A Brief Introduction to Blockchain for Ordinary People
It’s fair if the technical language that’s usually used to describe this mysterious blockchain technology made you squirm in dread if you’ve tried to learn more about it. So before we look at what a cryptocurrency is and how blockchain technology can change the course of history, let’s first discuss what blockchain is.
A blockchain, in its most basic form, is a digital version of the ledgers that have been used for hundreds of years to record sales and purchases. In fact, this digital ledger records debits and credits between parties in a manner that is basically identical to that of a conventional ledger. Who manages the ledger and who verifies the transactions is the primary difference between this and briansclub.
In conventional transactions, a payment from one person to another must be made through some sort of middleman. Say Rob wants to send $20 to Melanie. He can either hand her a $20 bill in cash or use a banking app to electronically transfer money to her bank account. When Rob makes a digital transfer, the app verifies his funds; if he withdraws cash from a machine, the bank acts as the middleman and verifies his funds.
The bank determines whether the transaction should move forward. The bank is solely responsible for keeping a record of any transactions Rob has made, whether he is paying someone or receiving money into his account. In other words, the bank, which both owns and maintains the ledger, is the point of entry for everything.
That’s a large responsibility, therefore Rob needs to feel confident in his bank’s ability to protect his funds; otherwise, he won’t do so. He must have confidence that the bank won’t defraud him, take his money without his permission, be robbed, or disappear without a trace.
During the 2008 financial crisis, when banks were found to be mismanaging our money, the government (another middleman) made the decision to bail them out rather than run the risk of destroying what little faith there was by allowing them to fail. This requirement for trust has been the driving force for virtually all significant actions and features of the monopolistic finance sector.
Blockchain technology is unique in one significant way: it is totally decentralized. No one institution maintains a central ledger, and there is no central clearing house like a bank. Instead, the ledger is dispersed throughout a vast network of computers, or nodes, with a copy of the entire ledger kept on each one’s hard disk. These nodes are linked together via peer-to-peer (P2P) clients, which synchronize data throughout the network of nodes and guarantee that everyone always has the most recent version of the ledger.
Before new transactions are added to a blockchain, they are encrypted using contemporary cryptographic technology. A block, which is essentially just an encrypted collection of new transactions, is created once the transaction has been encrypted.
The block is then broadcast (or sent) over the network of computer nodes, where it is examined by the nodes and, following examination, transferred across the network so it may be added to the end of the ledger on each computer, below the list of all earlier blocks. Because of its chain, the technology is referred to as a blockchain.
Once it has been approved and recorded in the ledger, the transaction can be completed. This is how cryptocurrencies like Bitcoin work.
Accountability erodes confidence
How is this system better than one that relies on banking or central clearing? What makes Rob prefer Bitcoin to fiat money?
The answer is faith. As was said earlier, for the banking system to work, Rob must have faith in his bank to properly handle and secure his money. To make sure this happens, there are extensive regulatory procedures in place to monitor the actions of the banks and make sure they are appropriate for the task at hand.
Then, governments exert control over the regulators, creating a system of restrictions whose sole purpose is to help thwart mistakes and improper behavior. In other words, banks cannot be trusted on their own, which is why the Financial Services Authority and similar institutions exist.
In addition, banks frequently act inappropriately and make mistakes, as we have all too frequently seen. The likelihood of abuse or misuse of power increases when there is just one source of authority. People’s confidence in banks is unstable and unsteady; we don’t really trust them, but we don’t see many alternative options, either.