Blockchains are powerful tools, but they don’t require a computer science degree to comprehend. With almost limitless applications, let’s be thankful that the underlying concept is pretty simple. A blockchain is simply a sequential set of records that are very hard to change without the change being painfully obvious. It can be any sequence of records: financial transactions, daily issues of the New York Times, votes in an election, medical records, and so on. A blockchain merely stores the data in a way where you or anyone else could verify that nothing in the historical record has been altered.
A pen and paper blockchain
You can create a blockchain with a good, old-fashioned written diary. With a simple journal, anyone could get their hands on your writings and change any page without you knowing. But you’re smarter than the average bear and decide to turn your journal into a blockchain. You do this with some simple math to “fingerprint” each entry. First, assign a number value to every letter in the alphabet (a = 1, b = 2, etc.). Numbers count as their face value (e.g. 1 = 1, 2 = 2 and so on). Next, add together the numeric values of each letter in your entry. For example, if you wrote “Today was a good day,” the resulting fingerprint value would be 180.
Then, start the next day’s entry with the fingerprint you just calculated and make sure to include it in your fingerprint calculation for that entry.
It’s as simple as that! Your journal is now a textbook blockchain where each page is a “block” chained to the previous page by its fingerprint value.
Why this is cool
You just added two amazing properties to your journal. It is now “Immutable” and “Independently Verifiable.” Immutable just means that no one can change a page once it’s been written (at least without doing a ton of work). Independently Verifiable means that anyone with a copy of your journal, whether they know you or not, could verify that the entries are genuine.
Imagine that your devious younger brother, Bobby, wants to mess with you, so he swipes your journal, changes your page 1 entry to “I think Patty is cute,” and then shows your journal to Patty. She takes one look at the journal and, thanks to your blockchain scheme, quickly figures out that it’s been altered. All she had to do was calculate the entry’s fingerprint and compare it to the number that the next entry starts with.
Bobby could pull this off, but he’d have to also change the beginning of the entry on page 2. Of course this changes the fingerprint of page 2 meaning that he’ll have to edit page 3, which changes the fingerprint of page 3 meaning he’ll have to edit page 4, and so on. Bobby can’t change an entry without changing every subsequent entry to hide his antics. It would take him a lot of time, and he may just decide it’s more fun to pull your hair instead.
How do blockchains relate to Bitcoin?
Today, most people that have heard the term “blockchain” associate it with Bitcoin, Ether, or any number of other cryptocurrencies. I’ll talk about these more in future posts, but a blockchain isn’t Bitcoin any more than your bank statement is your net worth. Bitcoin is nothing more than an asset whose transfers are recorded on the Bitcoin Blockchain. Using the journal example above, an oversimplified Bitcoin Blockchain conceptually looks like this:
Each line in this conceptual block is a transaction (an actual Bitcoin transaction is much more complicated and will be the topic of a future post). For now, just remember that Bitcoin is but one application of a Blockchain.
What else can a Blockchain be used for?
The real world applications of blockchains are practically limitless. Any set of records where immutability and independent verifiability are important would be ideal candidates for a blockchain. Votes in an election could be recorded on a blockchain without having to worry about anyone fudging the results. Your identity could be recorded on a blockchain, making it harder for someone to open fraudulent credit cards. Your medical records could be securely stored and transferred on a blockchain. Even computer programs can be stored on a blockchain and executed by the computers connected to that blockchain.
I’m most excited by blockchains that unlock universally accessible ways of frictionlessly interacting with anyone in the world. The ability to send and receive money through your phone without needing a bank account or a credit card will create new levels of freedom in third world countries. The confusion and chaos related to health records and medical bills will all but disappear, reducing the single largest financial inefficiency in the world. Anyone will be able to create and enforce binding agreements, fighting unchecked corruption. Ethereum even wants to create a massive, blockchain-powered computer out of the entire world, making centralized data centers a thing of the past.
It’s pretty amazing what can be accomplished with a concept as simple as a blockchain. All of the applications above involve blockchain implementations that are much more complicated than our journal example above, but the fundamental concept is the same.
That’s it for now! Hopefully you understand the basics. I don’t really know what I’ll cover in the future, but my hope is to distill the complicated concepts behind today’s blockchains into articles that most people can understand.