Instead of using jargon, I’ll try to explain how does Blockchain technology works using everyday language and simple examples.
Let’s imagine this situation…
We’re sitting on a park bench. It’s a great day. I have one apple with me. I give it to you. You now have one apple and I have zero.
That was simple, right?
Let’s look closely at what happened
My apple was physically put into your hand. You know it happened. I was there and you were there. You touched it.
We didn’t need a third person there to help us make the transfer and confirm that the apple went from me to you.
The apple is yours! I can’t give you another apple because I don’t have any left so I can’t control it anymore.
The apple left my possession completely. You have full control over that apple now. You can give it to your friend if you want, and then that friend can give it to his friend.
And so on.
So that’s what an in-person exchange looks like. I guess it’s really the same, whether I’m giving you a banana, a book or a dollar bill….
Now say, I have one digital apple. Here, I’ll give you my digital apple.
Ah! Now it gets interesting.
Firstly, how do you know that that digital apple that used to be mine, is now yours, and only yours?
Think about it for a second.
It’s more complicated, right? How do you know that I didn’t send that apple to my friend Alex as an email attachment first? Or your friend Joe? Or my friend Lisa too?
Maybe I made a couple of copies of that digital apple on my computer. Maybe I put it up on the internet and one million people downloaded it.
As you see, this digital exchange is a bit of a problem. Sending digital apples doesn’t look like sending physical apples.
Some brainy computer scientists actually have a name for this problem: it’s called the double-spending problem.
But don’t worry about it.
All you need to know is that it confused them for quite some time and they’ve never solved it.
Can we find a solution on our own?
Maybe these digital apples need to be tracked in a ledger. It’s basically a book where you track all transactions — an accounting book.
This ledger, since it’s digital, needs to live in its own world and have someone in charge of it.
We could find someone to take care of it. To update all new transactions and it would be great solution, wouldn’t it?
However, there’s a bit of a problem though:
1) What if someone created more? He could just add a couple of digital apples to his balance whenever he wants!
2) It’s not exactly like when we were on the bench that one day. It was just you and me then. We are not alone and we are again making our exchange through the third party. It is not kinda like our exchange from the bench…
Is there any way to closely replicate our park bench, just you-and-me, transaction digitally? Seems kinda tough…
What if we gave this ledger — to everybody? Instead of the ledger living on someone’s computer, it’ll live in everybody’s computers. All the transactions that have ever happened, from all time, in digital apples will be recorded in it.
You can’t cheat it. I can’t send you digital apples I don’t have, because then it wouldn’t sync up with everybody in the system. It’d be a tough system to beat. Especially if it got really big.
Plus it’s not controlled by one person, so I know there’s no one that can just decide to give himself more digital apples.
The rules of the system were already defined at the beginning. And the code and rules are open-source.
It’s there for the smart people to contribute to, maintain, secure, improve on, and check on.
You could participate in this network too and update the ledger and make sure it all checks out.
For the trouble solution, you could get some digital apples as a reward. In fact, that’s the only way to create more digital apples in the system.
I simplified quite a bit
…but that system I explained exists. It’s called the Blockchain.
And those digital apples are the “coins” within the system.