Explaining blockchain in three minutes
Regarding blockchain, there are three main types of people I have encountered:
Person 1: Has no idea what blockchain is.
Person 2: Blockchain enthusiast; doesn’t really know anything about it but thinks it will take over the world.
Person 3: Actually understands the technology and has mixed thoughts about it.
No matter which of the three you happen to be, I want to clear up some misconceptions, targeting Person 1. As a student in Silicon Valley and the University of Michigan, I am at the center of entrepreneurship and stupidity, and I have definitely seen many people of each type.
Person 1 is the easiest to address. This is the part of the article for those with busy schedules, for those who want to find out what this groundbreaking technology is.
Blockchain was initially developed by Satoshi Nakamoto, who has since dropped off the face of the Earth. Nakamoto developed the technology for a cryptocurrency named Bitcoin, but the growing technological community continues to find new purposes for it.
I will explain a quick analogy of blockchain: imagine an Excel spreadsheet distributed over a large network of computers that is regularly updated. This leads to obvious accountability and transparency for any updates made by a user.
Now, let’s get a little more technical.
On the left is a drawing of a chain of blocks. Each block holds records of new transactions. In Bitcoin’s situation, this would be the location of the cryptocurrency. When the data in each block is complete, it is added to the chain. This is called blockchain. Focusing in on cryptocurrencies, the encryption requires finding mathematical solutions. Decrypting, solving these mathematical problems, gets harder as the chain gets longer. The user that decrypts the block is rewarded in the cryptocurrency, in a process called mining. I won’t dive into the process of mining, but if you’re interested, take a look at this interesting read which claims that mining is no longer profitable. Now, when a user heads to Coinbase and purchases a Bitcoin, for example, what they’re actually buying is a key to the address on the chain; lose this and your investment is gone as well. The private key is used to withdraw money, and the public key is what people can use to send currency between individuals.
A common myth is that blockchain is ultra-secure, when the reality is that it really is not. While someone may not know your specific identity, they can trace all transactions you make on the chain, and can track you as an individual, using your public key.
A clever metaphor all over the Internet compares blockchain to Google Docs.
Google Docs fixed [the issue of Microsoft Word] by making it possible for multiple people to view and edit a document at the same time. However, most databases today still work like Microsoft Word: only one person can make changes at a time, locking everyone else out until their done. Blockchain fixes that by instantly updating any changes for everyone to see. — Life Hacker
The article linked above also has many other metaphors that might be helpful in understanding the technology at an upper-level, if you are still a little lost.
I happen to be most similar to Person 3. Although I’ve seen the potential uses for the technology and have money invested in cryptocurrency, I don’t believe the technology itself is a groundbreaking feat. I think it will expand in the years to come, and be prevalent in industries other than currency, and am excited to see that happen.