What is a blockchain?
A Blockchain is simply a database that you can trust more than existing database implementations because:
- It is public
- It cannot be changed, only appended to.
- There is no single point of failure.
- Incentives for processing transactions are independent of what the transactions actually are.
What is a database?
A database is an organized collection of data. Up until now, almost all of humankind’s information (from cat photos to the state of bank accounts) has been stored across many databases, each of which are controlled by a single or a few entities.
Bitcoin’s blockchain is a database that simply stores a series of transfers of bitcoin from one address to another.
What is a transaction?
A transaction is a message that causes a system to alter its database. For example, when I post this article online, I will have transacted with Medium saying “I, Arjun Raj Jain of the Block Collider would like to post this article.” Medium receives this transaction and verifies the associated metadata (data including whether or not I am who I say I am) after which it alters its own database to have this article be available for the world to read.
In Bitcoin, transactions are simply “Send X Bitcoin to Y From Z.”
What is trust?
Trust is simply belief in something. You don’t need to trust that 1+1 is 2, you know it by logical proof. However, you must trust that Equifax will store your credit reports securely (whoops!). You don’t need to trust that water freezes at 0 degrees, you know it by the laws of physics. However, you must trust that a centralized exchange will not be hacked and lose all of your bitcoin (whoops!).
Do you always need a blockchain to ensure trust?
NO!
Companies that claim to be shifting their internal operations to using a “private blockchain” are quite frankly, abusing the use of a blockchain. A blockchain is useful if and only if you cannot fully trust the participants who are interacting with the data stored on the blockchain.
I would certainly hope a company trusts itself to store and transact on its own data, because if not, shifting to using a private blockchain is certainly not going to help them.
How is trust ensured on a blockchain ?
First and foremost, a blockchain is public for everyone to read. You can literally download the entire bitcoin blockchain and track all the movements of Bitcoin that have occurred on the respective blockchain (so please don’t believe when anyone says that Bitcoin is anonymous).
Second, a blockchain can only be appended to, not changed. If you cannot guarantee that data has not been altered, how can you trust the validity of the data itself? In an append-only database, you can ensure the state of information at any point of time because it has never been altered.
Third, a blockchain can theoretically never be hacked, or at the very least is a lot more difficult to hack than most centralized databases. When I say hack, I mean specifically with regards to submitting transactions that would otherwise not be permitted. In the real world, hacking usually involves gaining access to information that was otherwise kept secret (i.e — Equifax).
Finally, miners are incentivized to process transactions independently of what those transactions are, in the native token of that blockchain. This is because the native token only has value in the real world if the data stored in the underlying blockchain is deemed secure, and it can only be kept secure if miners do what they are supposed to. So if miners try to “mess around” with transactions, then people will lose faith in the security of the underlying data, the token will lose its value, and the rewards received by miners (in the form of tokens) will lose value as well. Hence miners are trivially incentivized to ensure the validity of the blockchain to maximize their own rewards.
In existing database systems, transactions first must go through a middleman for them to approve it. For example, Goldman Sachs knows that they can charge high fees for firms wishing to IPO because they are one of the few “trusted” intermediaries for IPOs.
What’s an example of an interesting blockchain application?
Uber.
Uber is only able to charge fees because it owns the information with regards to riders and drivers and distributes them only when they are paid. However information on rider/driver whereabouts and payments transactions could easily be written as a smart contract on Ethereum.
So why haven’t we seen any mainstream applications for the blockchain yet?
Because in all honesty, building things to be decentralized are a lot harder than building them in a centralized way.
First of all, transactions on the biggest/most trustworthy blockchains are way too slow to be able to handle real world applications.
Second, the models of Uber and AirBnb are more complicated than they first seem. Uber provides a lot more services than simply processing rider/driver transactions; they provide funding for drivers, machine learning to make riding with Uber more and more efficient, and marketing to expand the service worldwide. All these add-on services are what has made Uber the monster that it is today, and while all these services could be decentralized as well, it is going to take startups time to do so.
Third, blockchains exist as walled gardens. Bitcoin can only be used on the bitcoin blockchain, Ether can only be used on the Ethereum blockchain. What if you wanted to write an Ethereum smart contract to observe Coinbase’s Bitcoin Wallet that then pays the policy holders in the event of a hack (the wallet reaching a balance of Zero)? This cannot be done in the current method that these blockchains run.
Fourth, managing crypto wallets are not intuitive at all. It is impossible to expect non-technical people to securely manage their private keys and submit transactions to the blockchain using existing wallet software (https://blog.blockcollider.org/a-brief-history-of-the-crypto-wallet-be50337f2f7c).
How do we get too mainstream applications?
Some of the problems laid above are currently being solved by the Block Collider and Avon.
The Block Collider is an intermediary blockchain that allows events in one blockchain to automatically trigger transactions in another that will be faster than its fastest underlying blockchain. This will allow for more complex blockchain applications to be built, including a decentralized exchange and the insurance contract described above.
Avon is a dedicated butler for anything blockchain built on top of the Block Collider, useable from platforms like Alexa, Facebook, Slack, WeChat, Telegram, and more to come. Checking your portfolio, sending money, actively trading your holdings, joining ICOs, and interacting with smart contracts across blockchains is now simply a conversation.
If you want to learn more about what we’re building and the technology behind it, please visit — https://www.blockcollider.org/
