One of the most often asked questions people come across these days has nothing to do with cryptocurrencies directly. Instead, people want to understand the concept behind cryptocurrencies in general. They ask themselves “What is blockchain? Not a blockchain, or THE blockchain but the blockchain technology in general. As banks are trying to show the world, the concept of blockchain applies to traditional finance, although its use is not limited to financial institutions. So, what is blockchain?
Understanding the concept
When trying to understand the concept of blockchain, think of it it like this. You have listed certain information, be it is finances, grocery shopping, a contact list, or anything else you wish to imagine. But you are the only one who owns said list, and there is no backup available.
At first sight, there is absolutely nothing wrong with this concept, unless something happens to either the list or yourself. If the list goes missing, you will be the only person who roughly knows what was on there, depending on your memory and the amount of information on the list. Or if something were to happen to you, there’s a good chance that no one will ever find the list, as they don’t know its precise whereabouts.
As you can see, this situation can become awkward and pretty annoying. Being the central authority to create and own the list brings not only power and control, but also responsibilities to the table. Therefore, the central authority can easily become a point of weakness since there is no copy of vital information available. Even if others try to piece together the missing list, it would take a lot of time and effort.
So, wouldn’t it be much better if there were multiple copies of that list, each copy stored in different locations? All of the information on that list could be easily verified by the other copies, ensuring there are no mistakes made. If one list would not match up with the other records during verification process, that list would be deemed invalid. With multiple copies in existence, tampering with the data becomes pretty much impossible.
We hope that the example above answers the “what is blockchain” question. Blockchain is some sort of a distributed ledger – multiple copies of the same data – in a decentralized manner – with multiple storing locations and a copy of that list. Now, if somebody asks you about blockchain, you can use this example to explain the concept to them.
However, the answer to the “what is blockchain?” question wouldn’t be complete without the entire technological explanation that needs to follow this example. While we will cover that information in the following parts of the FAQ series, it is important to understand that there are more things to mention when talking about blockchain.
Imagine that your list needs to be updated with additional information. Sharing that information with other parties owning the same list is critical. Translating this to the blockchain concept, the update process will happen automatically, as all parties involved will receive the new data simultaneously, and start comparing notes to prove its validity.
So now you know more about the technological side of blockchain. Basically, it is tamper-proof distributed digital ledger of information, which exchanges data between all independent operators. This process is called “decentralization”, as there is no central point of authority. Information is accessible at all times, and records are maintained and updated automatically at the same time. We hope this article gives you an answer to the “what is blockchain” question.