You have to look at it from within the right frame.
We have to reframe this away from the money. It’s not about the money.
It’s about power.
Centralized vs decentralized power.
We do have digital currency today. We also have digital wallets (credit cards & bank accounts). And we have digital transactions (bank transfers, credit card purchases). When a bank transfer or a credit card purchase happens, that’s all digital. It’s cashless. When you pay for your coffee with your credit card, a digital token moves from your digital wallet to the coffee shop’s digital wallet. Not a real dollar because you did not use cash, but a digital dollar. Think of a digital token as a piece of data. Like a file. And think of a wallet as a folder that holds files. So when you pay for your coffee with your credit card, a computer program takes one token from your digital wallet (credit card account) and adds it to the coffee shop’s digital wallet (merchant account). Just like moving a file from a folder to another folder. That’s it. No cash exchanged. Just a digital token. And you’re one token poorer and the coffee shop is one token richer. That’s digital.
So the first thing to realize is that we have digital currency today.
Ok so what’s the big deal, why do we need a blockchain, right?
Well, before we answer that question let’s ask the most important question we need to answer:
who owns the computer program that does the transfers?
If you owned that computer program and you had the ability to touch your own digital wallet’s balance, would you still play fair and subtract one token for every coffee you buy? In an ideal world, sure. But in the world we live in, the buyer cannot own that computer because they would spend the same token for every coffee they buy. Since a token is nothing but a digital piece of data, like a file, you could copy it before sending it over, and you’ll always have a copy of it. Or a million. Then you can use it to buy stuff again. Essentially, you would create an unlimited supply of money for yourself. This is called the Double Spend problem. So the buyer cannot own the computer.
What about the seller? Well, if the seller owns the computer that does the transfer, they could also duplicate the token and transfer it again. They would end up making twice as much for one coffee. Or, they could transfer it a million times. Or as many times as they want. Essentially giving themselves an unlimited supply of money as well. The Double Spend problem again.
So then it’s clear that neither the buyer nor the seller can own the computer that performs the digital transaction.
But how do you solve the Double Spend problem?
There’s only two ways. Centralized control or decentralized control.
In the centralized model, a third party that is trusted by both the buyer and the seller, will make sure that the token is not spend twice. In other words, the third party, owns the computer program that executes the transaction and tells both parties, the buyer and the seller, that the transaction is valid and that neither party should worry about any funny business, like Double Spending the same token.
In our world, that third party is called a bank.
Today, we all trust banks to tell us that our digital transactions are valid and fair.
We trust our banks with our money. We trust our banks with our money 100%. Because we have no choice. We can’t trust the buyer, we can’t trust the seller, so we place all of our trust in the banks.
So, because we give banks control over our money, we end up centralizing all of our combined financial power in the hands of a few people.
The decentralized solution to the Double Spend problem is tough. Because you’d have to solve the trust issue without a third party. So if in the centralized model we have to trust the bank, in the decentralized model, we would have to figure out a way of doing this without trusting anyone. In other words, a decentralized solution is a trustless one. One where no one is trusted but somehow, no token is spend twice and every transaction is valid and fair.
That’s where Blockchain comes in.
In 2008 a document was released by an anonymous person (or group of persons) under the pseudo-name of Satoshi Nakamoto and in this document, they outlined a working solution to the Double Spend problem.
And it worked.
They figured out a way to build technology that does not depend on a third party bank and that does not depend on trust, and it works. It works by organizing transactions in blocks and chaining the blocks together in a so-called blockchain (of transactions).
The name they gave to the first blockchain is Bitcoin.
To understand how the technology works for a non-technical person is as irrelevant as knowing how the http protocol works when you surf the web. Who cares. What matters is what is the big picture.
With Bitcoin, you can install some software on your computer and then that software will connect to other computers running the same software. And so this network grows computer to computer (also called Peer-to-Peer or P2P) and it becomes a large network of computers talking to each other and running the same software. Some have better computers than others. Others are running it on more than one computer and others are running it on very performant computers.
Bitcoin is the first version of blockchain technology.
But then, as with all technology, people figured out ways to make it better, faster, more performant, easier to maintain, easier to use, easier to scale, and so on.
So people kept inventing new ways to upgrade the original technology. So new blockchains were launched, using similar but somewhat different technology.
The most popular blockchain after the Bitcoin, is called Ethereum.
What’s special about Ethereum is that the inventor, a young guy named Vitalik Buterin, came up with a way for other people to build other sub-currencies on top of it.
Overall, there are over 1000 digital currencies available today. The number is growing because it’s fairly easy to launch a new sub-currency, like the ones on Ethereum.
One of the most promising blockchain technologies currently under development is EOS. Among other things, it promises to be the most performant of all blockchains.
Keep an eye out on this one. Trust me.
Blockchain is the new Internet. Imagine 1998. Google incorporated in September 4th, 1998. People did not get it. Until they did.
About 10 years later.
Imagine 2008. The AppStore was launched in July 10th, 2008. People did not get Apps. Until the did.
About 10 years later. Finally getting it now.
Imagine 2018. The @EOS blockchain will be launched on June 3rd, 2018. People will not get it. Until they will.
About 10 years later.
Do you get it?