Blockchain— the Technology Behind Bitcoin, Explained with LEGO
I explain one of the World’s greatest innovations with Lego and Vaseline. Ready?
Bitcoin. That word is everywhere now. Day after day the mainstream media talk about it. Millions of people have invested in it and we have seen it go from 1 cent to 20,000 dollars in a few years. The hype is worth it. The hype is always worth it with great technology but the more important thing most people are not focused on is the technology the coin is built on. That technology is so powerful it can change the way the world works forever. That technology is Blockchain. If you don’t know what it is, I’m not surprised. The world has been too focused on bitcoin. Remember when the internet was born and email was the most popular thing built on it? Bitcoin is basically the email and Blockchain is the internet. Think of it like that and its hilarious Blockchain doesn’t get more hype.
So what is this Great Technology that isnt getting as much acclaim?
Think of Blockchains as Databases. It is a decentralized, digital ledger(database) of transactions which are grouped into blocks. These blocks are validated and linked sequentially in a linear chain.
Simply put, it is like you and your friends each have a book where you record business transactions with each other. The information contained in all your books must be the same and transactions aren’t recorded haphazardly. They are arranged neatly in a linear form. Now if one of your friends adds an extra zero in his book possibly to trick you and your other friends into thinking you owe him extra money, all you have to do is check your book and that of your other friends to discover the truth. And of course the truth will be that it is only one book that has a change thereby marking the person making the claim as a liar. This simple illustration shows just a fraction of how blockchain can in fact change the world as we know it.
SOME USE CASES OF BLOCKCHAIN
Lets look at a use case of blockchain when it comes to the transfer of money. Below is the way the world is now, presented with Lego (a big shout out to my 1 year old nephew) and Vaseline:
Red lives in Australia and needs to send money to Miss Pink who lives in China. Red will need an intermediary in this case a bank (Vaseline). The bank will charge Red for this transaction and it won’t be cheap. Not only will it not be cheap but it will take a few days before Miss Pink finally receives the funds. The world’s current system is slow and expensive and sometimes not secure. Banks and many financial institutions have been hacked several times in the past. Blockchain takes the power from middlemen and puts that power in your hands. This is what Blockchain can do:
Red does not need Vaseline anymore. Red can send money directly to Miss Pink in China, Mr. Blue in Mozambique and Jack Black in England. And guess what? It will only take a few minutes and it will cost virtually nothing. This is the power of blockchain technology. Remember that book I talked about that you and your friends each have? Well when Miss Pink sends funds to Jack Black it is recorded in the ledger (the book) and Red and Mr. Blue can see this transaction and automatically become witnesses. You may be wondering who records this information in the ledger? Well it’s a group of people called miners. Miners keep the integrity of the blockchain and approve transactions using very powerful computers. To understand this better lets look at this The Economist article concerning Bitcoin mining (there are many different blockchains and the bitcoin blockchain is just one of them) from 2015:
Every ten minutes or so mining computers collect a few hundred pending bitcoin transactions (a “block”) and turn them into a mathematical puzzle. The first miner to find the solution announces it to others on the network. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution to the puzzle is correct. If enough of them grant their approval, the block is cryptographically added to the ledger and the miners move on to the next set of transactions
Basically when you want to send funds to someone on the blockchain, miners verify to make sure you truly have the funds you want to send and then they either approve or deny a transaction. In case you are wondering why miners choose to do this job, well the article further goes on to explain:
The miner who found the solution gets 25 bitcoins as a reward, but only after another 99 blocks have been added to the ledger. All this gives miners an incentive to participate in the system and validate transactions.
The system rewards the miners and it can be very lucrative. 25 bitcoins today is worth 250,000 dollars. After every 210,000 blocks, the reward is halved. Today miners get 12.5 bitcoins as their reward.
There are several other uses for blockchain other than financial. For example, a government can record its citizenry’s information on a blockchain thereby creating a permanent immutable record that can be easily accessed by its departments. Think of what that will mean for a county. People who get jobs using fake certificates ( this puts actual lives in danger in the case of Medical personnel) will be unable to do so anymore because there will be an immutable database that can be checked. In an election, it will be almost impossible for anyone to vote twice. There will truly be free and fair elections.
Blockchain is also disrupting supply chain. Let’s take a look at the diamond industry. If you have ever heard of the term blood diamonds you can appreciate how important it is that blockchain technology is used to end it.
Diamonds that fuel civil wars are known as “blood” or “conflict” diamonds. Every single blood diamond that is sold goes on to fund conflicts that lead to the senseless deaths of thousands of people as has been the case in Sierra Leone, The Ivory Coast, Angola, Liberia and many other places. In response, the Kimberley Process Certification Scheme (KCPS) was created in 2002 to regulate diamond trading and keep blood diamonds from entering the legitimate diamond market. In spite of this, blood diamonds are still smuggled to legal markets and passed off as legitimate. Blockchain technology can come to the rescue. Imagine diamond information being stored as an immutable record on a blockchain. It will be virtually impossible for anyone to fake documentation (as is the case now). There are companies that are trying to make this a reality by putting diamonds on a blockchain.
Still on the topic of the supply chain, Blockchain has made it possible to follow the GMO trail of food crops right from the farms they originate from all the way to the grocery store.
This allows consumers to make better decisions about the food they eat based on the trustworthy data they have access to. There is a company called Provenance that is working on making this a reality.
Blockchain is disrupting even the way Land registration is done. There are several countries in the world where Land disputes arise because there is document forgery. Sometimes one parcel of land is sold to as many as 10 unsuspecting people which leads to several disputes. Records on blockchain cannot be erased and this in itself will help to solve this land issue. When an immutable record of the Land’s ownership history exists, buyers will be able to make informed decisions because all the facts will be laid out clearly for them.
The future is exciting and the myriad of possibilities that can be built on blockchain are astounding. The examples I have given are just a small fraction of what this technology can be used for. If you have any questions, don’t hesitate to send me an email at benjosh243@gmail.com. I will love to hear from you.
