Blockchain explained to your grandparents
This is the first of a series of blogposts exploring tech topics and making them accessible to anyone, thanks to STATION F entrepreneurs. Spot our techxplanation tag on Medium to read them all.
Picture yourself at your next Sunday lunch with your family. Because you’re a tech entrepreneur, obviously, you’re going to be asked: “What is blockchain?”.
First reflex, Wikipedia. Here’s what it says: “Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin.The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server.”
Good luck explaining that to your lovely grandpa or grandma and getting away with it.
STATION F entrepreneurs, to the rescue!
The startups that are part of our startup program dedicated to Blockchain, called ChainAcc, dissect the concept and explain it to you in normal human words. Read on!
What is decentralisation?
Blockchain is the child of a decentralized web. But what the hell does “decentralisation” mean? SkillZ explains it all.
“The brain behind blockchain technology is: decentralisation. FYI: Blockchain is not a synonym for decentralisation. Decentralisation is the mother of blockchain. Just the way science is mother of biology.
Organisations around the world are embracing the blockchain movement / web3.0 revolution / decentralisation wave with great celerity. But why? What are these words? Why do they matter?
Imagine you’re living in the Stone Age. There is no concept of money. You’re out hunting for food to feed your family. But you need some new tools to hunt. So you ask your friend (who is also from the Stone Age) to lend you some spears. You and your friend both make a note of this “exchange of tools” in your minds so both of you have equal knowledge about this.
Now imagine, there is a hunter club in which hunters of an area take part to act as witnesses. All the hunter-members of the club are notified of this “exchange of tools”. This now means that:
- You can’t say that you never borrowed any tools because you’d easily be caught
- Your friend, who lent you the tools, can’t say that he gave you swords as well as spears because every hunter in the club knows about the exchange
- Or any other sort of bamboozling would be caught
- If you want this exchange to be private, you can use stone age sign language (known as cryptography in 21st century)
Inferences drawn from this example:
- Nobody owns the place where the information about the “exchange” is kept. In the above example, it is the hunters’ minds, but it can be a notebook or even a digital database
- Malefactor practices would be conspicuous
- Nobody has to appoint a separate person to keep track of all the exchanges (No 3rd party/centralised party)
This is decentralisation! All data/knowledge/information is spread throughout. Everyone has equal knowledge. Nobody has an advantage over the other.”
Love the analogy with the Flintstones, SkillZ!
From a historical standpoint, the web has always been centralized. Which means that websites and services all come from centralized servers — according to Blockchain advocates, this presents a greater risk for corruption or hack (ie: if you hack the server, you hack it all!)
With blockchain, the data is shared across all machines available: it’s decentralized. This makes it virtually impossible to hack, corrupt, or as the SkillZ team puts it, bamboozle.
Want to learn more about SkillZ? “At SkillZ, we leverage decentralised technology to empower employees to create their own corporate identities whilst protecting their privacy at all times. We also want to bring more transparency into the HR world, and presently decentralization is the only way to achieve it.”
What is a ledger?
Now we know what decentralization means, the most obvious use for Blockchain is: transactions. No more centralized banks, welcome to ledgers. Oh wait, this is a new technical term. Don’t worry, Poi is here to explain.
“A ledger is simply a book in which things are regularly recorded, especially business activities, and money received or paid. It can have many forms and different supports. From paper book to a digital file, it has evolved through time.
From a Blockchain perspective, a ledger is a shared and reliable database used to keep track of transactions in a specific network.”
In other words, a (blockchain) ledger is where all transactions that ever happened are recorded. Access and management to the ledger is shared across the whole decentralized network, therefore virtually incorruptible.
Poi aims to take advantage of this new form of ledger to bring transparency and control to its users willing to spend their money in a impactful and meaningful way.
What is cryptography? What are public/private keys?
When transactions are written in a ledger, it is made secure thanks to cryptography. This means: it’s done inside a crypt.
It’s all about encryption. BCDiploma, the solution to certify diplomas and professional experiences on the blockchain, tells you what it is.
“Started in 1993, with the Cypherpunks group with a focus about the privacy, cryptography is the link among all the innovations that found blockchain solutions.
Cryptography is the science of encrypting and decrypting information, to:
- Protect confidentiality, authenticity and integrity of information for secure communication;
- Prevent third parties from reading private messages;
Cryptography is mainly based on mathematical theory and computer science practices.
Two dominant techniques are used in modern cryptography:
1) Symmetric cryptography algorithm
This technique relies on a unique key to encrypt and decrypt data, shared between all users which need to access informations.
2) Asymmetric cryptography algorithm
Each user owns a private key that must be kept secret, and a public key shared with all users. These 2 keys are mathematically linked. Public key is used to encrypt data, when private key allows to decode it.
Blockchain technology uses this public/private key pair to sign transactions (which is nothing other than a message) and to ensure this signature is valid, in a 2-step operation:
- A signature is established by encrypting a message using a key pair
- A validation key is calculated from the signature and the message
If this validation key is equal to the public key that signed the message, then the signature is valid, otherwise its fake.”
Here we are: we have a decentralized system where transactions and messages are recorded on a ledger, encrypted using keys.
By the way: BCDiploma.com, uses the highest cryptography standards to ensure the confidentiality of your private data!
What are cryptocurrencies?
Wait a second, we are talking about a ton of technical terms here, but where’s all the $$$ people are always talking about?
Daneel is the go-to expert about cryptocurrencies, and tells you what they are.
“Started in the 1980, the first efficient cryptocurrency was Bitcoin. It allows users to trade value through a decentralised network of computers that protect security and anonymity. The lack of a centralised authority hands the control back to users.
Other cryptocurrencies have now emerged which act similarly, but can have different applications. For example, Ethereum focuses on running programs as decentralized applications.”
Want to look into it? Thanks to Daneel, your intelligent assistant, you will be assisted on a daily basis in all questions of this type. Daneel will allow you every day to learn everything you want about cryptocurrencies, blockchain…
What is a token economy?
Ok so you have cryptocurrencies, but then what’s the equivalent of my good ol’ hard cash? Tribute is a startup that helps companies create tokens. And they explain how it works.
“Tokens are the internal currency of blockchain-powered, decentralized applications. Such applications are meant to serve the interests of an ecosystem, rather than being controlled and used for the sole benefit of a company.
The token economy enables the coordination of multiple agents within the ecosystem: tokens are simultaneously used to access, provide, secure, and govern the service of the network.”
Going back to Tribute: the startup enables any organization to create their own tokens to foster their contributive token economy: independent workers, partners, users, and customers can be rewarded with tokens for their participation in the long-term creation of value initiated by companies.
What is an ICO?
Now one might wonder: I know about my crypto, I know about my token, but how are they created? This is when you need to learn about ICOs, with CareGame.
“ICO stands for Initial Coin Offering, a name inspired by IPO (Initial Public Offering, for stock market nerds), even if there are many differences between the two mechanisms.
An ICO happens when an organization offers to sell a coin (or token) it has issued for a future use. If well delivered, it helps the organization get funding and visibility.
The best way we’ve found to explain it is to use this very simple metaphor:
Imagine a group of friends (a company) who wants to start a carnival. They want to innovate, create a special carnival that is unlike any other. To finance its development, the manufacture of the facilities and all the associated services, they have the idea of issuing tokens, which will later be used to access the super attractions they have built. By convincing enough people to buy these tokens that will have future value, they can raise enough funds to develop the project, and at the same time attract their first future customers, who will be eager to be able to use their tokens.
An ICO is exactly this operation of issuing tokens and selling them publicly on the market, except that tokens are crypto-assets rather than physical plastic chips.
We have taken here the example of a very bricks & mortar centralized business, but for the ICOs, the mechanics apply rather to digital activities, where the services are sometimes even decentralized, and operated by a great diversity of stakeholders. The blockchain makes the operation safer, more transparent, and international!
As an example, back in July 2013, Ethereum raised 3,700 Bitcoin durings its first 12 hours of sale, which was approximately equal to $2.3 million at that moment (they’re building a huge online carnival).”
More and more metaphors! Isn’t that one colorful?
“At CareGame, we’re looking closely at the opportunity of going through an ICO next year, even if for now we focus on developing the beta-version of our solution first! Our ambition is to allow any mobile player to access from any smartphone a large catalog of games, without any download thanks to a mobile cloud gaming service. We want to build the future of mobile gaming, with a mission of solidarity: we increase the share of publishers’ revenues, and donate 50% of ours to charitable causes. It’s time to PlayForGood!”
What is an exchange?
With many ICOs, there are many tokens you can get. Therefore, you need a place to get them. Gatecoin is a Bitcoin and Ethereum token exchange designed for both professional traders and retail investors, and they explain what’s an exchange.
“An exchange is an online platform where users can exchange fiat (e.g. EUR, USD) or crypto (e.g. Bitcoin, Ethereum) currencies for crypto currencies. The exchange is a gateway to blockchain, as it enables people to convert part of their fiat currencies into cryptocurrencies (that are used for decentralized applications).”
What are Bitcoin and Ether?
The two biggest tokens there are out there right now are Bitcoin and Ether. And they are very different, as Gimli explains.
“Bitcoin is a form of electronic cash with a public ledger accessible for anyone to see. The only thing you need is a computer and an internet connection to access this public ledger.
Bitcoin is a currency, just like $, £, €, ¥. However, Bitcoins are a decentralized, digital currency created, held and spent electronically around the world.”
If you go back to the beginning of this article, you’ll notice that Bitcoin is often mentioned as the “first” cryptocurrency, and sometimes confused with Blockchain. To date, it’s the most important cryptocurrency in terms of volume exchanged.
Can you buy stuff with Bitcoin? The answer is yes. As long as it is a means of exchange that is trusted by a group of people, then it can be used for transactions. You can use Bitcoin on Expedia, Shopify, to give donations to Wikipedia…
“Ether is a different type of digital currency that has similarities and differences from the Bitcoin digital currency. Through the Ether currency, you have the possibility to create digital applications that respect decentralization principles.”
Ether is indeed the currency linked with the Ethereum project: its goal is to add a technical layer to blockchain so that developers can build applications on top of it very easily, kind of like they do with the regular web. The success of the Ethereum project has propelled Ether at the second place on the cryptocurrency market.
Actually, Gimli is based on Ethereum! “Gimli is a decentralized platform to empower the eSports community. We believe esports & Blockchain will be a social and decentralized ecosystem. eSports streamers are gamers that broadcast their screen live on a streaming platform such as Twitch, Youtube Gaming.”
Ok now that you’re a blockchain expert, why don’t you take some time to learn more about the ChainAccelerator and discover more Blockchain startups? Go check out their website and upcoming events!
See you soon for a new episode of Techxplanation!