Blockchain From The Eyes Of A Beginner

By Kritika Jaiswal on ALTCOIN MAGAZINE

Introduction

You have been hearing the word ‘Blockchain’ day in and day out. It’s on everybody’s lips these days but you are still clueless of what is the magic of this buzz word. Before getting into the explanation, let me tell you how blockchain is beneficial for you? So, here I have questions for you.

1. Do you have trouble figuring out the authenticity of a product?
2. Do you happen to have trust issues with your seller, banker, investor, tutor?
3. Do you wish to know how many cities your food has traveled before getting into your stomach?
4. Are you upset by the fact that your vote might have been altered?

Will you be surprised if I let you know that this one word can affect your health, finances, credibility, and future? Now let us know how.

The Story Of Your Friend Nick

Let say you have a friend Nick, who is in dire need of money for a vacation he is planning with his wife. He asks you for a loan of $2000. Being a nice friend, you say yes and connect to your bank and request for a fund transfer. Your banker checks your account for enough money and initiates the transfer. Nick receives the money you lent him.

Now if you notice there are just two friends helping each other out in the story but the number of parties involved are three — You, Nick, and the Bank. Now this tells us that you and Nick are dependent on the third party i.e. a bank here, for completing a transaction. So, every time when you have to start a transaction, you have to connect to someone else, trust him, may be even paid him.

Now a question comes to your mind, “So what if I am trusting a third party for my work?” There is no person who has a certificate of corruption, nor there is a perfect time. But still, we are all ready to risk our data for a trust-based on no foundation. Why? Are we too lazy to track down our own data? Do humans trust others too easily? Or we don’t care about our data at all?

Your answer to the above three questions must be ‘No’, but now are you willing to tell me what makes us weak enough to provide all our data to a person who can at any time make or break our future.

Such questions boggle our minds, but this dilemma is what makes it important for all of us to understand what blockchain is?

So, What Exactly Is Blockchain?

We need a system where we can deal with money without needing someone else to maintain our book of transactions. Is this possible? Yes, but only if there are many people who come up together to form a group. The aim of these people is to get rid of the third parties and build a system where they are the only ones performing every transaction without even knowing each other’s details.

A bit confused here? Let’s take an example.

Let us assume the same example as taken above. This time instead of a third party we have a group of 8 people who have decided to come up together to eliminate middlemen. Remember no one is aware of the other’s identity.

1. A Blank File — there is a blank file in the start. Every individual who sends or receives money will be added to the sheet of the file. The file is the source that allows you to track every transaction.
2. Your First Transaction — Since Nick asked you for $2000, just like before you decide to give him the money but this, you don’t connect to your banker. Instead, you announce to everyone in the group,” I want to transfer $2000 to Nick”.

Now every member of the group will go through your balance to check if there is enough balance, just like the banker did. Once they realize you have enough money, they make a note of the first transaction in their sheets.

3. Future Transactions — with time, all the transactions as they keep happening gets recorded by everyone on their sheets.

4. When The Sheet Gets Filled — We all know that every item has its space limit. So, let’s say a single sheet can contain only 10 transactions. So, after 10 transactions, when a sheet gets filled, it’s time to put the sheet away in the file and bring out a new sheet and repeat the same process again.

5. Seal The Deal — before you keep the first sheet away, don’t you think there should be a way to seal it so that no one can make changes in the sheet.

The next question now comes is, “How do you seal the file?” this is done with the help of a unique key which is decided by everyone collectively. This seal in technical terms is called ‘mining’. It forms as the trust of the file which earlier was in the hands of the banker. Once in the file, it gets sealed and no one can make changes thereafter, meaning that the content in the file is true and can be trusted.

Now if you go back to point 4, when everyone runs out of space on the sheet, it is time for them to calculate a sealing number for the sheet so that it can be added in the file. Now, this process is called ‘Mining’ for which we will talk about in our next article.

This mining requires a lot of math to be done. The first one in the network to figure out the sealing number announces it to everyone else. If the number is agreed and true, that becomes the sealing number of that page.

The next question that pops in your mind must be, “Why is everyone doing the same calculation and wasting their time and energy?” Well, the answer to this good question is ‘INCENTIVES’.

Yes, you read it right. The one who gets the calculation done in the shortest time earns money (rewards). Cool, right?

And once everyone adds their sheet in their file, they bring out a new blank sheet and repeat the whole process again. This continues forever.

Now in the words of a technician, a single sheet is a block of a transaction, and the file is the chain of blocks(sheets). All together they are called Blockchain.

By now you must have got the hang of blockchain. But have you figured out the benefits yet? With the above example, the usage of blockchain helps you

1. Eliminates third party
2. Create transparency
3. Makes the system unhackable
4. Reduces time
5. High quality of information
6. Trustless trading
7. Lower exchange costs

Will blockchain only help us in P2P lending or in other spheres as well?

Yes, blockchain will help us in other spheres of our life as well. Think about it, if it secures your records and makes it difficult for others to hack then it means it can be used in every industry which involves a lot of data and transactions. This basically means every industry can adopt the blockchain technology. For example, trading (tracking, transparency, security), real estate (Secure Documents, Smart Contracts, Land title, transaction costs), healthcare (access records, true recording of data), voting (reduce time, eases the process, secure your vote, minimalise corruption), manufacturing and many more.

“Are you saying that this technology has no cons?”

No, we are not. Everything in this world has pros and cons to it. Now if you think hard, the sealed number we talked about earlier is still vulnerable and can be used by hackers to control the entire blockchain. The refunds in P2P lending can be difficult to get and there can be human errors as well.

But after all this talk on pros and cons, let’s answer this question, “Is there any payment platform that provides 100% security?” We know the answer is ‘No’. The same goes for every other industry.

This is what blockchain is all about. To sum up we can say that blockchain is going to disrupt every industry in the future. Do you think blockchain is better than the traditional methods of database recording?

****************************

I am a newbie at blockchain. It has been a week of me studying this technology and ended up writing this piece of article. I would like blockchain experts to kindly share their reviews and help me out to understanding and gain insights into the field of Blockchain. Thank you.

Altcoin Magazine (@Alt__Magazine) | Twitter