Einstein said "If you can't explain it simply, you don't understand it well enough." with that said, this is my attempt to explain it very simply, for the highly skeptical and busy people, what blockchain (and cryptocurrency) is, and why it matters that we all understand it.
So, what is a Blockchain in a nutshell?
Simply put, a Blockchain is a new type of fault-tolerant database. In other words, "Blockchain" is a new computer technology. But it is much more nuanced and complex than that, for example: there is currency built into this database. If there is one thing you read before moving on, make it these three points describing blockchain technology and try to digest them to understand the significance of the new technology:
A. In a Blockchain, every line (or row) of data is "chained together" with the previous line, all of which are then placed into groups of lines (blocks) for verification purposes, each with a unique fingerprint (or key/hash/ID), which is also publicly verifiable/accessible to view.
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B. The time it takes to "confirm" and add new blocks in the chain (called proof-of-work) is what makes previously added data resistant to tampering. A reward (Bitcoin) is given for this time spent (solving a puzzle) for confirming blocks.
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C. The entire data-chain is distributed in a decentralized manner (to nodes) across the network giving it resilience. Decentralized means no one person or even group can control the data, tamper the data, or destroy the data. Put all this together and it makes for a robust store of data (or value) and trustable method of exchange.
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Blockchain is a way to accurately store and move around data (and currency) that is resilient, tamper-proof, and global.
Now there are several caveats... but that’s as simple as I could put this elegantly complex new technology. Now you may have more questions and that is perfectly normal, but that is blockchain explained simply and the main points I feel everyone must know and understand.
So that's it... if you're in a major hurry and you don't have time to read more you can go now.
However if you do have a LOT more time, continue reading below as I will go much more in-depth about it and why it is so important and why there is so much interest surrounding it.
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Why is this significant? Why should we all understand it?
Instead of staying on one computer, the Blockchain (database) is distributed to many (actually, all) computers on the network. This is called Peer-to-Peer (Decentralized as opposed to Centralized), and it also helps with verification. It helps with resiliency too. Since there are many duplicates, and because of the chain, it is easy to see if the data was tampered or distorted, and this anti-tampering is actually built into the process of verifying the integrity of the chain, a reward is given in the form of (for the Bitcoin Blockchain) Bitcoin, a digital currency. Due to something called the network effect, the global nature of decentralized blockchains and their corresponding currencies makes one of them more likely to become globally adopted and more valuable than traditional currencies. In a sense, the blockchain governs itself and is immune to fraudulent tampering. This means it is more efficient, making it a better choice overall. The most efficient blockchain that reduces negative network effects will be the most adopted one.
Major Significance 1: Disruption
Our whole modern world relies on databases, nearly every website uses them, most organizations and offices do. Your computer or even your smartphone uses them. For blockchains, the built-in or inherent mechanism for validating the truth or accuracy of the values of the data makes the entire protocol “lean towards” a description of the public record as something that is commonly agreed upon, or in other words finding public “consensus”. An accurate history. Does that mean if we have a more trustworthy, peer-to-peer, tamper-proof, decentralized, publicly-verifiable database most systems would eventually (if not soon) switch to that? There is a very high chance that specific use-cases could be replaced by blockchain technology, such as wherever there is theft (to recognize it as theft and respond accordingly), potential for data-loss, tampering, dishonesty, etc (to reduce that). Also wherever data needs to be accurate and stored safely, such as finance, production records, medical records, historical records, critical science data which could mean the difference between life and death, and so many other important places and records.
However, there are not-for-profit motivated initiatives and interests in creating verifiable voting records using blockchain technology, or even providing a foundational income floor (UBI) to all participants provided they can exchange it or spend it locally. As you can see, it has the potential to disrupt many, many areas, and already is.
Major Significance 2: Inclusion and Disruption
Because it is decentralized that extra level of verification makes it a great way to store values or data in a trustable manner, making it ideal for digital value holding such as mediums of exchange, ie. money. It’s digital and decentralized nature means that anyone with access to an internet-connected electronic device can participate even if that's at a local community center.
The significance of this is underestimated. Anyone with in range of wi-fi, at any time, with a little bit of understanding, can now be their own bank. Anyone can send money directly to them, and they can send money directly to anyone else without a bank account or credit card. More than this, an account is not necessary, there is no middleman service, so once the initial learning-curve is reduced it is even easier to send and receive than services like Paypal. Addresses for sending and receiving use hashes or ID's, they are called cryptographic hashes, it is like an ID for data. This is why it is called a cryptocurrency, or "crypto" for short. Opening your own bank is called "creating a wallet". Each wallet generates these receiving addresses. Once you have a free open-source wallet, you can accept payments.
This also means that it directly challenges the relevancy of traditional banks. Anyone can now open a bank account by jumping on the blockchain. Which also means people can opt-out of storing money in what they may perceive as a traditional bank that has exhibited patterns of extortion or theft via fees, or opt-out of obtaining money printed by governments that they may perceive as becoming extortionate or oppressive (regimes) or opt-out of any sort of exploitative or coercive middleman scenarios. As you can imagine, this makes banks and some governments, uneasy.
In fact, right now in many parts of the world, citizens living under oppressive regimes are using Bitcoin (and platforms like Steemit.com) to buy basic needs and even plane tickets to escape oppression and move to more democratic areas despite such obstacles.
But how do they buy basic needs you ask? Well, demand is a curious thing, because as these individuals obtained digital currency, they looked and asked for ways to convert it into usable local currencies. Not long after the demand increased, several ways have popped up for them to convert digital currency to their local currency, and more often than not, it was much more valuable. A few bits of BTC (Bitcoin) here and there, could actually feed a family for a week.
Now, places like http://BitPay.com/card are offering credit cards, where you can fill them up with BTC (Bitcoin), then spend as usual due to an agreement with the card issuer, however, there are probably some fees involved, as well as the potential for that method of exchange vanishing in the near future at the card issuer or partner-bank's discretion.
Major Significance 3: Disruption, with or without you.
This is probably the main significance for me. Blockchain technology, in a way, relates to the scientific method, that is, repeating and verifying an experiment helps a hypothesis move to a theory move to a scientific fact. This repeatability and consensus means public history is made. The blockchain is similar in that it has an organic nature as it continually grows in time as it interacts with the non-digital world. Just as Neil deGrasse Tyson said “The good thing about science is that it's true whether or not you believe in it.” the benefit of the blockchain (besides the verifiability and trust) is that it is blind to any prejudice or preconceived notions and the barriers to entry are torn down.
That means the only thing that would deny anyone from opening their own new personal Bitcoin bank account would be restricted access to the internet or cellular/wi-fi internet devices (Monopolistic ISPs). Most modern countries rely on internet for everyday business communications. With web-wallets, anyone can visit any library or free-wifi access point to create their own bank account. In the future, global internet access will be a human right. Perhaps so too will be managing your own digital-currency account.
It's for this reason that blockchain is unlikely to go away, it is highly likely to replace many data-systems, it is likely to replace many traditional currencies, and is why governments everywhere would be wise to get familiar with blockchain technology right away, and figure out how it could be used for increasing freedoms and leveraged for the good of the general populace, before the lack of local trustable digital-currency is potentially exploited for nefarious purposes.
Why should individuals understand the significance of Cryptocurrencies?
It was only 2016 that more modern companies were picking up on the importance of this new Blockchain technology.
Major companies like IBM, Microsoft and others are investigating and even implementing their own blockchain software or investing in the cryptocurrency space.
Before that many sectors had already started experimenting with this technology in a variety of different ways and imagining how it could revolutionize so many areas. Because the Bitcoin protocol is open-source, communities developed surrounding Bitcoin and developers who were contributing to the project. Many debates are still going on today about how best to improve and build upon the original protocol—and if that is even necessary.
Despite some major disagreements between the teams further developing "the original blockchain" or Bitcoin protocol, some individuals decided to create whole new blockchains, such as Ethereum, EOS, and Steem Blockchains, which spawned their own whole ecosystems. Meanwhile the term "crypto" and "cryptocurrency" has exploded in popularity. All the while, controversy exists as to why these groups decided not to use "the original (Bitcoin) blockchain" for these new currencies, which is quite a curious development.
To make things even more confusing, apparently there are now two Bitcoin chains...a relatively large group involved with further development of Bitcoin has parted ways with other groups citing ideological differences, and on August 1st, 2017 there was something called a User Activated Hard Fork, a split in the chain. Because of this split, there is a massive, drama-filled epic-saga debate as to who is now the original Bitcoin on the original blockchain. Apparently, they both could technically be the original chain, however, it is expected that only one chain will eventually survive. I will not go into the details here. Because of the unique characteristics of Bitcoin, some say it is only a matter of time before Bitcoin, and more specifically, one of the Bitcoin chains, becomes "the one" global currency.
For even more super-added-extra-confusion, there exist now a huge variety of cryptocurrencies (and blockchains, and 101 other lingos like "Initial Coin Offerings, or ICO's"), and there is a massive global frenzy of online trading between them and associated lingo that goes with that. Not only are there massive trading platforms (exchanges) but there are even decentralized exchanges.
By now, Bitcoin has gone global, and possibly mainstream…but probably not just for the reasons it had originally hoped. Regardless, the global flow of trust, and with it money, into the Bitcoin currency made it even more valuable.
Now as the value of Bitcoin and hype rocketed to a staggering degree, the ecosystem of cryptocurrencies (like an ecosystem of fanatic trading card exchanges) rose along with it. Recently, toward the end of 2017, many cryptocurrencies jumped several factors more valuable than traditional currencies. This made them attractive yet highly risky investment vehicles and made some people wealthy very quickly (some with over 1000% increases).
Meanwhile, platforms like Steemit.com have been changing people's lives in places like Nigeria where even a few dollars can go a very long way. Groups are setting up clubhouses and communal areas where individuals are taught how to get a digital wallet, how to participate on Steemit.com and earn an income. "Crypto" for them, has been nothing short of life changing.
Despite the mixed messages, groups in a huge variety of sectors from all over the world are jumping on board in droves. Individuals should be wary and understand how blockchain technology is likely to disrupt so many non-profit and for-profit sectors alike, how it is likely to replace many data-systems, and how it challenges traditional currencies, and banks.
But it is not without downsides.
Some have lost everything they had gambling more than they could afford to lose. Many news stories, mainly about Bitcoin, focus on the worst most dramatic headlines such as heists, drug smuggling, huge investment losses, frauds, and scams, (ICO scams) which unfortunately happens with every currency, arguably to a much higher degree.
Some are concerned how commercial interests are affecting the open-source Bitcoin project, claiming it is becoming centralized, the fees intentionally exorbitant, and claiming they've built on top of it needless complexity. Too much complexity can cause negative network effects. Some say that the best end-result overall is "less complexity". Others criticize it saying it has become only a store of value, as most investors hold on and never spend it. If you never spend, you don't create an economy.
Then there are all the other "cryptos" or Tokens, many on top of the Ethereum blockchain. While some groups have good intentions, other unscrupulous groups have noticed the global hype surrounding ICOs and are exploiting unsuspecting investors with false claims and hype through bogus ICO scams.
Some exchanges have turned out to be scams, where traders have trusted the exchange to hold on to their money, suddenly the exchange packs up and closes down, along with all the "middleman" keys that they were so conveniently holding onto to enable fast, easy trades—disappear along with it. A problem decentralized exchanges are said to avoid.
Others yet are more direct, as (through various awful indirect or direct means) they steal individuals private keys, essentially private keys are the key to your personal bank (or wallet).
Before you go ahead and jump on board putting all your income in your own digital wallet, it's important to know the risks involved. Just like there are viruses and malware that can steal your bank login password, there are similar ways that thieves can snoop for your private key for example when you create a new wallet. You have to make sure the computer and network you are using is secure. Some nefarious individuals have created wallets themselves which can steal your private keys, so just like any new place you are considering storing your money, you must understand all the risks. If you really are set on jumping on board right now, consider not storing more money than you willing to lose. Start with a small open-source web-wallet or app-wallet and don't put a lot on there.
Bitcoin's ledger is public and verifiable, meaning that with special investigative methods and specialized software, criminals laundering money or smuggling drugs can be (and have been) caught in the act and dealt with.
The same cannot be said for other cryptocurrencies and blockchains now developed to hide and obscure the ledger. This is perhaps now how we are seeing that just like most new technologies, it can be leveraged for both good and bad purposes.
I have no doubt that groups will attempt to abuse and exploit blockchain, cryptocurrency, and those who don't understand it. We've already seen groups pretend to implement UBI for example but ends up being something far from it, I have no doubt that other groups will find ways to abuse it.
Despite all this negative painting, very real risks, extensive debates and disagreements, there is still a tremendous push from those who believe in blockchain and see the good in it, Bitcoin, and cryptocurrencies, while big industry and even governments begin to investigate and attempt to implement their own digital currencies, recognizing that is likely here to stay, or at least planning ahead. Reports are in that the Indian Government, Isreal, Catalonia, Dubai, Russia, United Arab Emirates, China, Nigeria, and possibly Canada are all investigating their own cryptocurrencies. With Dubai already announcing theirs, and Venezuela too. However, debates are raging about the motives regarding these.
As you may tell, there is a lot of significance as to what could become the future of global digital currency and how it relates to our existing methods of exchange. The blockchain and cryptocurrency has the potential to disrupt perhaps every industry, and far beyond merely industries.
It's up to us to recognize a new highly-disruptive technology when it arrives, and encourage using it for good.
One major good future potential for blockchain
Something I think about a lot is the importance of ensuring everyone has a foundational income floor. If you look at the evidence it crucial to understand just what kind of problems occur without a foundational income floor such as a basic income. Just like the blockchain is decentralized, so too should the opportunity to participate in the economy. There exists here a major potential to leverage blockchain technology for good. Work in this space has the potential to improve billions of lives.
Many groups are already doing this. Two of them which have peaked my interest lately is Cicada, and Manna. The Cicada project may seem like a stretch, but it is no laughing matter. Their whitepaper, which is an "outline document" of future goals, is a serious and deep read. Highly recommended if you enjoy sci-fi. Similarly, you can read all about the highly ambitious Manna Currency project that is already running from Steemit user @ScottSantens over here on his website: http://www.scottsantens.com/manna-universal-basic-income-cryptocurrency-whitepaper-news - both of these projects have methods that build into the system itself some way of ensuring a foundational income floor for participants. If this kind of thing interests you, make sure you subscribe and comment at http://reddit.com/r/cryptoUBI
Many non-profits are embracing blockchain. It may come as a surprise, but through various (and currently convoluted) methods they can turn digital currency into local currency and still benefit from it.
That leads me to envision another possible major future of blockchain technology, cryptocurrency, and how it relates to UBI.
I believe those who have the smarts to develop decentralized exchanges (or digital currency exchanges (DCE's)) should learn the importance of implementing a foundational income floor into their next major not-for-profit/NGO global decentralized exchange platform distributing a small percentage of fees collected from each trade as a foundational income floor for participants. They should work together with UBI-Cryptocurrencies so that everyone can participate in trades.
With global DCE's the trading floor is now open to (potentially, eventually) every individual on Earth, not just "professional traders", but what we are finding out is that it (UBI) shares attributes of positive network effects, it causes positive feedback loops. For this reason, beyond the societal benefit, it is also financially beneficial (to the individual and organization for upkeep, management, outreach) or simply "financially effective" to include a form of basic income into any not-for-profit/NGO decentralized blockchain-related project, especially one that requires small fees tied to small actions on the platform.
In other words, just as an example: It would be beneficial to create a not-for-profit/NGO decentralized global exchange with a built in Universal Basic Income that distributes the UBI to all users by taking a very small portion of trading fees and allocating them based on that users local poverty level data. It would need to be a not-for-profit open-source venture to avoid many issues with centralization. A global exchange with Proving of Anonymous Individual (PAI) - A DAO (Decentralized Autonomous Organization) open to all individuals on Earth. Call it: United Earth Base Exchange (UEBX).
By including a basic income into a not-for-profit/NGO decentralized exchange, you dramatically increase the potential of adoption, use, and increase the chances of your platform eventually being a primary global exchange platform. This applies to many blockchain projects. The more of a foundational income floor there is, the more we can encourage more social entrepreneurship, and more non-profits, as evidenced by UBI studies, and begin to tackle some of the biggest problems facing humanity. Of course, it is all easier said than done, and there are major problems to solve with these ideas, such as the problem of "Proving Unique/Anonymous Individual", and ways to do that which does not entail giving up individual privacy.
...I may have some suggestions on how to solve that, which we can talk about.
With all that said, if you've made it all the way down this far... thanks for reading!
If you're still a little bit confused about Blockchain and Bitcoin please read this review below,
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A slightly more in-depth description of Blockchain and its Bitcoin. "Bitcoin: A Peer-to-Peer Electronic Cash System"
People have difficulty describing blockchain technology simply because it has many complicated parts to produce a simple result. Here is a kind of extended plain-english outline to attempt to further explain blockchain simply in another way without adding too many details:
Blockchain is a kind of fault-tolerant data storage. Here are it's characteristics:
- In Blockchain a row of data can be called a transaction.
- Each new transaction references the previous one by sharing a small piece of info—forming a chain.
- A group of transactions in the chain are stored together in what is called a block.
- New transactions are broadcasted to all computers participating in the blockchain protocol. (Decentralization).
- Blocks of transactions are then verified for accuracy by certain computers on the network called nodes.
- If anything is wrong with the data, such as corruption or tampering, the transaction is not verified. Even if the data is wrong however, it is still stored in the network, but it isn't added to the main chain yet.
- Once nodes say the blocks are valid, another group of computers use algorithms designed to take a specific amount of time to solve, like a puzzle, to mark the block as confirmed (or spent).
- Once blocks are confirmed by miners they're permanently added to the main blockchain.
- Miner-computers play a type of lottery to see which computer gets to add a block to the chain.
- The computer that solves the puzzle the fastest is given more of a chance for a reward for the work done to add new blocks to the main chain. This reward is called Bitcoin.
- This specific amount of time used makes previous blocks of data tamper-proof because the time needed to tamper would take longer than validating new blocks.
- Bitcoin can be exchanged on the blockchain via wallets creating a global decentralized currency.