Why do we call it Blockchain ?
“There is no Cloud, just other people’s computers.”
There is no Blockchain, just… the same file, copied over to many computers.
Not as funny, but it’s a good start.
Blockchain is a set of technologies that complement each other. When a newcomer tries to understand what it’s all about, he gets one piece of the puzzle at a time, with each article, video and conversation, another question is answered, a new insight appears… until a critical mass is formed; until we are finally able to grasp what is all about. Each piece has to be earned. As in any other industry, there is misinformation, fakes, haters and opportunists. Many times the journey can get overwhelming.
I believe the sooner business and technical workers acquire a good understanding of Blockchain technology, the quicker the level of the discussions will be elevated, and the faster Blockchain will be able to unlock the potential many believe it has. And this is what this publication will be about: providing more pieces of the puzzle, more sides of the prism.
In this article I hope to give you a nice little piece: The rationale for the Blockchain name. And with that, you will be able to understand the kind of problems it was created to solve.
A Spreadsheet in the Sky
Imagine a spreadsheet where each line is a record. Anyone can add new records to it anytime. Just like a public Google Spreadsheet, but anonymously.
Also, there is no owner for it, controlling which records are valid and which are not. On top of that, the spreadsheet file is not kept in a central location, but replicated for every user via a peer-to-peer network, BitTorrent style.
For some reason, a large number of people believe this spreadsheet is really valuable, and have already invested considerably to have a stake in it.
However, there is one important rule: the last column in the sheet is a numerical field, for which the total sum on all records must be equal to zero. If this rule breaks, the spreadsheet becomes inconsistent, a worthless pile of bytes.
Agreeing on agreement
Could the idea above ever work?
No, it can’t work. It is an impossible goal.
But sometimes impossible goals can help us achieve impressive goals.
This case is no different. If we loosen the constraints a bit, we can unlock something really interesting.
First, instead of considering “central authority” vs “no authority” a binary choice, let’s see the middle ground here: a group gets to vote on what is valid and what is not.
Now, there are many ways a group could be elected, but almost all of them require trust, which requires identity. Trust and anonymity don’t match well. And we would end up with the same regulated systems we have now.
This deadlock lasted for many years, until a guy named Satoshi came up with an idea:
Voting weight should be proportional to the speed at which one can guess a number.
-What??
It totally works mate. Game Theory and stuff…
Ok, this idea deserves an article for itself, and I am going to publish one soon, I promise. But the point for now is that anyone can enter records in the spreadsheet, but they will only be considered valid if approved by a group of parties. And this group considers valid the proposal of the user that spent more effort on guessing a number (usually people use euphemistically the term ‘solve a mathematical problem’, but at least for the Bitcoin Blockchain, it is guessing a parameter in an equation that can’t be reverted).
The Blocks
This whole thing of synchronizing the data, and then having a vote (let’s call it consensus from now on) takes a while. And that can become a scalability problem as the spreadsheet becomes popular. This is the other aspect we will need to compromise on a little bit.
Instead of having to achieve consensus for every new record, how about we do this every now and then… let’s establish a block of time, where a group of records is chosen in a way the spreadsheet remains consistent. After one block is “sealed” the next one can begin.
The “math challenge” answer can then have as a parameter a number derived from the record’s group characteristics, in a way that if any record is modified, the “math challenge” would have to be solved again.
The Chain
Now, as the spreadsheet grows in popularity and use, summing up all those values can start to get expensive, and we have a new scalability problem. Fortunately, this one can be solved with no compromise of features.
Since we know that each mined block (yes, the term for guessing the number is called mining, because the winner has to look for something and gets a reward if he finds it), we don’t need to sum everything up again. We just need to link the blocks in a way that it affects the math challenge’s answer. Linking all blocks like a… chain.
And there you have it. The Blockchain. If the records represent transactions, the spreadsheet becomes a ledger, and we have the Bitcoin Blockchain.
Needless to say, there is much more to it. The whole thing is a fascinating machine that takes a while to “get”. I am sure you’ll enjoy the journey.
Twists and Turns
In our spreadsheet exercise, only two constraints were flexibilized. That is basically the problem Bitcoin solved, applied to payments.
For other applications some constraints are not necessary, or even desired. That was when we started to hear “Blockchain without Bitcoin”, and “DLT”.
No blocks and no chain
If there is no need for anonymity and if the parties that get to authorize what goes into the ledger are trusted institutions in the physical world,why spend energy with proof of work (the guessing a number thing)?
If a central institution can approve each transaction we don’t need blocks, therefore there can’t be a chain.
And this is how the term Distributed Ledger Technology was born.
You may be asking what the point is. In this case it is an integration strategy that has the potential to reduce cost with reconciliation and other back-office tasks. There are always trade-offs. More on that in a future article.
Complex Rules
The spreadsheet example had one simple consistent rule. Bitcoin is of course more complex than that, and the rules are hard coded in the protocol. For other applications we would have other rules. To avoid having a different blockchains for each use case, someone proposed parameterized rules, validated every time transactions arrive. That’s what we call Smart Contracts. Much more on that in the future.
I hope that was a clear enough explanation for Blockchain newcomers. There is a ton of Blockchain information out there; here are some curated links with other analogies, and ways to look at it.
Please click the little heart in the bottom if you enjoyed this, and follow this publication for similar articles in the future. All the best.
