currently held in your account says “#50,000” then they cannot deduct “#65,000” from your account.

So we may think money is being moved from “Bank A” to “Bank B”, but in reality, it’s a verification and transfer of data.

So your bank has some form of “Ledger” where your data is stored.

So banks do not necessarily transfer money, they verify and move data from your account to your friend’s account. If the “Data” currently held in your account says “#50,000” then they cannot deduct “#65,000” from your account.

So we may think money is being moved from “Bank A” to “Bank B”, but in reality, it’s a verification and transfer of data. So your bank has some form of “Ledger” where your data is stored.

They store “Data” on the movement of your money, and you can access it at any time whenever you need it, by requesting a “statement of account” from your bank.

Blockchain technology works just like this, only that this ledger is connected to every computer connected to the blockchain network.

So any change made to your ledger is made concurrently on every one of these ledgers in the network, and so everything runs on autopilot.

When you want to transfer #35,000 to a friend, all the computers will verify automatically that you have up to that amount in your ledger, and then allow you to make the transaction.

So… What’s the difference?

Why does anyone have to use “Blockchain” for storing finances instead of the banks?

Well, that’s where decentralization comes in.

You see, decentralization is the opposite of Centralization. Centralization is when all the power is given to one body.

In this case, financial power. We give banks all our money, and they use it to do business in different markets. But they are not trustworthy enough to give us (a portion at least) of the profits.

Trust. Trust is usually the issue with Central authorities. And it’s not just banks. Even social media apps have all our data and use it to do business, without us being aware or even profiting from it.

If you think about it, you quickly realize that you are indebted to their transparency. Your bank could freeze your account and refuse to give you your money, whenever they want.

Your social media apps can lock and ban your account, and you would do nothing about it — it doesn’t matter if it took you 14 years to grow that account.

That’s the problem with centralization. Decentralization — on the other hand, takes the power and places it in your own hands.

Decentralization gives you ownership!

One more benefit of this new blockchain technology is its high level of Security.

This technology is so secure because no transaction happens unless it has been verified.

This Process of Verification is called Mining. Miners are rewarded with Bitcoin whenever they successfully mine Bitcoin.

For someone to steal your funds, (maybe through hacking), they would have to force “data” out of your wallet by invalidating a block in the network, and the entire network will verify that this is an invalid transaction and so that transaction never happens.

The Hacker would have to be in control of at least 50% of the computers on that block, and that is basically impossible.

So, whatever you place in the blockchain is completely secure, because everything has to be verified.

Bitcoin is the first and most popular use of Blockchain technology, as it is a digital currency that does not need you to trust your bank to use it.

It’s become very popular, and many other coins have sprung up emulating the technology, (we call them altcoins) — we’re seeing technology rapidly move in the direction of this new world of Blockchain.