What is Blockchain Under 5 Minutes (Simple)
Blockchain is the underlying technology behind Bitcoin and it has been gaining momentum for a couple of years now. It is admired by banks, technologist and insurers all over the world who are still figuring out how to exactly use it.
Why is Wall Street embracing it, why is Bill Gates interested, why is Silicon Valley all over it? Why is everyone so excited about it?
Let’s find out what blockchain is and why you should be interested.
Our economic system is built on capitalism and capitalistic ideology supports the idea where all means of production are privately owned and run for a profit. So how can two strangers, who don’t know each other, trust one another and trade?
They use a trusted middle man such as a bank to make their transactions.
You probably know how inconvenient it is to send money abroad. It could take days, sometimes weeks to clear the payment, and banks are always there to collect a hefty fee from you. Have you ever wondered why is the process so darn slow and expensive? Probably not, and there’s are a reason for that. There are no alternatives.
Let’s have a closer look how a transaction plays out in modern banking. Let’s say John, a father living in New York wants to send $1,000 to his daughter, Laura, who is studying abroad in Paris.
John confirms the transaction to Laura and a U.S Bank debits John’s account
The money lands to the Federal Reserve where they aggregate millions of daily transactions
The Federal Reserve sends all the transactions in a batch to the European Central Bank
The European Central Bank dispatches the bundle and takes care of the distribution to local banks
After two to five days, Laura finds the equivalent of $850 appearing to her local bank account. It has been in motion for days and every intermediary in the chain has been charging the transaction with different administration and exchange fees.
“Banking now is like sending a letter—you send it you don’t know if it reached [its destination]” – CEO and co-founder of Ripple, a San Francisco-based blockchain startup.
The current banking system is invented more than a century ago, but it still works as everyone has to talk to someone they can trust. John to Bank, Bank to the Federal Reserve, the Federal Reserve to European Central Bank, and so on.
Now form a reality where the identity of the account holder is unknown, but everyone in the network can see the transactions coming in and going out in real time. Everyone on the network owns the same ledger and the ledger is basically just a chain of computers (called nodes) connected to the network. The transaction from John to Laura would be verified and confirmed by other nodes, in real time, without delays.
The movement is completely transparent and requires no intermediaries. The information from the transaction is distributed (not copied) to blockchain and it cannot be altered as it is stored in millions of computers over the world. Every transaction creates a new block and it can involve several forms of transactions as exchanging cryptocurrencies, contracts, and other information.
Blockchain allows consumers and suppliers to connect directly, removing the need for a third party and this is something unheard of. The future is here and the technology is grown far beyond Bitcoin and digital currencies. Sending money (securely) will become as easy as sending a message.