So what is the blockchain?
The blockchain technology, originally invented by Satoshi Nakamoto to create alternative payment system to cut out middle men, can be adapted in many ways and forms. We are just in the beginning of this amazing evolution! Blockchain technology can provide humanity with a payment system, that allows you to spend any kind of cryptocurrency, anytime you want, from any device you have, to anybody anywhere in this world. Moreover, these payments are conducted fast and cheap! Blockchain technology allows you to create decentralized trading platforms or market places, where you can trade peer to peer, without third parties charging fees. It allows you to create a network, that stores all information about goods, their origin or their production. It allows you to see where your food came from. It allows you to get paid for your social media activities. It allows you to earn money for advertisement that people watch through you or that you watch yourself. It allows you to create decentralized networks to create your own decentralized application that can be used for any service you would like to offer. The bottom line is: blockchain technology creates a world, where we don't have to create trust through a third party. This is because it can prevent fraudulent behavior as for example spending money double, misusing advertisement, enacting in unethical production etc. It stores data in a way that nobody can erase or manipulate it except for if the majority of the nodes are willing to accept the new information. This will cause companies to face an open market where people see what they do, so that they will have to behave as consumer expect, in order to survive on the market. It will cause us all to behave cooperative and constructive, because we cut out the trust and give it into the hands of mathematical algorithms, that don't lie and that hardly can be manipulated.
The blockchain technology's use case expands from year to year. It is used to store data about transactions and therefore secure a payment network, an also it is used to store all kinds of information in a digital and secure way.
How does it work?
Because this technology is so new and quite complicated, it takes a while to understand the true value of it. In the beginning the benefits of blockchain technology might sound to good to be true. But as one digs deeper into the topic, the revolutionizing potential of this technology will get visible. One is able to imagine how this world could look like, through the blockchain technology. Let us dive into it.
As mentioned before, there are different ways to use it. Payment systems, data storage, open peer to peer trading, investing and more. Let us have a look how it works in general and then in specific parts of our daily life.
Blockchain technology is a distributed ledger. This means it is a chain of data blocks full of information about a certain thing. Think about your life. Let's say every year is a block of data, with all kinds of data strings (experiences) in it. Now, every year there is a new block on top of the old one. Let's say, every time you have your birthday, a new block with new data is stored on this blockchain (your life). Every new block includes all the old blocks too. So every new block makes the old blocks safer, because in order to change what happened three years ago, you would have to change what happened all the years there after, because the experiences created the future (school, marriage etc.). Now, because these data blocks are shared with all people who want to be a node (with their computer), they see what all the others validate. Let's say, you say: I married today. This piece of data goes into the blockchain, now everybody who watches it, sees that you married. A year later, you are still married. In case someone wants to say: "No, you are not married!", people (the community of nodes) can say: the blockchain proves that you are married. This is called consensus. The chain with the most support is counted as the valid one. So even if you want to change the information about you, you might not be able to, because you as a single person would have to convince millions of people (the majority) and rewrite the blockchain of many years. Get it?
Before we look into an example, I want to make sure that you are aware of the fact, that not everyone agrees to this blockchain technology. For example IOTA tries to have a totally different approach.
Lets say, Person 1 wants to make a transaction (this can be a cryptocurreny, a contract, records or other data and information) to Person 2. This happens peer to peer (Person to Person). The transaction is broadcasted on a distributed network of nodes (run on personal computers all around the globe). This network has a consensus about which transactions are valid and which ones aren't. Once the network validates the transaction, this data about the verified transaction is written into a block (with other transactions) and added to the blockchain. So now, everybody can see, that the transaction from person 1 to person 2 is validated and on the blockchain. The majority of the nodes agrees to this transaction and then becomes permanently stored on the blockchain.
Links for more Information
Blockgeeks general information