What is The Blockchain- and How Does it Work in Simple Terms

So you've heard of Blockchain? For those unaware it's the technology underlying the cryptocurrency bitcoin, but what exactly is it, and what task does it perform and frankly, why all the hype?

Blockchain Simply Explained

Blockchain is a distributed ledger with transactions verifiable on thousands independent nodes. Essentially you are able to instantly check and verify claims to an asset, the chain of ownership, etc. whether that be bitcoin, a house, stocks, etc. Trust comes not from a single authority in this case (be that a title company, Western Union, Wall Street) but rather is decentralized with thousands of independent operators paid to come to agreement on transactions and the order in which they took place.

A Stroll through Deals Throughout History

The Old West, the year 1859: a stranger trots into town and wants to sell us his horse at a reasonable price. Claims he bought it last year in Las Vegas from Betty-Sue Wynn which activates our intuitive lie-detector, mainly because, as we point out, Las Vegas has not yet been invented.
"Sure it has, small town, no casinos there yet or nothing, you haven't heard of it."
But not wanting to get shot as a horse thief by the potential rightful owner, we declare he should get on back to Vegas before we shoot him ourself.
No deal is made.

Now, let's fast forward the identical situation to 1920 with telephones having been invented. We now can call Betty-Sue to verify that she sold him the horse. Unfortunately the phone number could be to anyone in any state (this is before area codes) as we're unlikely to know Betty-Sue personally, but the avenue of communication creates a possible element of trust.

Let's jump to present day. His title of ownership is printed out on official looking paper, you can check that he has photos of him on the same horse his Facebook page, you can look at his Facebook friends online, you have a few in common, you message them- this guy is alright. The uncertainty has been mitigated with a degree of investigation, maybe you purchase the horse. You spent some time doing due diligence, that affects the price a little, but the likelihood you are being hoodwinked decreases.
Video: The blockchain simply explained

Now, a couple years from now, with the Blockchain up and running, we can instantly check the ownership of the horse (or whatever asset) because thousands of independent nodes (all of whom derive some benefit from keeping track) will sing in harmony vouching for his ownership of the item.
This reduces the cost of fraud in our economic system to near zero, allowing the honest seller to get a higher price for his asset because you can buy with greater certainty. In theory the discount you received off the asset previously would be directly proportional to the odds that you were being sold a fake/stolen product.
Essentially, at each stage we are adding one thing to the system- TRUST.
That is what the Blockchain does; it allows two parties who do not know each other at all, to exchange information about anything (a desired deal, ownership of an item, etc.) and do so with trust and certainty and with greater speed then ever before. It's all verifiable, and those thousand independent nodes, all disparate, and un-hackable (certainly all at the same time.)

So when you think of what Blockchain brings- just think one word- it brings TRUST.

Read on: Here is an example of the Blockchain creating deals and economic growth where there was no possibility before



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