Let’s admit it: blockchain, Bitcoin, and Ethereum are catchy names, but terrible descriptors. Blockchain comes close to meaning something; it refers to the way data is arranged in these networks. Trying to understand the technology by focusing on the term blockchain is inefficient, however. What’s missing is the foundation, the concept that gives rise to the reason for using blockchains in the first place. That concept is distributed ledgers.
A ledger is a record of transactions between parties. Just imagine a piece of paper where it’s written: “Alice paid Bob $20. February 18th, 2022.” Add another transaction: “Charles gave Bob and apple.” Record enough transactions, give Alice, Bob, and Charles (ABC) three identical copies of the paper, and the three of them can agree on the transaction history between themselves. In other words, they agree upon a shared ledger. Instantly, ancient troubles arise: who keeps the ledger? How can we trust that no record was altered between transactions? The historical solution is the centralized model — trust an entity to hold the ledger instead. Whether it’s Big Banks, the New York Stock Exchange, the U.S. Government, or Google, goliath entities of this sort provide a convenient place to store records of transactions and have some degree of certainty that those records can be trusted.
Civilization depends on that bedrock of trust. Much of humanity’s progress would never have been made without entities facilitating trust in transactions. Unfortunately, those entities don’t have our backs. When the hard times come, they take the money and run. If the playing by the rules turns against them, they break or change the rules. The problem is that when society decided to hand the reigns over to these ledger holders, we traded away transparency and control over the process of conducting transactions.
Decentralization restores control and transparency by returning to the question of “who keeps the ledger?” and answering “no one.” If you’re wondering how “no one” can keep the ledger, the answer is blockchain. By building the transaction history between Alice, Bob, and Charles into a series of cryptographically secured blocks, chained together in an immutable sequence and made accessible to all parties to the transaction, the “ABC” blockchain allows each person to independently verify their records against the blockchain rather than relying on a separate entity. Because the ledger is distributed to each person, some shortfalls of centralization are addressed.
There are limitations and considerations to be had, of course. Yet blockchain as a technology stands to uproot if not revolutionize the way transactions are structured. Get creative; imagine what that means. It’s not just (crypto)currency morphing our traditions; that’s only the most obvious application. Legal systems, political systems, real estate markets and others, all rely on keeping records of transactions with entities besides the transacting parties. The potential implications are voluminous so we’ll end here for now, but keep those gears turning and you may notice applications spring into view as you navigate our centralized world.
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