If you have been following financial news in the last ten years, you must be familiar with “blockchain”, the technology behind bitcoin. You probably searched on the internet to learn more about blockchain and you might come across the definition like this: “blockchain is a distributed, decentralized, public ledger.”
Actually, blockchain is much easier than the definition.
If a young man you don’t know tells you that there’s a tiger in the street, will you believe him? You may think April Fool’s day is yet not coming.
How about your neighbors, friends…… a bunch of people are telling you that a tiger is in the street, will you believe them? Yes, you will, since everybody is saying that.
Now, think about another scenario. What if a very trustworthy person tells you the news? Yes, you will trust this person. Because you think this person won’t lie to you.
This is the power of trust. You will not trust a single person who doesn’t have enough credits. But you will trust a bunch of people or someone who has high credibility. In real life, bank is like the trustworthy person with high credibility. A single bank is the center of every purchase, buyers and sellers pay for the cost of bank’s credibility in the forms of interests and all kinds of service fees.
Or we can decentralize. At this time, we can adopt the idea mentioned before, letting a bunch of people record every purchase. That’s the core of blockchain. In essence, blockchain aims at decentralizing and reducing costs.
OK, totally understand. But why this technology is named as blockchain?
You buy something from Jack, so you transfer money to him. Not only you and Jack will record this transaction, but also Alice, Ben, Carol, David and Emma. You all have the information about this purchase, including time, dollar amount and participants. This record is public and confirmed by each other.
After that, the information about your purchase will be stored and safeguarded. How? With hash, a classic technology in Cryptography. It gives everyone a unique, identifying code.
Everything’s done. You finish your purchase. Everyone records it. The information is stored. It is protected by hash.
During the procedure, we call every recorder and the purchase information they record a block. Alice writes down the purchase, including date, dollar amount and the participants. So, the data of Alice and her records is called a block. So as Ben, Ben, Carol, David and Emma. All together, they become the blockchain.
It seems that blockchain is bound with bitcoin. Actually, bitcoin is based on the blockchain, but they are different things. Blockchain is a new and good technology, which helps decentralize and reduce costs. We can use this kind of technology in many other scenarios and make our lives more convenient.