After “What the heck is a Bitcoin?” the next most common question is “What is Blockchain?” Although really quite simple, it harkens back to a time when it was normal to ask, “What is the Internet?” So at the expense of an analogy – one that will leave the younger reader with another follow-on question – and could leave a more technical reader chaffing at the crude attempt to simplify something groundbreaking – remember the 1980s.
During that decade, it was ubiquitous to carry a day planner. A day planned is a physical book containing your appointments – and your key contacts. At that time, you housed your full contacts on your desk at work or at home in a Rolodex. But you carried around the key numbers that you may need to call while moving about. In this day planner, you wrote down your appointments and any other important notes from that appointment.
Of course, if you lost that day planner, your life was completely destroyed. There was no backup or second copy.
So imagine that each time you wrote something in that day planner, your entry automatically copied in a duplicate book. For security, that copy was made far away – maybe in Portugal. Then, automatically, another copy replicates in Tokyo. And another in Australia. Copies made over and over again until thousands of copies of your book are held in other places around the world.
Now, imagine that in your copy of the day planner in Dubai, someone changes an entry. We know that entry is false. No other copies throughout the world contain it. A third party cannot alter this magical book because we have so many copies that verify the true contents of the day planner.
The blockchain makes a backup copy of the data you produce and sends that information throughout the Internet, making copies of that data and preventing alteration by a hacker or other bad actor. All the blockchain is doing is reproducing information in a decentralized way, onto computers throughout the world, and making sure it isn’t hacked.
By itself, this seems basic. And it is. Using computers in a decentralized way is the concept of the Internet. But blockchain contains two components that differentiate it. First, a big company does not own the computers on a blockchain network. They are “peers”, operated by a series of different people and companies for pay. This means it is decentralized. Second, the blockchain is trusted because every other computer in the system verifies reproduced information.
This is the basic underpinning of Bitcoin and thousands of other coins. More importantly, this system is driving the innovation of tens of thousands of decentralized and trusted applications.
To have a system that is decentralized and trusted, like our magic day planner, is a very important innovation. And this is for more reasons than a mere distrust of banks and other centralized institutions. It is because now we have a system to transmit information – and more importantly, currency – throughout the world in a way that is much less expensive and practically impossible for large corporations or governments to control.
And to the younger reader – yes- a day planner is Outlook without email. And get this. We had to use a pay phone to call one of those important numbers when travelling on the road. I’ll explain the pay phone another time …