BlockChain is amazing! When people ask what it is, the quick answer is that it is a total decentralization of data.
Throughout the world, data is commonly stored in a single location, and that location is commonly owned by a single person or an organization. For example, a bank has a database which holds information on your accounts. The bank naturally has copies of that data, but the bank is the “keeper” or "owner" of that data set.
With BlockChain, databases storing information on your accounts would be located in various, (and many), places on the internet... with no central ownership.
So, what is amazing about these BlockChain distributed databases? Well, not only is the data stored in many locations but it is stored in a way so that it cannot be changed. Every single bit of data has to go through a series of computations (or hashing) before it can be stored.
For example, if Ed Jones had $100 dollars stored in a bank account, a normal bank would enter 100 next to Ed’s name in their computerized ledger.
But with BlockChain, data is stored very differently. Here is a simplified version of what could happen:
1. $100 along with Ed Jones would be added to many computerized ledgers all over the internet.
2. In each of these distributed ledgers, the name Ed Jones would then be broken down into letters that are assigned a value from 1 to 26. (See image to the right).
3. The values associated with each letter in Ed Jones name would be totaled and added to the deposit amount. (72 + 100 = 172).
4. The computed 172 would be added to the computerized ledger as a Hash.
--- Here is where it gets messy: Now take the hash from EVERY OTHER previous entry in the database and add them to the 172. This value is entered in the ledger as well.
5. 172 + XXX + XXX + XXX … for every other entry in the database.
6. This new value is now added to each of these distributed ledgers as a final hash.
7. Nothing (absolutely nothing), previously entered in this highly distributed database can be changed without affecting the final hash.
This final hash, since it is built from all the values in the ledger, cannot be changed without changing every other entry in that data base. This action has to happen for every single entry in every single copy of the database, all over the internet. So, in order to hack a BlockChain ledger entry, the entire database has to be changed everywhere.
Wow, that was confusing. The bottom line, a BlockChain entry in a distributed database cannot be hacked. More realistically, it can be hacked, but it would take many years to do so. So, for all practical purposes, it is 100% secure.
So, if you are still reading this, you may be thinking, “Hey this is pretty amazing, why aren’t we doing it”?
But, we are…
The biggest user of BlockChain today is BitCoin. BitCoin is a digital currency that was invented by Satoshi Nakamoto, in 2003. In developing BitCoin, Satoshi had to develop BlockChain as the underlying foundation of BitCoin. Currently, BitCoins are selling on global currency exchanges for about $1172 US dollars as of writing.
So why isn’t everyone using BitCoin? Well there are some problems.
- Satoshi Nakamoto has never been seen in public and in fact may not be a real person. Some speculate that Satoshi Nakamoto may be a group of people and not an individual at all.
- Many people are concerned about the credibility of the whole concept. Since there is no central regulating body, acceptance is slow and credibility is hard to prove.
- In the background, the hashing of one BitCoin/BlockChain transaction, takes a huge amount of time to happen. Since the digital ledgers are scattered about the internet, lots of computers independently need to do hashing.
- The hashing process is so complicated that as of today, simple purchase at a retail store using BitCoin currency, would have you waiting at the cash register for about an hour.
- This hashing on thousands of computers to validate a one single transaction, uses the same amount of power as 1.5 American homes use in a day. Article here
- Whatttt?
Further, although the BlockChain is secure and immutable, (as crypto geeks like to say), a BitCoin wallet is required to hold your currency. All BitCoin transactions are peer to peer, (they are not facilitated by a bank), so the actually digital currency is sent from your computer wallet to another computer wallet.
Although the BlockChain process cannot be hacked, your computer can. If your digital wallet is hacked, you can lose your money. Also, if your computer crashes and it is not backed up, you will lose your data… and will you lose your money too.
BlockChain has the potential to change the world, but it is not a disruptive change, it is a foundational change. It has some very big problems, which may or may not be able to overcome. If it does come into play, the very core of centralization could be removed from our society. No longer would we need a centralized bank, a centralized government or a centralized society... that is a big change.
If we could build a reputable digital currency on top of BlockChain, we could end a lot of corruption, make it more efficient to collect taxes and stop most illegal activities that use cash. Converting your cash to a digital currency should be a very easy process. However, digital currencies lend themselves to tokenizing assets as well as just cash. Essentially, you could tokenize (assign a value to) your lawn mower, and then use it as a form of currency. If you wanted to, once the lawn mower was tokenized, you could buy groceries with it. That is very weird.
Tokenizing assets gets even more confusing when you look at the third world. Let's say you are a villager who herds goats. You have no cash, you have no bank accounts, but your goats are your assets. What value do you assign to an individual goat? How do you get someone to agree on the value of the goat?
If you were able to come to an agreed upon value of 100 tokens for Bill the 8 year old goat, you could load the 100 token value of Bill into your digital wallet and spend 20% of Bill, buying groceries. Wait what?
So, BlockChain is amazing and BitCoin is incredible. However, they will not be adopted until the processing issues and energy requirements can be overcome. Further, while those issues are being worked on, we can continue to refine the process of tokenizing Bill the goat. Never in my life did I think I would write a sentence about tokenizing a goat. Thanks.
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