When I discovered Bitcoin in 2016, I was blown away. Someone called Satoshi Nakamoto created Bitcoin, A Peer-to-peer electronic cash system, that can be used by anyone to transfer money pseudonymously between one another across borders without having to rely on banks to be the middle man. Imagine that. Not needing to use banks to transfer money. Bitcoin has given us the technology to securely transfer money on the internet, and for the past 10 years, the Bitcoin network has not been breached. The more i read about Bitcoin, I realized that it’s not just about transferring money or removing banks. It’s about decentralization and privacy. It’s about removing intermediaries. It’s about blockchain, the underlying technology of Bitcoin, which the real gift that Satoshi imparted to us all. Let’s take a closer.
Firstly, the blockchain needs the internet to work. Secondly, in its simplest form, the blockchain technology is part record-keeping database and part network protocol. Let me explain…
At the very core of it, blockchain is a technology that permanently records transactions or data in a way that cannot be later erased or modified but can only be sequentially updated, basically creating a never ending historical trail of records. Sounds like a database, doesn’t it? Not exactly. The key difference between data stored in blockchain and records stored in a database is that in blockchain, records cannot be modified or deleted, only added on to it, unlike a database where an administrator has the rights to make any modifications to it. There is no single administrator on a blockchain, rather, control is handed over to the network, which leads us to second part.
An important function of the blockchain technology is that the records are not stored on a single server or computer. Instead, records are stored in a peer-to-peer (or decentralized) network. Meaning, all computers on the blockchain network will each hold a copy of the records and are able to add on to the blockchain provided that the records have been validated and agreed upon by every other computer on the network. By designing the network this way, we are doing a few things, namely, ensuring immutability of the records and ensuring resiliency in eliminating single points of failure on the network. Most importantly, control isn’t in the hands of a single server or administrator.
Let’s put it together in simple analogy using the popular messaging app service, Whatsapp, who are owned by Facebook.
Say there’s 20 of us in a Whatsapp group that i’ve created. We have been messaging each other for the past few days when a notification arrives informing us of a message that has been deleted by one of you. What did the message say, we will never know unless we were online and saw the message before it was deleted. We all have experienced this before. This is an example of a traditional database, where messages can be deleted by the author and all messages are stored on a central server.
If Whatsapp was on blockchain, let’s call it B-Whatsapp, the service will not have to rely on a central server, rather, service is provided by whoever downloads the app and are incentivized to becoming nodes on the network. All messages that were sent will stay there forever without being able to delete or modify it, only add on new messages.
The idea of blockchain is to remove existing intermediaries that provide us with trust. In the case of Whatsapp, whoever downloads the app automatically places their trust to Whatsapp in that they will provide their service without interruptions and that all their messages won’t be stolen or hacked. Same thing with banks. We place our trust in them to keep our money safe and our personal details secure from hackers. But hacks happen and customer’s personal data are stolen. The idea of centralization clearly isn’t working out for us. Some people are calling blockchain the new trust layer on the internet. Now with blockchain, we do not need to rely on central companies or banks to conduct transactions safely on the internet, giving birth to the concept of decentralization.