Blockchain Explained

Blockchain Explained




Simply, blockchain carries no transaction cost. It does have an infrastructure cost, yes, but no transaction cost, basically it costs to send but nothing to receive. The blockchain is a simple yet ingenious way of passing information from one point to another in a fully automated and secure way. To begin one party initiates the transfer and process by creating a block. This block is verified by the other computers distributed around the net, which could be thousands or millions. The verified block is added to a chain, which is stored across the net, creating not just a unique record but a unique record with its own unique history. Just to hack or change just a single record would mean falsifying the entire chain in millions of instances. That is virtually impossible. The first and most talked about Bitcoin uses this model for monetary transactions, along with other crypt currencies, but it can be used in many other ways.

Let’s look at the example of buying music tickets for a concert on an app or the web. The credit card company takes a cut for processing the transaction. With blockchain, not only can the artist save on credit card processing fees, it can move the entire ticketing process to the blockchain. The two parties in the transaction are the artist and the fan. The ticket is a block, which will be added to a ticket blockchain. Just as a monetary transaction on the blockchain is a unique, independently verifiable and unfalsifiable record such as Bitcoin, so can your ticket be. Incidentally, the final ticket blockchain is also a record of all transactions for, say, a certain event, or even festival, comprising every ticket ever sold, every show ever performed.

But the key here is this: it’s free. Not only can the blockchain transfer and store money, but it can also replace all processes and business models that rely on charging a small fee for a transaction. Or any other transaction between two parties. And it’s understandable why some businesses don’t blockchain to encroach.

Transactions between individuals buying and selling service will see great change effectively wiping out companies that take a piece of each transaction. Using blockchain technology the transaction is free. Auction houses and any other business entity based on the market-maker principle will face difficulties against the blockchain.

Even businesses like Lyft, Uber and even Airbnb are threatened by blockchain technology. All you need to do is encode the transactional information for a car ride or an overnight stay, and you have once again a free and secure way that disrupts the business model of the companies which have just begun to disrupt the traditional economy. It’s not only cutting out the fee-processing middle man, but it’s also eliminating the need for the match-making platform.

Because blockchain transactions are free, you can charge minuscule amounts, say 1/100 of a cent for a video view or article read. Why should I pay The Economist or National Geographic an annual subscription fee if I can pay per article on Facebook or my favorite chat app? Again, remember that blockchain transactions carry no transaction cost. You can charge for anything in any amount without worrying about third parties cutting into your profits.

Blockchain may make selling recorded music profitable again for artists by cutting out music companies and distributors like Apple or Spotify. The music you buy could even be encoded in the blockchain itself, making it a cloud archive for any song purchased. Because the amounts charged can be so small, subscription and streaming services will become irrelevant.

It goes even further than that. Ebooks could be fitted with blockchain code. Instead of Amazon taking a cut, and the credit card company earning money on the sale, the books would circulate in encoded form and a successful blockchain transaction would transfer money to the author and unlock the book. All the money to the author, not just meager royalties. You could do this on a book review sites like, or on your own website.  You could even include reviews and other third-party information about the book.

In the financial world the applications are more obvious and the revolutionary changes more imminent. Blockchains will change the way stock exchanges work, loans are bundled, and insurances contracted. They will eliminate bank accounts and practically all services offered by banks. Almost every financial institution will be forced to change fundamentally, once the advantages of a safe ledger without transaction fees are widely understood and implemented. After all, the financial system is built on taking a small cut of your money for the privilege of facilitating a transaction. Bankers will become mere advisers, not gatekeepers of money. Stockbrokers will no longer be able to earn commissions and the buy/sell factor is diminished.

How Does Blockchain Work?

Picture a file that is duplicated thousands of times across a huge network of computers. Then imagine that this network is designed to regularly update this file and you have a basic understanding of the blockchain.

Information held on a blockchain exists as a shared and continually reconciled database. This is a way of using the network that has its benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public verifiable. No centralized version of this information exists for a hacker to corrupt to change. Millions of computers simultaneously can have a copy of the data and is accessible to anyone on the internet.

 

The reason why the blockchain has gained so much attention and buzz is that:

  • It is not owned by a single entity, hence it is decentralized
  • The data is cryptographically stored inside
  • The blockchain is immutable, so no one can tamper with the data that is inside the blockchain
  • The blockchain is transparent so one can track the data if they want to

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