An introduction to the Blockchain

Blockchain has the potential to be as significant as the internet

– Microsoft

In the conventional socio-economic system, trusted 3rd parties allow individuals who don’t know each other to interact with reduced risk when compared to direct interaction

For example, your friend want to sell a book, you want to buy a book. You know them well, so you can trust them to exchange fairly, we don’t need a 3rd party to manage the swap.

But you wouldn’t be so happy trading with someone you don’t know, especially if you are sending the money online and receiving the book in the post. Simply put, you don’t trust each other

Services like Uber, Airbnb & Ebay exist to act as an intermediary between people who have no reason to trust each other. They reduce the risk of the trade.

The blockchain concept basically enables direct trade between people who don’t trust each other with the benefits of a 3rd party like ebay, but without the cost associated with having a 3rd party. The technology is a little more complicated, and this is a really simplified explanation, but that is the basic idea.

The cool thing is that the thing you are trading can be anything that can be represented by a token. For example energy from your solar power can be sold to the national grid in real time with low/no fees, or directly paying a musician a small amount of money to stream their song.

So… what is the concept behind it that makes it possible? What’s the difference from what exists now?

Basically a solution to the problem of how to establish trust among a group of untrusted members was solved, it relies on a network of people competing to compute a solution to a complex cryptographic problem. More specifically who ever has the computer that finds the solution bundles all the trades that have taken place in the last 10 minutes into a ‘block‘ which is sent to everyone on the network. Each block refers to the one before it, going all the way back to the original block from 2008. In this way it is a ‘chain‘. Hence blockchain.

Examples of technology that uses the blockchain are: