There is a lot of hype around blockchain. Many people believe that it will change the world, fewer people actually know what it for. In these 300 words I hope to give an outline of what it can and cannot do.
The main point of this post? A blockchain is a database. As such, it can no more revolutionize all things legal, promote democracy around the world and solve global warming than a database can. That being said, blockchain is a type of database with some interesting properties for specific purposes. This is because the database is decentralized.
The vast majority of databases are centralized. This means information is only stored in one place. When you start a website, your hosting provider gives you access to THE single database of your site. It stores your user accounts, content of your site etc. If your database was decentralized, there would exist multiple versions of your database on servers owned by people all over the globe you don’t necessarily know or trust (in contrast to, presumably, your hosting provider).
This raises an obvious question: if those versions differ, which one is ‘correct’? This is where blockchain comes in. This technique makes sure the different ‘versions’ of your database can continuously ‘vote’ and form consensus about the correct ‘version’. This ensures conformity of the different ‘versions’ of your database.
This technique may be useful because it leverages the ‘wisdom of the crowd’. One player (or ‘node’) in the system finds it extremely hard to game it, because the information can only be destroyed or altered by destroying or altering a majority of the ‘nodes’. When these are anonymous, run into thousands or millions and distributed all over the world such as with Bitcoin, that is infeasible. This explains why the most important use cases of cryptocurrencies are outside the confines of the law.
Self-evidently, a centralized database is way more convenient for the majority of applications. When I’m buying something (legal) online, I’ll take PayPal over Bitcoin any time of day and I’m sure many of you feel the same.
Finally, a tip in case you’re having trouble seeing beyond the hype. There is this nice Chrome extension that on any website replaces the word “blockchain” with “multiple copies of a giant Excel spreadsheet”. That might serve as a friendly reminder 🙂
