Question for audience: How many of you have heard of Bitcoin?
Question for audience: How many of you have heard of Blockchain?
For those of you that have not heard either, Bitcoin is a digital currency which is powered by a technology called Bitcoin. The potential of blockchain technology as a replacement for our current database system has a lot of people excited. So tonight, I am going to explain to you how Blockchain technology works, what makes it different than bitcoin, and why it’s important.
In a remote part of the south pacific, there is an island called Yap. 2000 years ago the first Yapese needed a way to create money. There was no gold or silver on the island so they needed to find some other material to use. To solve this problem the people of Yap came up with a creative solution. The strongest Yapese sailed to the closest Island and brought back thousands of large granite boulders which they carved into disks. Because of their size, spending these disks like modern money would have been impossible. Instead, the disks were placed in public locations all around the island and never moved. Everyone on Yap was then given a book which was used to record who owned each stone. When someone wanted to spend their stones, they would announce the change in ownership to the entire community and everyone would update their ledgers. By doing this the Yapese could spend their stones without ever having to move them.
The people of Yap were using what today is called a distributed ledger system. A ledger is a record transactions that is continuously updated whenever a new transaction occurs. A distributed ledger system is system where everyone transacting in it, maintains and updates a copy of the ledger. (Give example using audience)
It might sound easier to have one person or a small group of people maintain a single ledger. The people of Yap knew this was a bad idea. That person or group could act unfairly towards people they didn’t like or change the ledger to benefit themselves. Their distributed system allowed the Yapese to avoid such an issue.
Their system also prevented anyone from trying to claim ownership of a stone that did not belong to them. For example, let’s say Matt tried to claim Monroe’s stone is his. Monroe would deny this, so to determine who is telling the truth the community would come together and compare ledgers, seeing what each ledger said about who owned that stone. Then the community would take a vote. Each ledger would count as one vote and majority of ledgers that matched each other would win. If Monroe truly did own the stone, then the majority of the ledgers would show this. Having records spread across the island and comparing them to each other to verify stone ownership, created a highly secure record keeping system.
Understanding the Yap system gives you a good foundation for understanding how a blockchain works. Just like the system the Yapese created, blockchains are a distributed ledger system. Instead of transactions being recorded in a physical ledger like the Yapese used, blockchain ledgers are digital and stored on user’s computers. Instead of tracking the ownership of stones these ledgers can track the ownership of cryptocurrency like bitcoin and much more.
Communication between blockchain participants is done through their computers. Every few seconds, the computers transacting will send a message with the transaction details to the rest of the computers on the blockchain network. When a message is received, the rest of the computers update their ledgers. If there is a disagreement just like on Yap, the ledgers are compared, and majority wins. This allows people all over the world to transact the way the Yapese did thousands of years ago without the need for a third party to mediate or face to face communication.
So, we have blockchain, which is a system where all the participants maintain and update a record of transactions. We have bitcoins, which are like the Yap Island stones but tracked on a blockchain. Anyone who owns a bitcoin is simply a line with a one next to it in ledgers maintained by thousands of people around the world. But, why is blockchain important?
The people of Yap used their distributed system to track the transfer of stone ownership. They were the first civilization that realized you don’t need to move money to use it. This is because money is just a way of tracking information about value. In a distributed system like a blockchain, all kinds of information can be tracked. Governments of emerging countries could use a blockchain to record land title ownership; grocers could use one to identify spoiled food in seconds, saving lives and money; and regulators could use one to record the approval and issuances of licenses helping to reduce fraud. Implementing a blockchain in these ways would create a more secure and efficient system than the centralized database system we we currently use today.
In the digital age, blockchains will not only be used to power bitcoin but will eventually become the infrastructure that information about value is stored on. Hopefully, after tonight, you are 5-7 minutes closer to understanding how this new technology works, what makes it different than bitcoin, and why it’s important. Thank you.